KNOWLEDGE

A Call for Clarity - The Two Acre Rule and Notices to Quit

MortonFraser_Jamie Reid
Author
Jamie Reid
Associate
PUBLISHED:
14 October 2020
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category:
Article

A year has passed since the well documented Amazon case (M7 Real Estate Investments Partners VI Industrial Propco Limited v Amazon UK Services Limited [2019] CSOH 73). Looking back at the Outer House decision has it provided much needed clarity on notices to quit and terminating leases for larger commercial premises?

The decision concerned Amazon’s warehouse at Gourock held under a fifteen year lease which expired on 1 August 2019. A notice to quit was issued on behalf of the landlord on 7 February 2019. This notice complied with the common law by giving the tenant greater than 40 days’ notice. However its validity was challenged by Amazon on the basis that it was not served in accordance with Section 34 of the Sheriff Courts (Scotland) Act 1907.

The 1907 Act

Section 34 of the 1907 Act contains a procedure which allows a landlord to remove their tenant without the need to obtain a court decree This section applies only to premises greater than two acres in size and notice must be issued to the tenant on a date between one and two years prior to expiry of the lease. This is a significantly longer period than that required under common law- at least 40 days.

The Decision

Amazon’s argument was that for all premises greater than two acres, a notice to quit must be served in accordance with the 1907 Act. Therefore, the little over 6 months’ notice given by the landlord in their case was insufficient and the lease would, by virtue of tacit relocation, continue on its same terms for an additional year. The landlord responded on the basis that the procedure in the 1907 Act did not replace the common law provisions and, although a landlord is entitled to make use of the 1907 Act and serve notice under its terms, the common law route remained open and therefore the notice by the landlord was sufficient. 

Lord Ericht ruled that the “well-established common law on tacit relocation is not substantively replaced by such unclear drafting.” This was a clear critique of the 1907 Act and his analysis was that Section 34 supplements the common law with an alternative statutory procedure. He held that the provision was procedural, not substantial. As a result, the notice to quit issued by the landlord in terms of the common law was valid.

Where do matters stand now?

It was hoped that the decision would provide clarity on terminating leases of premises greater than two acres. However, the fact there was no appeal to the Inner House leaves the leading authority as a single judge Outer House ruling. Although a clear, concise and well-reasoned opinion from Lord Ericht, the decision only adds to a string of cases on the subject which continues to lack binding authority. The decision does join the majority view; however, it is by no means universal and open to argument by tenants.  

Although old law does not necessarily mean bad law, one may question the relevance of Section 34 to commercial leasing in its present day. The provision most likely has its origins in rural and agricultural leases and was simply never intended to apply to premises akin to Amazon’s giant warehouses. One may go further and say the lack of reform and retaining such legislation on the books is damaging to the sector. Legal uncertainty on such an important aspect of leasing is not appealing to either landlords or tenants.

How should a landlord proceed?

With caution. However, much depends on timing and the landlord’s foresight. A landlord who knows in advance that it wishes to remove their tenant would be prudent to serve the notice to quit in accordance with the 1907 Act. Quite often, the commercial reality is very different and the landlord is not in a position to issue a notice so far in advance. With an uncertain economic outlook, it is perhaps commercially unreasonable for a landlord to know over a year in advance whether it wishes to bring the lease to an end. Another option is for the landlord to serve the notice in any case, to protect their position. Should circumstances change, say renewal terms are agreed with the tenant, the notice may be withdrawn.

If the landlord does not opt to serve notice that far in advance, or is simply unaware of the 1907 Act, then it has no option but to serve notice under common law. A tenant may not argue the case but in the event it does, the landlord will hope that Lord Ericht’s decision is confirmed in any proceedings which may arise. Whatever the landlord decides, it is a far from ideal position.

Whilst the Amazon decision provides some comfort to a landlord that they may fall back on the common law there is still an element of uncertainty. It would not be surprising to see the issue back in the courts before long. 

The case for reform

Legislative intervention is long overdue when it comes to terminating leases. The issue was one of many commented on by the Scottish Law Commission in their Discussion Paper “Aspects of Leases – Termination” issued back in May 2018. The Commission sought responses on whether the 1907 Act should no longer regulate notices to quit in relation to commercial leases.

Although a final report is expected to be published with recommendations to Parliament, this may take time, especially given current circumstances. Therefore, unless the Inner House wade in on the debate we are left with continuing uncertainty relating to a crucial element of commercial leasing. For now, longer term planning is required on the landlord’s part and, perhaps, a crystal ball! 

Disclaimer

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