Leases (Automatic Continuation etc.) (Scotland) Bill

Scotland

The Scottish Government is currently consulting on the Leases (Automatic Continuation etc.) (Scotland) Bill. You can access the consultation here.

The Bill proposes various changes to the law regarding the termination of commercial leases, in line with recommendations proposed by the Scottish Law Commission. These changes include the introduction of a new statutory regime on the automatic continuation of leases when they reach their termination dates, as a replacement of the common law principle of tacit relocation and alters current requirements to give notices to quit/notices of intention to quit.

Below we explore the changes proposed within the Bill and look ahead at their potential impact on the legal landscape.

Tacit relocation/Automatic continuation

Tacit relocation is a rule under Scots common law whereby leases continue after termination where: i) neither party gives valid notice that the lease is to end prior to the termination date; and ii) the tenant does not, with the landlord’s agreement, give up possession of the property at the termination date. The Bill enshrines and refines the existing tacit relocation rules, though these may be disapplied contractually. 

Under the proposals a lease will end on its termination date, however, if it is for a period of less than three months or if it is one of the specific types of leases within the Bill (as currently drafted this includes a lease for the tenant’s lifetime or certain short-term grazing and fishing leases).

Where statutory continuation rules are not disapplied, a notice/“consensus” is required to stop automatic continuation of the lease. Where a lease automatically continues, this will be for:

  1. a year where the lease was originally for a period of one year or more (unless the lease provides for a shorter period which must be a minimum of 28 days);
  2. the original period of the lease where the lease was for a period of over 28 days but less than a year (unless the lease provides for a shorter period which must be a minimum of 28 days); or
  3. the original period of the lease where the lease was for 28 days or less (unless the lease provides for a shorter period which must be a minimum of 7 days).

There is also the possibility of automatic continuation where parties behave as though the lease has continued, for example the tenant remains in possession of the subjects and the landlord does not take steps to remove the tenant within a reasonable period.

Rules around Notice

The Bill provides that, where there is a lease for over 6 months, there is a 3 months’ notice period for termination of the lease.  Where the lease is shorter, notice to terminate must be given one month before the termination date of the lease. The applicable periods do not vary based on the area let.

It is important to note that the Bill provides that certain requirements around service can be contractually varied between parties.  However, other provisions around service of notice cannot be amended; for example, a notice from a landlord must be served in writing.  On a similar note, notice can be withdrawn by the serving party if the other party has consented to this, and such consent must, in most cases, be in writing.

The Bill makes clear that where there is a change of landlord or tenant during the notice period, there will be no impact on a notice that has already been served.  Where a change to one of the parties has not been properly intimated, notice will also be validly served on the original party.  Going forward, this means that notifications of change of ownership on sale or an assignation to a new tenant will be very important.

The Bill expressly provides that if a head-lease ends on its termination date, the sub-lease also ends. Provisions is made requiring the tenant to communicate with the sub-tenant about any notices to quit served or received under the head-lease. 

Other points to note

The Bill clarifies that where a lease has no defined term, it will be deemed to be for a year.  The Bill also provides rules for how to establish the date of entry in this instance, so as to determine the termination date.  

Finally, where the landlord wishes to terminate the lease due to a breach of contract by the tenant, the Bill also confirms that the landlord must give notice of this intention to heritable creditors (such as the bank providing the standard security), as well as the tenant. 

The Leases (Automatic Continuation etc.) (Scotland) Bill aims to clarify and simplify the important rules which apply to the termination of commercial leases. It proposes to introduce some important protections and we would recommend that you reach out to the CMS Scotland Real Estate Team to discuss these and if you require assistance in relation to lease termination. The CMS Scotland Real Estate Team would be happy to advise and assist you.

Article co-authored by Daisy Sewell and Shaun Sweeney, Trainee Solicitors at CMS.