Leases (Automatic Continuation etc.) (Scotland) Bill

Pinsent Masons LLP is a multi-national law firm with three offices in Scotland advising national and international clients with property interests in Scotland. We have extensive experience of acting for commercial landlords and tenants.

We agree with the exclusion of residential and agricultural leases from the scope of the new legislation as the law relating to these types of leases is different to commercial leases. The Bill as currently drafted has retrospective effect, except for the six month transitional period under Part 2 of Schedule 2. We do not think it is appropriate for the legislation to have retrospective effect. Generally the parties to a commercial lease have legal representation and enter into the contractual relationship understanding their rights and obligations. If the Bill has retrospective effect it will mean that those carefully negotiated agreements are usurped, to the potential detriment of one party.
If the legislation is to have retrospective effect it will be important for the Scottish Government to undertake an awareness raising campaign to ensure that the impact of the legislation is understood by those affected.

We consider that the law on tacit relocation needs reforming. It is confusing for landlords and tenants having different notice periods for service of notices to quit depending on the size of the property and the length of the lease. The recent case law on service of notices of intention to quit has added to the confusion. It is unsatisfactory that it is not clear whether or not you can contract out of tacit relocation. The lack of clarity around the notice period to prevent tacit relocation occurring has resulted in the parties to the lease having to go to court which is expensive and time consuming. It would be preferable for the law to be clarified.
However, we have concerns, listed in our responses below, that the proposed Bill does not provide the certainty and clarity which we seek.

In our view Option 2 is the preferred option. Tacit relocation can have its uses as the parties do not need to negotiate new terms if both parties are happy for the lease to continue on the same terms. Clarifying the notice periods and service of notices if the parties do not want tacit relocation to apply is welcome. It is also useful, in some circumstances, for the parties to be able to contract out of tacit relocation. For example, in retail parks or centres, where the landlord may be actively managing the tenant mix, the landlord may prefer certainty that leases will terminate on the contractual termination date.

We have concerns with the provisions of section 5 (Automatic continuation of lease on basis of parties’ behaviour after termination date). This provides that notwithstanding the service of a valid notice to quit by the landlord the ending of the lease is of no effect if the tenant remains in occupation and the landlord does not take steps to remove the tenant within a ‘reasonable period’ or otherwise ‘acts inconsistently with the lease having ended’. It is not clear what a ‘reasonable period’ would be or what ‘acts inconsistently with the lease having ended’ means. The lease should be treated as terminated if a valid notice to quit is served and the tenant should be liable for violent profits for the period of occupation after the lease has ended. Section 5 provides a means by which unscrupulous tenants might stay in occupation against the wishes of the landlord, arguing that the landlord did not take steps to remove them within a ‘reasonable period’. This introduces uncertainty rather than clarity to the termination of leases in Scotland.
It is important to remember that unlike in residential leasing where citizen tenants may need statutory protection, in commercial leasing either or both of the landlord and the tenant may be a large multi-national organisation with robust legal representation. It is not appropriate for the proposed Bill to offer protection to tenants at the expense of the landlord. It is appropriate that both parties are held to the same standard when it comes to service of notices, time periods etc.
Clarity is also required as to how the parties may contract out of automatic continuation.
We would like it to be made clear in Section 2 that nothing in Part 2 of the Bill prevents a lease being terminated by renunciation during the period of the lease or during the period of automatic continuation.

We welcome the attempt to avoid the pitfalls under common law. However, we are concerned that by introducing new legislation on the service of notices to quit only, the Bill makes the law on service of notices in Scotland more complex rather than less. There are many notices which may need to be served under a lease and ideally, we would like to see the SLC address the law of notices in Scotland in one go rather than adopting a piecemeal approach by type of notice. For example under the Bill notice of intention to quit or notice to quit sent by fax will be treated as service of notice by electronic means requiring consent under section 11 whereas for any other notice under Scots law service by fax is treated as service of notice in writing (see Lord Clyde’s comments (at 628) in EAE (RT) Ltd V EAE Property Ltd 1994 S.L.T. 627).
We note that the decision was made not to prescribe statutory styles for the notice to quit and the notice of intention to quit but it would simplify the Bill considerably to have a style as it would reduce the need for most of sections 8, 10 and 12.
If the lease contains notice provisions as most Scottish commercial leases do, the lease should be relied on for details on presumption of delivery and methods of delivery rather than the Bill. The Bill could provide a statutory fall back for those leases which do not cover these issues.
We do not agree with the provisions of section 12 that the notice to quit or notice of intention to quit does not need to include the name of or be addressed by name to the tenant or the landlord. We think that the notices need to be addressed to the relevant party otherwise there is a danger that the notice will be ignored as being junk mail. If the concern here is that an error in name might invalidate the notice this could be addressed separately.
We suggest amending Section 14(3)(a)(ii) concerning the address of a body corporate or other legal person with a registered office to say:
‘where A is a body corporate…….with a registered office in the United Kingdom, either the address mentioned in sub paragraph (i) or the postal address of that registered office on the day of sending the notice,’
This is to deal with the risk of the registered office of the body corporate or other legal person changing after the notice has been sent (which we have experienced in practice).
To be consistent with the other provisions in the Bill, Section 16 (on withdrawal of notice) should state when withdrawal takes effect.
We welcome the provisions for relief from error in the termination date in the landlord’s notice to quit. We wonder if provision could be made for a grace period for an error in the end date specified in the notice which is before the contractual termination date. In such a situation we consider that the termination date should be the contractual termination date. It seems to us harsh that if the landlord has made an administrative error (whether a typographical error or a miscalculation of the contractual end date) of just one day too early the notice will be invalid. The term of a lease is not always drafted as being a specific date to a specific date. Instead, it may be a specified number of years or months from a particular date. For example, 10 years from 1 January 2025. Is the termination date 31 December 2034 or 1 January 2035?
The content of both the notice to quit (given by the landlord) and the notice of intention to quit (given by the tenant) should be the same. As drafted the tenant does not need to give the termination date in the notice of intention to quit but in practice the tenant will need to calculate the termination date to plan for vacating the premises. We think that the tenant should specify the date the lease will end in the notice of intention to quit which would be subject to the same relief from error as the landlord’s notice to quit. This provides for consistency between the notices and if there is any disagreement between the parties as to when the lease will end this can be identified at an early stage.
3 months’ notice seems a reasonable notice period given that parties will generally start thinking about terminal dilapidations 6-9 months before the lease ends.
Service of notice by sheriff officer is permitted but will only be possible if the address for service is in Scotland. Would it be possible to include service of notice by process servers where the recipient is based in England & Wales or the equivalent if the recipient is in Northern Ireland?

This appears appropriate.

We do not agree with the provisions of Section 28(3). It is disproportionate for the tenant to be able to withhold payment of the whole or part of any sum due to be paid if the landlord does not provide a postal address in the UK to which any termination document in relation to the lease may be sent, particularly if the Bill has retrospective effect. Instead, the Bill might provide that if the landlord fails to provide a postal address for service the tenant may serve notice in a publication such as the Edinburgh Gazette.
With regard to the Section 30: We consider that it is for the parties to amend the lease to provide for service of notice on any heritable creditors rather than for the law to be changed. This provides legislative protection for a third party who is not a party to the lease and this is not appropriate. Landlords will be at risk of losing the right to irritate the lease if they do not comply with these provisions and this may mean some landlords will not consent to their tenant granting a standard security over their right to the lease, limiting that tenant’s commercial activities. An alternative is for landlords and heritable creditors to enter into direct agreements to deal with what will happen if the tenant is in default (which is common in energy leases).

We approve of the change in terminology making it easier for non-legally trained people to understand the principles behind this new legislation.

We think that the Bill should include the repeal of the Tenancy of Shops (Scotland) Act 1949.

Whilst as we commented above, we think the law of tacit relocation needs reform we are concerned that the proposed Bill goes beyond what is required and rather than providing clarity and certainty introduces new potential pitfalls for parties to a lease.

With regard to section 23 of the Bill we agree with the proposal that where the landlord and tenant agree to vary the last day for giving notice under the lease under s13(1) it must be the same day for a notice to quit and a notice of intention to quit.
We think that the same notice period applying for both parties is a fairer position as both parties need certainty. It also reduces the chance of parties mis-reading the notice period as it applies to them reducing the risk of the lease continuing automatically when this was not what one party wanted.

With regard to Section 20 we think that this section might benefit from some clarification. If the tenant under a head lease serves notice of intention to quit on the head landlord and notice to quit on the subtenant but the subtenant remains in possession after the termination date the tenant cannot both (1) treat the head lease as terminated so that they are no longer the tenant and (2) take steps to remove the subtenant within a reasonable period of time (s.20(4)(b)(i). Perhaps s 20(3)(b)(i) could be amended to say ‘does not take steps to remove the tenant and/or the subtenant from those subjects’ as it will be the head landlord who will have to take steps to remove the subtenant as an illegal occupier.