KNOWLEDGE

Termination of Scottish leases

MortonFraser_Alan Stewart
Author
Alan Stewart
Partner
PUBLISHED:
13 January 2022
Audience:
Real Estate
category:
Article

At Morton Fraser, clarity is what underpins everything we do. We recognise just how frustrating it can be when things aren’t clear. It is for that reason that we welcome the draft Leases (Automatic Continuation etc.) (Scotland) Bill which has recently been published for consultation by the Scottish Law Commission.

As those who are involved in Scottish commercial leasing transactions know only too well, the current rules governing the termination of leases in Scotland are uncertain, at times unfair and generally wholly unfit for purpose given the scale and importance of the commercial property market to the Scottish economy.

The doctrine of tacit relocation, which has its roots in Roman law, provides that leases, although entered into for a fixed period of time, require the serving of a notice of termination before they may actually be terminated. The presumption is that if nothing is done, the landlord and tenant consent to continue or extend their lease. It comes as a surprise to many to learn that their assumption that their lease has ended because the end date in the lease has been reached is in fact wrong.

To add to this there can be uncertainty and confusion over the form and period of notice required to bring a lease to an end. The result - an unsatisfactory mess which has been the subject of both judicial and academic criticism and which has led to numerous costly disputes over the years. A recent example of such a dispute is the case of Rockford Trilogy Ltd v NCR Ltd [2021] CSIH 56 in which the landlord and tenant disagreed about whether sufficient notice had been given in order to exclude the operation of tacit relocation and bring the lease to an end. 

The draft Leases (Automatic Continuation etc.) (Scotland) Bill, which would apply to all leases other than specified residential and agricultural leases, makes provision for a range of measures relating to the termination of a lease at its expiry.

Importantly, the Bill proposes to replace the common law doctrine of tacit relocation with a statutory scheme of automatic continuation designed to clarify, reform and partially codify the existing law. The proposed scheme would give parties certain powers to contract out of various parts of the new statutory regime of automatic continuation and would make clear what notice requires to be given to terminate a lease, when and by what means.

The consultation closes on 28 January 2022 and it is expected that a final draft Bill and final report will be submitted to the Scottish Ministers in the spring of 2022.

In an area of law badly in need of reform, we welcome the draft Bill which will hopefully help to bring to those investing in Scottish commercial property a little more of something we are fond of…. clarity.

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