Tenancy law facing a modern makeover – Daily Business Magazine
Aspects of the rental market are being reviewed
Changes are recommended for a particular Scottish legal term, says ELOISE ROBB
Question: a tenant signs a commercial lease, in Scotland, for a period of 5 years. The start date is January 1, 2020 and the end date is December 31, 2025. When does the lease end? Answer: Maybe December 31, 2025, but only maybe. And this is due to the common law principle of tacit relocation, a peculiar term and peculiarity of Scottish law.
Simply put, if neither the landlord nor the tenant gives notice of their intention to terminate a commercial lease and no other alternative arrangement has been put in place, the lease will automatically continue, on the same terms and conditions, for one year. extra, and that’s tacit relocation.
While in some circumstances it may make commercial sense, the automatic and involuntary continuation of a commercial lease beyond its contractual expiry date may in other circumstances be problematic for both landlord and tenant. tenant.
To avoid tacit relocation, written notice must be given, which for the majority of commercial leases must be served at least 40 clear days prior to the end date, and such notice must follow precisely all notice provisions of the lease itself. to be valid and effective.
The current law is complex and in most cases the lease in question does not specify the period of notice required, it is a question of common law. This can and does sometimes trip up tenants in particular; resulting in a potentially inconvenient, not to say expensive, result.
The tenant may not have budgeted for the continuation of the commercial lease, they may simply not be able to afford the rent, insurance, rates and/or service charges associated with the extension, or may have become too large or, for some other reason, find the premises no longer suitable.
In addition, and depending on the wording of the lease, its continuation beyond the contractual expiry date may lead to the expiry of a rent review, which represents an additional charge for the tenant.
The landlord, on the other hand, may have an alternative tenant lined up with a stronger clause, or a tenant who is willing to take the premises on terms that are more beneficial to the landlord. Or they may simply want the premises vacant as part of redevelopment or sale plans.
The Scottish Law Commission is aware that tacit resettlement entails what it described as “complexity, uncertainty, expense and risk” and published a report in October titled Leases: aspects of termination in which the Commission calls for a reform of the law on the termination of commercial leases and recommends the replacement of the common law of tacit relocation by a modern and statutory code of automatic continuation.
The new code sets out clear rules on whether or not to give notice, the necessary content and period of notice, and the effect of the automatic continuation of a commercial lease.
It also specifies that the parties to a commercial lease can agree that it will end on a specific date without the need to give notice. And it is proposed to replace the expression “tacit relocation” with that of “automatic continuation”, which is part of a general desire to modernize and clarify this area of law.
In addition, the Board recommends several technical changes to the requirements for service of other documents that have the effect of terminating a commercial lease, including irritability notices, in the event of a breach of the terms of the lease.
From a business perspective, it is hoped that the reform of the Commercial Leases Automatic Renewal Act will make investing in Scotland more attractive. Undoubtedly, the greater clarity and certainty will be welcomed by landlords and tenants.
So, a big change may be coming and time is running out for a tacit relocation. In the meantime, we always encourage our client, whether owner or tenant, to be attentive to the termination dates of commercial leases and to notify in good time if the lease is not continued. We always recommend that any notice of termination or termination be drafted by an appropriate adviser. As lawyers, we’d say right?
But the experience of others can serve to prove our point here: A tenant we know, a large business, served notice of termination by email, but failed to follow the particular terms of the lease.
This notice did not comply with both the terms of the lease and the implied notice periods. The notice period in this case was six months and the lessor gave no response for four and a half months while the score was ticking (note that a response is not required from the lessor, but it is normal so that dilapidation can be discussed, and entry obtained to erect boards for hire).
When they responded formally, it was to say that the break notice had not been effective. The result was another notice to be issued which covered all the necessary requirements and the tenants still had six months’ rent to pay.
So be warned, not doing it right can be costly.
Eloise Robb is Senior Legal Counsel at Vialex
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