Thousands of retail businesses, cafes, pubs, takeaways, hairdressers, wholesale, and distribution centres lease their premises. What happens as the lease comes to an end? Can it be renewed? If not, how much time should the tenant have to find suitable alternative premises?
These are the questions that the Scottish Law Commission are consulting on. The centrepiece of its Discussion Paper on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949, the Scottish Law Commission discusses these issues and makes proposals.
Current Position: The Tenancy of Shops (Scotland) Act
If unable to obtain renewal on satisfactory terms from their landlord, the Tenancy of Shops (Scotland) Act 1949 allows these tenants (and possibly also restaurants) to apply to the sheriff court to renew their lease for up to one year. The test for the court is whether, “in all the circumstances”, it is “reasonable” to renew or “reasonable” to end, the lease. The Act does not limit the circumstances to be taken into account.
Outdated Act
The 1949 Act was intended to assist small tenant shopkeepers following the Second World War when there was commercial property scarcity. Renewal was intended to allow them time to relocate and stop their business from closing. The 40 day notice-to-quit at the end of a lease was too short.
Nowadays cost and delay in going to court are an issue. The Act is rarely used, except apparently by large retail tenants employing the threat of going to court so as to extract favourable concessions from their landlords during renewal negotiations. Landlords have seen this as distorting free negotiations. Market conditions have changed greatly since 1964. Many lawyers support its repeal. However, tenant representative bodies think some form of protection should remain, particularly for small business tenants.
Options going forward
The consultation proposes alternative options for the Act:
- Repealing the Act so that all commercial leases are treated the same. A shop, pub, takeaway or beauty business would be treated the same as an office, gym or industrial unit: the tenant would receive a 3 month notice-to-quit at the end of the lease unless a lease clause allowed no notice (or altered the period).
- Replacing the Act so that retail, food and drink hospitality and beauty tenants would receive a mandatory 6 or 3 month notice-to-quit at the end of the lease regardless of any lease clause. Failure to give that notice could result in an automatic continuation of the lease for up to one year beyond its end date, though the tenant could opt to end that period early;
- Reform of the Act. While court-granted renewal for one year would be kept, the criteria for it would be restricted to tenants needing extra breathing space to agree renewal or find alternative premises. A “gateway test” could restrict it to “small tenants”. Compulsory mediation before any court proceedings could encourage landlord and tenant agreement without expensive, time-consuming, and uncertain litigation. A cap on the costs of litigation that could be recovered from the other party would restrict expense.
- Keeping the Act as it is. The Commission does not favour keeping what appears to it as an outdated piece of law.
According to lead Commissioner, David Bartos: “The proposals in this Paper affect virtually every let shop, pub or eatery on the High Street, not to mention retail parks and shopping centres large and small. It’s vital that in these difficult economic times the law is as helpful as possible to both tenants and investors. We invite everyone to have their say.”
Period for responses
The Commission is keen to hear from everyone with an interest. Consultation runs until 31 July 2024. A response form and more details can be found on the Commission’s website.
Anyone who fills in the form can select the questions that they wish to answer.
Latest updates on the consultation, including details of the Commission’s webinar on 20 June can be found at @scotlawcom and on here.