Following the Scottish Legal Commission’s (“SLC”) deadline for responses to the Discussion Paper on the Tenancy of Shops (Scotland) Act 1949 (“the Act”) on the 31st July 2024, the SLC is considering whether “shop” commercial tenants should continue with their own distinctive legislation on removal and renewal when leases are due to end.
Current position
Presently, the Act provides tenants of commercial premises classified as a “shop” (widely defined beyond traditional shops) with a right to apply to the sheriff court to renew their shop lease when they are served a notice to quit from their landlords and they have been unable to agree renewal terms. Applications must be lodged within 21 days of service of the notice to quit and creates a scenario in which successful tenants can remain in the premises, despite the landlords’ notice of eviction when the sheriff agrees to the application. The sheriff can renew the lease for a period up to one year and there is no limit on the number of tenant renewal applications. If the sheriff grants renewal, a new lease is agreed for that period and on any other terms the sheriff deems appropriate including rent!
If landlords want to remove tenants at the end of the renewal period, a new notice to quit must be served. Whilst renewal applications can be opposed by landlords, the sheriff has discretion to decide applications on the basis of “reasonable circumstances”. Such additional protection for shop tenants is unique and successful applications allow tenants to stay in the shop premises for longer than stipulated at the outset, without the agreement of landlords.
The Act was a temporary measure introduced post-World War II to safeguard tenants’ businesses during a time of economic turmoil and lack of retail spaces but calls for modernisation of the Act stem from a vastly different high street shopping landscape seen today. The SLC highlights that the Act is rarely used and considers its repeal. The Act prohibits renewals on the following grounds:
- where the tenant is in material breach of the lease;
- where the tenant is insolvent;
- where the landlord has offered to sell the property to tenant;
- where the landlord has offered the tenant reasonable alternative accommodation on reasonable terms and conditions;
- where the tenant has previously given notice of its intention to terminate the lease and as a result the landlord has arranged to sell or let the property; and
- if greater hardship would be caused by allowing the extension than refusing it.
Although the legislation may pose harm to landlords with potential delays in re-letting the property, there are few successful applications. The SLC recognises that the renewal application process is not being used as originally envisaged i.e., as a protection for the small shop units to prevent loss of livelihood, but instead by national retailers to gain an advantage in negotiations with landlords.
If the Act is indeed past its sell-by date, the Discussion Paper asks should there be repeal of the 1949 Act with no replacement.
SLC Reform Proposals
Where the answer to this question is no, and the Act is not repealed the SLC examines two possibilities in the Discussion Paper:
- Mandatory Notice-Based Option: For leases of one year or more, the minimum mandatory period of notice to quit could be extended to six months (reduced to three months for leases of a duration between six months and one year.) The intention is that the 3 or 6-month periods would provide a cushion for shop tenants facing hardship from the current 40-day notice and provide time for suitable relocation. This could result in landlords and tenants negotiating lease renewals timeously because of this longer notice period.
- Reforming the Act: Alternatively, the Act could be reformed. A “gateway” test included to allow “small tenants” to apply to the court for lease extensions following service of the notice to quit. The Discussion Paper views “small tenants” as falling below certain thresholds with respect to annual turnover, net assets, and number of employees. Lack of ”reasonable circumstances” guidance should also be addressed in any reform with a “statutory statement of the objects”. This could include renewal purposes such as:
- To provide tenants sufficient breathing space to allow relocation to other premises.
- To provide time to conclude ongoing lease negotiations for renewal or extension.
- To avoid tenants going out of business because of the sudden removal from the premises.
“Disregards” that should not be considered by the sheriff in granting a renewal application could be included as:
- The importance of the shop to the public.
- Any effects on the tenants’ employees, such as redundancies.
- Any effects on prospective third parties, such as prospective buyers.
Refinements to court applications would be necessary with tenants obliged to mediate with landlords as a condition of any application to the court for renewal under the reformed Act.
The Future
Whilst any reform or repeal of the Act is far off, the SLC raises key considerations for both retail landlords and tenants under the current regime, it is hoped that an equal balance for stakeholders is struck.
Whether landlord or tenant, it is always prudent to seek legal advice early should your lease be ending or if extension is sought. If you wish more information, please contact Robyn Canning in our Commercial Property team on 03330 430350.
