Emergency legislation is being put in place in Scotland to prevent the eviction of commercial tenants who are unable to pay their rent because of the Covid-19 outbreak. The measures are set out in the Coronavirus (Scotland) Bill, which grants a host of new powers and measures to help protect the public, maintain essential public services and support the economy during the pandemic. The Bill was rushed through the legislative process on 1 April 2020 and now just needs royal assent for it to come into force and once that happens, it will be known as the Coronavirus (Scotland) Act 2020.
We have set out a summary of the measures affecting commercial leases below and address some of the key questions that landlords and tenants are likely to have.
What are the current rules for irritating (terminating) a commercial lease in Scotland?
Irritancy is a remedy for landlords to terminate a lease early when tenants are in breach of their obligations.
Currently, landlords must give tenants written notice before terminating a commercial lease for non-payment of rent or other sums due. The notice period is usually set out in the lease but it must be at least 14 days. This is a statutory requirement set out in Section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (“the 1985 Act”).
If the tenant fails to make payment within the specified notice period then the landlord may proceed to terminate the lease and take enforcement action to evict the tenant.
What are the emergency measures being put in place?
The 1985 Act is being amended to require that landlords must now give at least 14 weeks’ written notice to tenants before being able to terminate a commercial lease for non-payment of rent, rather than 14 days. The 14 week period applies irrespective of whether the tenant was already in breach of its payment obligations before the Coronavirus (Scotland) Act 2020 came into force.
Therefore, landlords will effectively be prohibited from evicting tenants for non-payment of rent until July, at the earliest. This will give tenants an extended period of time to come up with any sums due and should offer some peace of mind to businesses struggling with cash flow due to Covid-19.
How long will the emergency measures be in place?
The emergency measures will automatically expire on 30 September 2020. However, the Scottish Ministers may extend the expiration date to 31 March or 30 September 2021 if required. The Scottish Ministers also have the power to alter the new 14 week period if required.
What will happen to unpaid rent over the next few months?
The emergency legislation does not provide rent relief for tenants. Rent and other arrears will continue to accrue as usual. Landlords will be able to terminate a lease and take enforcement action to recover possession of the premises as usual once the extended notice period has expired.
What if an irritancy notice has already been served on the tenant?
Notices served before the Coronavirus (Scotland) Act 2020 comes into force will be void if the notice period does not expire before the date on which the act comes into force. This means that a new notice will need to be served with the extended 14 week notice period. If the notice period expires before the Act comes into force then you will be able to proceed with enforcement action as usual.
However, it is worth noting that court arrangements have been massively affected by the Covid-19 outbreak. Courts are only running to provide essential services at present and it may not be feasible for a court action to be raised at this time. We would be happy to discuss this with you if you have any concerns.
It is not yet clear when the Act will come into force. The Bill has been passed through Parliament and we expect it will be given Royal Assent in the coming days. We will update our note of advice as soon as we hear more.
What if enforcement action to evict the tenant for non-payment of rent has already been raised?
The emergency legislation does not address this. As noted above, courts are only operating for essential business at present. Each Sheriff Court is issuing its own guidance as to what this means, but it is likely that existing actions will be sisted (put on hold) until a future date if not done so already.
Do landlords have the right to terminate a lease for reasons other than non-payment of rent?
Yes, the emergency legislation applies to non-payment of rent (and other sums due under the tenancy) only. Landlords will still have the right to take action to terminate a lease and evict tenants on the grounds of non-monetary breaches.
However, as noted above, courts are operating for essential business only and it may not be feasible for a court action to be raised at this time. We would be happy to discuss this with you if you have any concerns.
What should landlords/tenants do if the tenant is struggling to pay rent due to Covid-19?
Many landlords and tenants have reached voluntary arrangements about rent payments where the tenant is struggling with cash flow as a result of having to close its doors and cease operating from 23 March 2020. Please feel free to contact us to discuss your legal rights and obligations under your lease and the most suitable way for you to address the situation.
Can tenants terminate a commercial lease early due to Covid-19?
The short answer is no, tenants can only end a lease early if they have a break option to terminate the lease.
Does the extended notice period apply to commercial leases elsewhere in the UK?
No, the extended notice period applies to commercial leases in Scotland only. However, similar protections have already been put in place in England, Wales and Northern Ireland. Please contact a member of our Commercial Property team if you wish to find out more.
This note is based on information as at 2 April 2020 and will be updated as and when further information is provided.
Insight from Janet McIntyre and Gary Thomas, Commercial Property Partners at Thorntons. For more information contact Janet or Gary on 03330 430350.
