Almost all leases will be for a defined term. While it would be reasonable to assume that, at the expiry of the term, the lease comes to an end automatically, that is not the case in Scots Law.
This difficulty arises due to the doctrine of tacit relocation - or secret continuation - a concept which all property owners, occupiers and investors of commercial property need to know about. With roots in Roman Law, and unaffected by landlord and tenant legislation, the doctrine provides that commercial leases in Scotland - although on their face, in place for a fixed period of time - in fact, require notice to quit to be given before they may actually be terminated.
If neither landlord nor tenant give the necessary notice at least 40 days before the termination date, both are presumed through their silence to have agreed to the lease continuing for another year on the same terms.
Faced with a multiplicity of financial challenges at the moment, the effect of this can be very serious for most businesses operating in Scotland.
A tenant could find itself locked into an existing lease, even though it has plans to move and has signed a new lease elsewhere. In this way, it could find itself paying two sets of rent and service charge. A landlord's comprehensive redevelopment of the property could be delayed until the existing tenant moves out a year later than anticipated. Business requires certainty, and ensuring that the lease is brought to an end on the date it is intended is of critical importance.
Most modern commercial leases provide that notice must be given in writing and strict compliance with that requirement is essential. If written notice is not specified, verbal notice can be given. In extreme cases, reliance can be placed on the conduct of the parties to displace the legal presumption that both intended the lease to continue for another year. But in the absence of proper notice, or conduct clearly demonstrating that the lease is to end, both parties have the right to insist that the lease continues for another year, often against the wishes of the other party.
The current arrangements in Scotland are considered by many to be not only unclear, but also unfair and unfit for purpose. It is entirely timely, therefore, for this area of law to be the subject of a review by the Scottish Law Commission, the body in Scotland which is responsible for promoting law reform.
Numerous important reforms have been floated for consideration. These range from tacit relocation being abolished in its entirety, to permitting parties to the lease to decide themselves when the lease is signed up that tacit relocation should not apply, to keeping the concept but adopting a new code regulating more clearly how this ancient doctrine should be applied in modern Scotland.
Unless and until such legal reform takes effect, businesses with commercial property in Scotland need to be fully aware of the need to give proper notice to terminate and the consequences of overlooking this simple requirement.
This article was first published by Scottish Business Insider.
