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Scottish consultation on lease termination

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27/06/2018

Discussion Paper on commercial lease termination

On 23 May 2018 the Scottish Law Commission (SLC) published a discussion paper on the termination of leases, focusing mainly whether and how to reform the law in this area.

Commissioner Caroline Drummond commented: “Commercial leasing practice in Scotland is based on old law which has been interpreted in different ways. We want to ensure that the law is clear, fair and user-friendly. Our discussion paper seeks views on how the current law could be reformed in order to meet these aims.”

Currently, commercial leasing in Scotland is relatively flexible, however, with certain rules dating back to Roman doctrines, the law is not always in line with modern business needs and it can be cumbersome and confusing.

The paper itself is broken down into six areas within the current law, which they believe are in need of reformation:

  • Tacit relocation – Tacit relocation is a Roman law concept which requires notice of termination in order to bring certain contracts, including commercial leases entered into for a fixed period of time, to an end. Tacit relocation provides that if notice is not given then, despite expiry of the ‘fixed’ period, the commercial lease will continue to run on the same terms and conditions. The SLC proposes that tacit relocation ought not to apply to commercial leases and that, instead, parties could ‘contract in’ if they wished to do so.
  • Notices to quit – In Scotland, whether or not notices to quit (or notices to terminate) commercial leases need be made in writing is complex, with different rules and requirements applying in different factual and procedural situations. The discussion paper asks whether written notices to quit should be made a requirement and whether such notices should be in a prescribed form or include specified information.
  • Apportionment of rent at early termination – In 2015 the English case of Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Limited [1] considered the question of whether/when a tenant might be able to recover rent paid in advance after exercising a break. The case highlighted that the position in Scotland is not clear, nor widely understood. The SLC therefore proposes to review and clarify the law in this area.
  • Repeal of the 1949 Tenancy of Shops (Scotland) Act – The 1949 Tenancy of Shops (Scotland) Act was originally enacted to provide protection for small shopkeepers in the period following World War II, helping to stimulate the post-war economy. It allows the tenant to apply to the Sheriff Court for renewal of their tenancy for a period of up to a year after receiving notice of termination from the landlord, and to re-apply once that one-year period has ended, providing a limited form of security of tenure which is less sophisticated than the broadly equivalent England and Wales regime [2]. The SLC has also heard evidence that this legislation is now rarely used and, when it is, that it “is being used by national retailers for whom the protection of the Act was not originally intended“. Repeal is therefore proposed.
  • Irritancy – The paper touches on the remedy of irritancy, which allows a landlord to unilaterally terminate a lease due to breach of lease conditions by the tenant. However, having already concluded in previous reports that the current law works well, the SLC in this paper simply invites consultees to provide their views as to whether irritancy requires reform, and if so how.
  • Confusio – Finally, the paper considers the Scots law rule of confusio (or confusion), which applies where, in relation to an obligation or right, the creditor and debtor become the same person, and the obligation or right therefore becomes merged or amalgamated. In the context of commercial leases, the question arises whether confusion results in extinguishment of the lease.       The law is, perhaps ironically, a little confusing, with a lack of consensus from the courts and legal commentators as to the application of the principle to leases. The SLC therefore proposes that there should be an unequivocal statement of what the law is (or what it should be).

WM Comment

The purpose of the discussion paper is to provoke debate about the regulation of commercial leases in Scotland and ultimately to kick start the process of reform. The SLC’s proposals aim to modernise and clarify the law surrounding termination of commercial leases, which could, in turn, reduce the number of landlord and tenant disputes.

The discussion paper can be viewed here. The consultation period will run until 14 September 2018. Walker Morris will continue to monitor and report on developments.

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[1] See Walker Morris’ earlier, more detailed briefing on the case.
[2] Part II Landlord and Tenant Act 1954

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