Retail, food & drink hospitality, beauty lease reforms - Scottish Law Commission proposals

Thousands of retail businesses, cafes, 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 intended 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 stop their business from closing. The 40 day notice-to-quit at the end of a lease was too short. 

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 support its repeal. However, tenant representative bodies think some form of protection should remain. 

The consultation proposes three alternative options for the Act: 

• Repeal of the Act so that all commercial leases are treated the same: the tenant would receive a 3 month notice-to-quit at the end of the lease unless a lease clause allowed no notice;
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• Replacement of the Act so that retail, food and drink hospitality and beauty tenants would receive a 6 or 3 month notice-to-quit at the end of the lease regardless of any lease clause; 
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• Reform of the Act. The criteria for renewal would be restricted to tenants in need of extra breathing space to agree renewal or find alternative premises. A “gateway test” could restrict use to “small tenants”. Compulsory mediation before any court application could encourage landlord and tenant agreement 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.”

Consultation runs until 31 July 2024. The Chamber will be holding a webinar for members. A response form and more details can be found on the Commission’s website.

Latest updates can be found on [X logo] at @scotlawcom and on LinkedIn here. 

Perthshire Chamber feedback to info@perthshirechamber.co.uk