Much of the rules which govern commercial leases in Scotland have arisen and developed through custom and practice rather than through legislation. This has to be contrasted with England and, for example, The Landlord and Tenant Act 1954.
Accordingly, the current law in Scotland in relation to commercial leases and in particular the process of ending a commercial lease is composed of a mixture of common law and statutory regulation. This has left this particular area of law rather misleading and confusing to many landlords and tenants. It is not perhaps surprising that the Scottish Law Commission has proposed changes (see 'In the future' below).
Ending a commercial lease
This article concerns bringing a commercial lease to an end at its term and not on the basis of default – for termination on other grounds see our information on irritancy.
It is common practice for commercials leases to include a date in which the lease is due to end. This is known as the ‘termination date’ or ‘ish’. For many tenants and landlords, it is assumed that on this date their lease will come to an end, the tenant will vacate the premises and the landlord moving forward will be free to do as they wish with the premises. Unfortunately, this not the case in Scotland. For a lease to come to an end, either the landlord or the tenant must give notice to the other in advance that they intend the lease to come to an end on the ish. This notice is known as a ‘notice to quit’.
Unless this notice is given in accordance with the strict legal requirements briefly outlined below, a commercial lease will automatically continue by operation of the process known as tacit relocation. In practice, this means that a lease entered into for a period of over a year would presently automatically continue for another year, and a lease entered into for a period of less than a year would continue for an equivalent period. This automatic continuation of the lease would then continue in the same manner until the landlord or tenant provided proper notice to the other that they intend for the lease to end, or indeed where the lease was terminated via another mechanism such as irritancy.
Tacit Relocation
The process of tacit relocation can be beneficial where a tenant and landlord wish a lease to continue as they would not need to do anything to make this happen. However, it can often prevent landlords from progressing with plans that they may have made in respect of the premises such as leasing them to another tenant. Furthermore, it can be burdensome on tenants, leaving them to pay rent under a lease that they believed would come to a natural end on the termination date specified in the lease.
The effects of tacit relocation are perhaps best demonstrated in the case of Brucefield Estate Trustee Company Limited (in liquidation) v Computacentre (UK) Limited [2017] SC LIV 38. In this case, a Tenant had sublet premises that were under a commercial lease. The Landlord of these premises found out about this and undertook enquiries as to whether the subtenant could pay the relevant rent. Thereafter, the Landlord issued the Tenant with a final rent and service charge demand. This was served on the terms stipulated in the commercial lease. It was the Tenant’s position that the Landlord’s acting’s constituted notice and for such reasons the lease had come to an end. However, the court held that the acting of the Landlord was insufficient to amount to notice. The Court considered that there needed to be ‘definite and unconditional intimation to the Tenant that the lease was being brought to an end’ before the lease could be said to be terminated. Accordingly, the court found that the lease had automatically continued by the process of tacit relocation and that the Tenant was due to pay the Landlord rent under the lease for a further year. The sums due by the tenant to the Landlord was a staggering £72,647.44.
Notice to Quit
Where a landlord or tenant wish a lease to come to an end they should firstly consult the terms of their lease. A lease will often set out the notice period that must be given by the party intending to end the lease. It may also specify, for example, that a notice to quit will only be considered to have been received by the other party 48 hours after the notice was sent by the party intending to end the lease (known as a ‘deeming’ provision). A lease may also specify what form the notice to quit should be in and who and where the notice should be served as well as how the notice should be served. It is important that the terms of the lease be strictly adhered to by the party seeking to give notice to end the lease.
If the above information is not contained in the lease, then the required period of notice is typically 40 days where the lease is for a term of 4 months or more. Where the term of the lease is less than 4 months then a period which reflects one third of the duration set out in the lease is typically deemed sufficient notice, although the period of notice can be no less than 28 days. It should of course be borne in mind that extra time should be allowed outwith the notice period to take account of the time taken for the notice to be sent and thereafter received by the other party (see below).
In terms of the style of the notice, there is no prescribed form that a notice to quit has to conform to. Furthermore, there is no need for the notice to be in writing. As noted in the aforementioned case of Brucefield Estate Trustee Company Limited, it is sufficient in Scotland for a party to give verbal notice of their intention to terminate a lease. We would however always advise that a notice to quit be in writing for the sake of certainty.
As far as service of the notice is concerned, there is ambiguity as what will constitute successful service as seen in the case of Gateway Asset Ltd v CV Panels Ltd [2018] CSOH 48. Whilst this case concerned serving a notice to exercise a break option under a lease, the judgment is relevant in terms of ending a commercial lease. In this case, the Tenant had written to the Landlord in June 2017 providing notice that they were terminating the lease. The Landlord argued that this notice was ineffective as the Tenant had failed to exercise the break option in accordance with the terms of the lease. In particular it was argued that the notice had not been served within the relevant period. The Tenant rebutted this alleging that they had sent a letter in April 2017 terminating the lease and this accordingly fell within the relevant period- allowing them to terminate the lease. It was the Landlord’s position that he had never been in receipt of this letter. The Court considered that there was insufficient evidence to prove that a letter was sent in April 2017. Importantly, the fact that the Tenant did not seek to send the notice via recorded delivery in the Court’s opinion supported the view that the letter had not been sent.
For the avoidance of doubt, we would always advise seeking the assistance of solicitors when drafting a notice to quit.
In the future
The Scottish Law Commission published a Discussion Paper in May 2018 which discussed the complexities and present downfalls in relation to the law of commercial leases. In this paper, the Commission noted that both tacit relocation and notices to quit were areas of the present law that needed to be updated to conform to the needs of modern business. In light of this paper, it is now the intention of the Scottish Law Commission to clarify these areas of law in order to simplify commercial leases and indeed to simplify the process of ending them.
Conclusion
Whilst the rules in relation to commercial leases in Scotland may be subject to change in the near future, at present the process of ending a commercial lease continues to be complex and misleading. It requires both tenants and landlords to be aware of the need to give advance notice. Furthermore, it requires the parties to be aware of the terms of their lease so that where notice is given, it is in the prescribed form and that sufficient time has been given for service of the notice. We would advise that due to the complicated process of ending a commercial lease that you seek advice from a solicitor.
