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Case Note: Hill of Rubislaw (Q Seven) Ltd v Rubislaw Quarry Aberdeen Ltd

Chloe Shields provides a detailed analysis into the judgement of Hill of Rubislaw (Q Seven) Ltd v Rubislaw Quarry Aberdeen Ltd and observes the implications of the decision on future cases...

Hill of Rubislaw (Q Seven) Ltd v Rubislaw Quarry Aberdeen Ltd

Real burdens are generally regarded as one of the most difficult areas of property law for students to understand and for the courts to navigate. This is arguably because they affect someone else’s use of their property and can bind any successive owners too. This means that they are strictly regulated and restricted about the terms they can impose and the situations in which they can be enforced.

This case involved a restriction in a clause of a minute of agreement which was argued to be enforceable as a real burden but the court had to consider whether it met the definition and requirements of a real burden to decide if it was appropriate to enforce it in this way. The Title Conditions (Scotland) Act 2003 defines a real burden as “an encumbrance on land constituted in favour of the owner of other land in that person’s capacity as owner of the other land”[1].  The judgment focused on two requirements of real burdens in particular, the praedial rule and unreasonable restraint of trade. The court carefully considered the rules on real burdens as they are set out in the Title Conditions (Scotland) Act 2003 as well as cases in the common law to reach a conclusion.

The Facts

The case involved an area of land proposed for development, previously a quarry, referred to as Northern Quarry subjects. The owner requested the cooperation of those with interest in the neighbouring office blocks. An agreement[2] was reached which allowed the development to proceed with use of a common access road to the main road and without challenge to the developer’s ownership of a strip of land, in return for which, the development agreed to restrictions on the office floor area in the development. These restrictions were contained within Clause 2.1 of the minute of agreement which was the focus of much of the discussion in the case as they were to be transmitted to the successive owners. This Clause stated that “The Northern Quarry Proprietors undertake to [the relevant parties] that the maximum net lettable floor area of Office Space which may be provided within the Northern Quarry Subjects at any given time shall not exceed 2025.29 sq. m. (in total).”

This action arose when the singular successors of the parties to the minute of agreement disagreed as to what the terms meant. The pursuers[3], thought that the limitation was on the amount of office space which could be let, so had applied for planning permission for an office building, while the defenders[4], argued that it was a limitation on the office space which could be constructed. The defenders invoked the restrictions in Clause 2.1, as a real burden, as they argued that the development of further office space was detrimental to their commercial interests. In response, the pursuers sought a declarator that the Clause did not constitute a real burden. This meant deciding if the Clause constituted a real burden or not which led the court to discuss the nature of real burdens and the tests required to satisfy them that the Clause was a real burden.

 

Praedial Rule

The first test for a real burden is that it must be praedial[5], i.e. it must confer a benefit on the benefited property, and this excludes restrictions which only provide personal benefits. For this reason, it must concern land so as to run with the land and bind successive owners[6].  The benefit must be to the property and not purely to the owner, however, a benefit to the owner does not mean that it does not also provide a benefit to the property and may still be relevant. Any benefit to the owner must not just be to the current owner but also to successive owners, this is to prevent owners from making decisions which benefit them now but could be detrimental or of no value to future owners. The benefit may be a physical benefit but this is not a requirement as long as it protects or enhances the value of the property. In the context of commercial property, the court saw this to mean that any benefit which enables commercial activity to be carried out more effectively would count as such a benefit[7].

A benefit of this nature would typically be specific to the commercial activity[8] and in this case, that was the holding and letting of property meaning that the benefit was the protection and enhancement of rental value. The restrictions in Clause 2.1 limit the competition for commercial property in the area, therefore, protecting the rental value of the current office space held by the defenders. This situation differs from that in Aberdeen Varieties[9], discussed by the court, as it does not involve properties which are a significant distance apart and the restriction does not impose a commercial monopoly. The properties in this case were proximate and the restriction only limits competition, it does not go so far as to create a monopoly.

For these reasons, the court found it persuasive that Clause 2.1 satisfied the praedial element of a real burden. It was clear that it does benefit the defenders’ properties to have the restriction on office space in place as it protects the rental value of their property. The properties are also within sufficient proximity to one another for the Clause to be treated as a real burden.

Restraint of Trade

The pursuers argued that Clause 2.1 could not constitute a real burden as it imposed an unreasonable restraint of trade. The Title Conditions Act provides that a real burden must not be contrary to public policy and one example given of this is an unreasonable restraint of trade[10]. Restraint of trade is a concept which comes from contract law and the court felt that the same rules should apply in the case of real burdens.

Restraints of trade in real burdens can be straightforward and largely without issue, for example, it is common for housing developments to have a prohibition on use of residential property for trade in their titles. This normally goes without challenge, however, in these circumstances, an unreasonable restraint of trade could prevent the court from applying Clause 2.1 as a real burden. It has been left to the courts to decide in each individual case whether there is an unreasonable restraint of trade, taking into account the social and economic factors, rather than there being a strict rule to establish this.

The court saw there as being a difference between constraints and prohibitions. Prohibitions are more serious as they prevent trade from happening at all while constraints merely regulate the manner in which trade is carried out[11]. Aberdeen Varieties[12]  is again a good example to illustrate this here as it involved prohibiting the use of the property for any kind of staged production which limits the trade for which the property can be used. There is no prohibition similar to this here as it merely regulates the floor area of office space which could be included in the development but it could still be used for offices to a certain extent and many other purposes which have no constraints placed upon them.

When considering how to decide if there was an unreasonable restraint of trade, the court felt that the most appropriate test for unreasonable restraint of trade could be found in Lord Macmillan’s statement in Vancouver Malt and Sake Brewing Co Ltd v Vancouver Breweries Ltd[13].

“The law does not condemn every covenant which is in restraint of trade, for it recognizes that in certain cases it may be legitimate, and indeed beneficial, that a person should limit his future commercial activities, as, for example, where he would be unable to obtain a good price on the sale of his business unless he came under an obligation not to compete with the purchaser.  But when a covenant in restraint of trade is called in question the burden of justifying it is laid on the party seeking to uphold it.  The tests of justification have been authoritatively defined…: ‘A contract which is in restraint of trade cannot be enforced unless (a) it is reasonable as between the parties; (b) it is consistent with the interests of the public’”

This clearly shows that certain restraints on trade can be reasonable and that the reasonable relations between the parties and public interest are relevant. The court also saw the commercial context of the restraint of trade to be relevant to determining reasonableness[14].

The court decided there was no unreasonable restraint of trade as the restriction was only on the amount of office floor space, not an unreasonable or onerous restriction. They also found that it was not against the public interest to treat Clause 2.1 as a real burden as it still increased the total office space available in Aberdeen and allowed for the development of a difficult plot of land.

Implications

The court was correct in its assessment in this case as it considered the key requirements for real burdens. They deliberated whether the Clause could provide a benefit to the property concerned, therefore making it praedial[15]. The Clause passed this test and was seen to be related to a burdened property[16] as it was sufficiently proximate to the benefited property. The court also considered whether it was against public policy to enforce the Clause as a real burden and in particular whether it constituted a restraint of trade. The discussion of these rules was sound and the court’s interpretation was clearly in line with the 2003 Act as well as the common law.

This is an “authoritative case which provides a helpful re-statement of the tests which must be satisfied in order to create real conditions”[17] and alongside the cases discussed in the judgment, provides a strong platform for future cases of this nature. It is particularly important that it established that protection of rental value as a benefit which is sufficient to satisfy the praedial rule. Previously this may not have been seen as a benefit in terms of the praedial rule and it opens the door for a broader interpretation of what can constitute a praedial benefit in the future. This is significant for commercial property and should enable businesses to have more confidence in enforcing burdens of this nature in future.

It is interesting that the court took into account the original intentions of the parties to the minute of agreement as sometimes the courts can be cautious to do this. In order to do this they considered the validity of the minute of agreement. They saw that there was no disparity in bargaining power between the parties as they both had access to legal advice. The agreement was also not onerous, as both parties gained something from it, again demonstrating that both parties had equal bargaining power. This is important for the validity for the agreement, without which the parties’ intentions would be irrelevant. This is also relevant to the restraint of trade element of this case as it makes it easier to ascertain whether or not the restraint of trade was reasonable or not. The equal bargaining power and lack of onerous obligations imposed by the minute of agreement contribute to reaching the conclusion that it was a reasonable restraint of trade.  

The court saw that it was clear that the intention of the parties in this agreement was to enable the development to proceed more effectively. This can be seen through the access allowed to the main road and the agreement not to contest the ownership of the strip of land. Both of these measures simplified the development process and removed possible obstacles for the developers. This shows that the previous owners of the offices nearby had no objection to the development in general but just to the construction of further office space so close to their own. This again demonstrates that the agreement between the parties was reasonable and sound.

In addition to this, the court held that the Clause referred to the area of office floor space which could be constructed rather than let. This decision was reached taking into account the parties’ intentions as well as considering the economic impact of their decision. The court recognised that sale of office space would constitute competition to the rental market, despite not being direct rental competition, which showed they were flexible in their approach to the implications of Clause 2.1.

Conclusion

Overall, this is a very good judgment because it gives a very clear explanation of how the rules in this area work in practice. While the court had to decide on the particular facts in the case, it has provided strong guidelines for the future while allowing the flexibility of approach to the praedial rule which the Scottish Law Commission wished to encourage. The judgment strikes a good balance between the codified rules of the Act and the flexibility which Commission intended to allow for in their proposal of the Act. It also took into account the economic implications of the decision and the original intentions of the contracting parties which demonstrates the court’s willingness to consider other factors outside of the basic restrictions on real conditions. The fact that the decision is consistent with the Lord Ordinary’s approach in the Outer House also strengthens the case’s claim to be authoritative as experienced legal professionals clearly agree on the issues in the case.

 

 

[1] Title Conditions (Scotland) Act, s1

[2] Recorded in the General Register of Sasines on the 17th of November 2005

[3] The proposed new owners of Northern Quarry subjects, who were seen to have title and interest to enforce the burden, according to s8 of the Title Conditions Act 2003, when the case was brought to the Outer House, as they had entered into missives for the property.

[4] The tenants and mid-landlords of Rubislaw House, Marathon House and Seafield House, controlled by the Fordgate Group.

[5] Title Conditions (Scotland) Act 2003, s3(3)

[6] Scottish Law Commission, Report on Real Burdens, Scot Law Com No 181 (2000), para 2.9

[7] Hill of Rubislaw (Q Seven) Ltd v Rubislaw Quarry Aberdeen Ltd [2014] CSIH 105, para 15

[8] Cooperative Wholesale Society v Usher’s Brewery 1975 SLT (Lands Tr) 9, para 16

[9] Aberdeen Varieties Ltd v James F Donald (Aberdeen Cinemas) Ltd 1939 SC 788

[10] Title Conditions (Scotland) Act 2003, s3(6)

[11] Hill of Rubislaw (Q Seven) Ltd v Rubislaw Quarry Aberdeen Ltd [2014] CSIH 105, para 22

[12] Aberdeen Varieties Ltd v James F Donald (Aberdeen Cinemas) Ltd 1939 SC 788

[13] Vancouver Malt and Sake Brewing Co Ltd v Vancouver Breweries Ltd 1934 AC 181, para 189

[14] Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd 1968 AC 269

[15] Title Conditions (Scotland) Act 2003, s3(3)

[16] Title Conditions (Scotland) Act 2003, s3(1)

[17] http://www.mauriceocarroll.com/media/RubislawQuarry.pdf -Maurice O’Carroll, Creating real burdens in agreements

 

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