Motherwell commercial landlord fails to establish continuation of lease by tacit relocation

The pursuer, Rockford Trilogy Ltd, sought payment of rent, insurance, and service charges from NCR Ltd on the basis that the lease between them had not terminated but continued by tacit relocation following its ish. It sought declarator that neither party served notice to terminate within the contractual notice period.

The case was heard by Lord Clark in the Outer House of the Court of Session. The pursuer was represented by Thomson QC and the defender by Lake QC.

Silence of both parties

The leased premises, known as Trilogy 2, were located at a business park in Woodhead, Motherwell. The duration of the lease was 17 years, with an expiration date of 26 March 2020. From around June 2019, the parties had engaged in discussions concerning the defender’s future occupation of the premises, including a potential move to another building in the same park, Trilogy 3.

On 5 December 2019, the pursuer served a schedule of dilapidations on the defender. Agents for the pursuer emailed agents for the defender on 20 January 2019 stating that the pursuer would be prepared to let the client remain in the building for nil rent for another 12 months.

Negotiations continued into February 2020 concerning the period and a cap on dilapidations, with an outline of the new Heads of Terms sent to the defender on 6 February 2020. At the bottom of this email, it stated that these terms were not intended to form part of a legally binding contract. On or around 26 February, the pursuer’s solicitor wrote to the defender indicating that, as no notice had been received to terminate the pre-existing lease, it would be taken to continue for a period of one year under the same terms from 27 March 2020.

The defender’s solicitor replied to this email stating they were “somewhat surprised” by this assertion given that negotiations for a new contract had been ongoing. The pursuer’s solicitor replied that the prior discussions about proposed alternative arrangements were irrelevant and that no response to the Heads of Terms had been received.

It was submitted for the pursuer that neither party took any step which definitely committed itself to any particular position so far as the lease was concerned. Further, the negotiations which took place between parties were against the assumed background knowledge of the law, including the doctrine of tacit relocation. The defender had not committed itself to any position throughout the negotiations, thus notice had to be given by the agreed date of 14 February 2020 to prevent tacit relocation from operating.

Counsel for the defender submitted that the circumstances leading up to the ish of the lease were such that it was not renewed by tacit relocation. That concept rested on a presumption and, as such, can be displaced by evidence to the contrary. Tacit relocation relied on the silence of both parties and there had been a clear demonstration of an intention not to continue under the pre-existing terms.

One possible situation

In his opinion, Lord Clark said of tacit relocation generally: “While agents or solicitors will ordinarily be very alert to serving a notice to quit to seek to avoid tacit relocation, an overt intimation of not consenting to prolongation, before the last date for a competent notice, or an agreement between the parties to a different arrangement will suffice.”

On whether there had been informal notice in this case, he said: “The defender’s point that it was ready to commit to relocation elsewhere is of no particular significance. However, the defender’s agent advised that ‘the only way they would consider remaining at the building is if the dilapidations are capped at £300k together with the nil rent proposed for 12 months’. This clearly stated that there was only one possible situation in which the defender would not leave and that it must be based on a different arrangement from the current lease.”

He continued: “It is, in my view, clear that the pursuer, through its agent, knew that the defender was going to leave unless that new arrangement could be agreed. In any event, viewed objectively, the pursuer or its agent should have drawn that conclusion from the email of 21 January 2020.”

Lord Clark concluded: “Where overt intimation has been given and the negotiations then fail, tacit relocation has been excluded. As is obvious, the prudent means of giving proper notice is by a notice to quit drafted by an appropriate adviser. Other means of intimation can create a risk of insufficient notice but, for the reasons given, in the present case it was sufficient.”

For these reasons, Lord Clark held that tacit relocation had not occurred and granted decree of absolvitor in favour of the defender.

In the event that he was wrong about sufficient notice, Lord Clark gave the alternative position as follows: “The question arises as to whether there was a later agreement between the parties which superseded the prolongation that would otherwise have occurred by tacit relocation. I conclude, for two reasons, that there was no such later agreement.”

He explained further: “The email from the pursuer’s solicitors dated 26 February 2020 made clear that the pursuer was treating the lease as continuing for a further period of one year on the same terms and conditions (including rent) because of tacit relocation. In my view, this expressly states a position which is entirely inconsistent with the proposal in the Heads of Terms offered on 6 February 2020 and supersedes that offer, rendering it no longer capable of acceptance.”