Thousands of retail businesses, cafés, 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? In its Discussion Paper on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949, the Scottish Law Commission discusses these issues and makes proposals.
If unable to obtain renewal on satisfactory terms from their landlord, the 1949 Act 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. Cost and delay in processing court applications are an issue.
The 1949 Act was a temporary measure 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 avoid being forced out of business altogether. Against the background of scarcity caused by 1960s urban renewal and concern over the shortness of the 40-day notice period, the Act was made permanent in 1964.
Nowadays, 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. Market conditions have changed greatly since 1964. Many lawyers to support its repeal. However, tenant representative bodies think some form of protection should remain.
The Discussion Paper presents three options. The first is that the 1949 Act should be repealed, so that all commercial leases are treated the same. The second would replace it with a mandatory notice-to-quit scheme whereby landlords must give tenants at least six months’ notice to quit. The third option would reform the Act by rectifying its deficiencies. A “statutory statement of objects” together with “statutory disregards” could assist in clarifying what must be established for renewal. A “gateway test” restricting use to “small tenants” could keep renewal restricted to less economically powerful tenants who need it. A requirement for compulsory mediation before any court application could assist in resolving renewal disputes without expensive, time-consuming, and uncertain litigation.
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.”
The consultation runs until 31 July 2024. Inverness Chamber is working with the Scottish Law Commission to hold a webinar for members. A response form and more details on the consultation can be found on the Commission’s website.
A summary of the project is available here and latest updates can be found on X at @scotlawcom and on LinkedIn here.