David Bartos

If a tenant of a “shop” is unable to obtain renewal of the lease from the landlord, they may instead apply for renewal to the court under the 1949 Act. A “shop” under the Act includes not just premises used for retail but also those used for food and drink hospitality (including cafes, pubs and possibly restaurants) and hair and (possibly) beauty services. Wholesale units and warehouses are also covered. The test, which is applied by a single sheriff, is whether “in all the circumstances” renewal is “reasonable”. The maximum period of renewal is one year but there is no limit on the number of successive renewals that may be sought by the tenant.

Originally enacted to be a temporary intervention in the market, the 1949 Act has now found itself on the statute books for over 70 years. The last time it was reviewed was in the 1960s when it was made permanent. Given its highly outdated nature, the Act suffers from many problems, as a result of which the Report on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949 has found it unfit for modern practice.

Some of the criticisms directed against the Act include:

• the developments in Scotland’s commercial property market since the 1960s have rendered it unnecessary;
• it is vague in its terms and provides no guidance on how “reasonableness”” is to be assessed, resulting in inherent unpredictability of outcome;
• despite being introduced as a protective measure for small business tenants, the Act is now inaccessible for these enterprises due to the high costs and long delays that accompany an application;
• there is very limited use or awareness of the existence of the Act, even amongst those involved in the commercial lease sector;
• in the rare instances that it is invoked, it is by large commercial tenants to the disadvantage of landlords and other parties that may have an interest in the property;
• it is an interference on the contractual autonomy of landlords and tenants, and detracts from the flexibility of Scots law for investors.

The commission considered four potential options for the future of the 1949 Act: the retention of the Act unamended, its reform, its replacement with a new scheme or simple repeal. These options were presented for consultation in a Discussion Paper which preceded the Report.

Having regard to the responses of consultees and views of other stakeholders, the report presents the strengths and weaknesses of each option. It finds that repeal is the most appropriate approach. Importantly, repeal will bring unity and simplicity to the law by eliminating the division between business leases that are covered and not covered by the Act. It is the only option capable of achieving this outcome.

It is now for the Scottish government to take forward the report’s recommendation. One solution might involve an amendment to the Leases (Automatic Continuation etc) (Scotland) Bill. That bill is currently being considered by the Scottish Parliament and is based on recommendations that the commission made in its 2022 Report on Aspects of Leases: Termination.

The changes recommended by the commission in the present report and the 2022 Report, together are expected to simplify and improve Scots commercial lease law by modernising the rules on lease expiry and making them fit for the requirements of 21st century practice.

David Bartos, lead commissioner on the project, said: “The Tenancy of Shops (Scotland) Act 1949 is an outdated piece of regulation that doesn’t work for the small businesses that it was intended for. By repealing it, all tenant businesses should be covered by the same modern rules regulating the expiry of a lease which the Commission recommended in 2022. These rules are currently in a Bill being considered by the Scottish Parliament.”