Protection for Commercial Tenants in Scotland
The passing of the Coronavirus Act 2020 on 25 March provided some breathing space for tenants of commercial properties in England and Wales who may, due to the current unprecedented situation, fall behind with payments due under their leases. This week, the Scottish Government passed the Coronavirus (Scotland) Bill which offers a similar protection to commercial tenants in Scotland. The Bill will now pass into law when it receives Royal Assent and is registered (which we expect will only take a few days).
Why do tenants need this protection?
Commercial leases commonly include "forfeiture" or "irritancy" provisions which enable a landlord to terminate a lease if a tenant hasn't paid their rent for a certain period, where a tenant is in breach of their obligations under their lease, or where a tenant has entered into insolvency.
What was the position before the emergency legislation?
In Scotland, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 offered tenants some protection. In cases of monetary breach, a landlord had to give a tenant at least 14 days written notice to pay any arrears before the irritancy could be enforced. In the case of non-monetary breaches a landlord was not entitled to exercise their right to irritate unless, in all the circumstances, a fair and reasonable landlord would do so and, if the breach could be remedied, a tenant had been given a reasonable opportunity to do that.
There are also restrictions on the exercise of the landlord's rights of irritancy during the administration of a tenant and when CVA negotiations are ongoing.
What has changed?
The new legislation gives commercial tenants a longer period of grace during which it will not be permissible, irrespective of the terms of a lease, to irritate a lease on the grounds of non-payment of rent or other sums due under the lease. When the Act comes into force in a few days' time, landlords in Scotland must give tenants at least 14 weeks' notice before they are able to irritate. This applies even if a tenant was in breach prior to the Act coming into force but not where a landlord has already served written notice on a tenant requiring them to pay within a shorter period.
The new provisions apply only where a tenant is in arrears and not where they are in breach of some other obligation under their lease, e.g. the repairing obligation. For non-monetary breaches the position remains the same - a landlord will only be able to exercise their right to irritate if in all the circumstances a fair and reasonable landlord would do so and if the tenant has been given a reasonable opportunity to remedy the breach. In the current climate, that's going to mean an extended period anyway.
The changes mean that commercial tenants now have at least 14 weeks before their lease can be irritated. The Scottish Government have flexibility to amend the "grace" period and will review and adapt it depending on how things unfold. The changes do not affect a landlord's right to recover rent and other sums due under a lease, nor does it affect their right to irritate after 14 weeks' notice has been given. The changes just offer tenants more time.
Does this apply to all leases?
These provisions apply only to commercial leases.
A welcome relief for tenants?
The measures will be welcome news to commercial tenants in Scotland, although they remain liable for the rent, even if they are not currently occupying the property. The overriding message (and what this legislation is trying to encourage) is for landlords and tenants to work together to find a way through these difficult times. Now, more than ever, it's good to talk.