Donna Strong

The aim of this proposed new legislation is to “improve, simplify and update” aspects of the law of commercial leases and in particular lease termination.

We discussed the key points of the bill when it was in draft back in 2022, but as the bill may now become law in Scotland, it’s worth looking again at what it might mean for commercial landlords and their tenants.

Commercial leasing is a big part of the Scottish economy. The vast majority of businesses operate from let premises to some extent. Recent figures show commercial lets make up 44 per cent of all non-domestic premises that pay rates and the rateable value of those let premises amounts to over £2.8 billion. Clearly, it’s important landlord/tenant relationships run smoothly.

So how will the bill keep landlord/tenant relationship ticking over? One example is the change to the existing law that allows either party to serve a notice to terminate the lease with only 40 days’ notice. The bill proposes a standard default period of three months for either party to give notice, or one month if the lease is less than six months.

As noted in responses to the 2018 SLC consultation, 40 days’ notice is often inadequate for retailers to strip out, find new premises and fit those out whilst maintaining continuity of trade. A longer notice period may assist in negotiating the realities of closing and relocating commercial premises. 

Additional complexities can also arise for tenants where staff redundancies might be necessary, particularly for shop occupiers seeking a court declaration to renew their lease via the existing legislative framework and for tenant employers needing to make 100-plus redundancies because of a site closure. The new law should ideally dovetail with existing employment law to allow employers to meet their obligations while also working to vacate. From the landlord’s perspective, 40 days isn’t enough time to prepare promotional materials and market a property, potentially resulting in vacant periods.

The bill also proposes to reform the doctrine of ‘tacit relocation’, renamed as automatic continuation. This is when a lease continues automatically, usually for a period of one year if steps are not taken by either party to terminate it. This can be unwelcome for both landlord and tenant if caught unaware. A landlord might find a tenant can occupy their premises for a year longer than expected which could disrupt plans for development or put them into breach of contract with prospective new tenants. Tenants in commercial premises could find themselves trapped paying two rents if caught out by the lease extension. The bill sets out a statutory code for contracting out of automatic continuation, and clarifies what happens at the end of a lease if they do not.

The proposed provisions provide some clarity for both parties to a commercial lease on areas that can be problematic. As amendments to the bill can still be made at stage two, it remains to be seen if these changes will become law. Interested parties have until 7 March to submit their views on the bill via the consultation.

Donna Strong is a partner and David Bryden is a managing associate at TLT. This article first appeared in The Scotsman.