The Scottish Law Commission (SLC) published a report towards the end of 2022 recommending a number of reforms to the Scots law of leases. The SLC noted that its aim in publishing the report was to ‘modernise, clarify and simplify certain important rules which apply to their termination’. The report proposes changes on a number of areas governing commercial leases, and it was notably decided that the Scots law doctrine of tacit relocation required an overdue overhaul – namely, that it should be codified into legislation to allow for greater clarity and flexibility for both landlords and tenants.
Tacit relocation: a brief overview
Tacit relocation is a common law doctrine and provides for, in the case of leases with an original term of a year or more, the automatic renewal of such leases for an additional year beyond the contractual termination date. Where the lease less was originally less than a year the terms will renew for the same period (e.g. if originally for six months it would be extended for another six months).
To avoid the extension of a lease by tacit relocation, the following notice periods (contained in The Sheriff Courts (Scotland) Act 1907) are required to be given and will depend on the term and premises let:
- Premises let for four months or longer – 40 clear days’ notice;
- Premises let for less than four months – notice to be 1/3 of the term;
- Land of more than two acres, let for three years or longer – at least one year and not more than two years’ notice to be given.
It is important to note that as there is no statutory form of notice required to be given and advice should be sought in good time prior to the expiry of your lease to ensure that any notice served is valid to bring the lease to an end.
Criticisms
A common criticism of tacit relocation is that it is unfair on the parties to the lease. On the face of the lease, there is a contractually agreed termination date at which point both parties can reasonably expect the lease to end. As noted, legally, that is not the case and an unsuspecting or ill-advised tenant who may not wish to continue their tenancy for any number of reasons may suddenly be forced to occupy and pay for a property they no can longer afford or have a commercial use for. To make issues worse, they may also have already committed to another lease of a different property (or, in the case of a landlord, have a different party lined up to take entry to the property).
The above problems tend to arise where a landlord or tenant are either unaware of tacit relocation or have been badly advised as to the consequences of the failure to serve the required notice. However, there have also been circumstances where legal professionals south of the border (where tacit relocation does not apply and leases end on their contractual termination date without the need for any notice) have been caught out, only appreciating the requirement for such notice when it is too late.
Proposed Reforms
The SLC put forward 86 recommendations to improve, modernise and simplify tacit relocation, as well as commercial leases generally, in the form of the draft Leases (Automatic Continuation etc.) (Scotland) Bill, including:
- Replacing legal terminology such as ‘ish’ and ‘tacit relocation’ with more comprehensive terms, being ‘termination date’ and ‘automatic continuation’;
- The ability for parties to a lease to contract out of automatic continuation where no notice is served, or vary the date of renewal;
- Increasing the notice period (currently 40 days’ for the majority of commercial leases) to 3 months; and
- The creation of a new statutory code for automatic continuation, replacing the existing common law rules for tacit relocation.
Conclusion
The lead commissioner for the report, David Bartos, has stated that the ‘new scheme of automatic continuation will bring clarity and certainty to both landlords and tenants and increase the attractiveness of investment in commercial property in Scotland’. It is clear from the responses to the report and subsequent commentary that reform in this area has been highly anticipated, with the proposals likely to be a welcome change and improvement on the confusing and, to the layman at least, relatively unknown common law position. At the time of writing however, the proposals for change still lie with the Scottish Government, and it remains to be seen whether any of the recommendations will be taken forward.
If you have any questions about commercial property leases, please contact our Commercial Property team on 03330 430350.