In Scotland thousands of retail businesses, cafes, pubs, takeaways, hairdressers, wholesale, and distribution centres lease their premises. What happens as the lease approaches its end date? How much time should the business have to find suitable alternative premises? Would they benefit from going to court to have the lease renewed for a year?

On 30 April 2024, the Scottish Law Commission published its Discussion Paper on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949. It discusses these questions in relation to the law as it stands. It puts forward ideas on what the law should be. 

Current law

At present if this type of business can’t obtain a suitable lease renewal from their landlord, the Tenancy of Shops Act allows it to apply to the sheriff court to have the lease renewed for up to a year. The test for the court is whether, “in all the circumstances”, renewing or refusing to do so would be “reasonable”. The Act doesn’t prescribe criteria. 

 

The Act was targeted to assist small tenant shopkeepers at times when there was commercial property scarcity. Renewal was intended to allow time for relocation and preventing closure of the business. It’s unclear if the Act applies to restaurants. Beauty businesses might or might not be covered – depending on the “hair” element! That seems outdated.

What’s more, the Act is rarely used. Going to court is seen as expensive and time-consuming. Only large retail tenants can afford it. Yet they’re not the businesses the Act was aimed at and some landlords feel that it works against them. Market conditions have changed greatly since the early 1960s when the Act was last reviewed. Many lawyers think there is no need for special treatment of retail, food/drink hospitality or beauty businesses. A single law for all business leases is suggested. On the other side of the argument, it’s been said that small businesses in retail, hospitality or beauty can be especially dependent on local footfall. They should be given ample warning to find other premises in the locality. 

Options going forward

The Discussion Paper presents three alternative options for Scottish law: 

(1)    repeal of the Act with one set of rules for all commercial leases. Tenants would receive a 3 month written warning to quit before the expiry date, failing which the lease would be continued automatically for up to a year. But the lease could have a clause excluding the warning altogether;

(2)     replacement of the Act. This would involve special rules for retail, food/drink hospitality or beauty tenants. They would be entitled to a mandatory 6 month written warning to quit, failing which the lease could be continued automatically for up to a year. The tenant would be able to end the lease early in the continued period. 

(3)     reform of the Act. It too would apply to these favoured types of business. A “statutory statement of objects” together with “statutory disregards” could clarify the criteria for renewal. A “gateway test” restricting its use to “small tenants” could keep renewal restricted to less economically powerful tenants who need it. Compulsory mediation before any court proceedings could help with resolving renewal disputes without expensive, time-consuming, and uncertain litigation. 

Further information

Responses to the options can be made until 31 July 2024. Please contact david.bartos@scotlawcom.gov.uk for further information. The Commission’s website has a copy of the Paper, a Summary and a Response form, here. 

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