Ben Zielinski: Terminating a commercial lease – how hard can it be to quit?
Ben Zielinski, a senior associate in the commercial litigation team at Shoosmiths in Edinburgh, considers the significance of a recent judgment in the Court of Session that has given greater clarification of how much notice a landlord needs to give to terminate a commercial lease in Scotland.
A recent judgment of the Court of Session has given some clarification of how much notice a landlord needs to give to terminate a commercial lease in Scotland.
What does a commercial landlord need to do to bring a lease to an end and require the tenant to remove from the property at the lease’s expiry date? It’s a simple question, to which there should be a simple answer. However, in Scotland there has been – and possibly remains – a lack of clarity, caused by the badly drafted provisions of sections 34 to 37A of the Sheriff Courts (Scotland) Act 1907.
In Scotland, the concept of tacit relocation means, often surprisingly to landlords and tenants alike, that a lease does not automatically come to an end on its expiry date. Instead, to terminate the lease, either the landlord or the tenant must give notice to quit. If neither party gives the other such notice in sufficient time before the expiry date, the lease will renew for a year, where the duration of the lease was a year or more, or otherwise for the same period as the duration of the lease. Apart from the duration, the lease will renew on the same terms.
Provided the landlord or tenant who wants to end a lease knows they need to give notice to quit, the common question is how much notice is required. This is where the 1907 Act made a real mess of things.
The common law on notices to quit prior to the 1907 Act was not without some lack of clarity, with differences between urban and rural leases and question marks over when, if ever, notices needed to be in writing. But the common law minimum period of notice for leases of more than four months was, and is, understood to be 40 days.
The 1907 Act muddied the water by introducing different periods of notice for different types of leases and different purposes. Sections 34 to 37A of the 1907 Act are bizarre. They appear in a statute intended to regulate and amend civil procedure in the sheriff courts, but in a part headed “Removings”, which relates to leases and which provide expedited means of removing tenants at their expiry, but then also appear to vary the law in relation to notices to quit and tacit relocation.
In particular, section 34 appeared to require, in relation to written leases of lands extending to more than two acres, notice of not less than one year and not more than two years before the expiry of the lease to terminate a lease for three years or more, or notice of at least six months to terminate a lease for less than three years. However, it was debateable, and unclear from the terms of the Act, whether these notice periods applied in all circumstances and displaced the common law notice periods, or whether they only applied if the landlord intended to use particular methods of removing specified in the Act.
In a recent decision in the Outer House of the Court of Session, Lord Ericht held that the notice periods given in section 34 only applied in relation to the particular method of removing and did not affect the common law. The case* relates to Amazon’s fulfilment centre in Gourock, which extends to more than two acres. Amazon’s landlord, M7, served a notice to quit more than 40 days, but less than a year, before the expiry date of the 15-year written lease. Amazon sought to rely on section 34 of the 1907 Act to argue that, because M7 had not given them a year’s notice, the lease had renewed for a year. But the judge disagreed and accepted M7’s argument that the notice given was sufficient at common law.
While this case would appear to give comfort to landlords of large sites that they need only give the common law 40 days’ notice to quit, caution should still be exercised. This is an Outer House (first instance) decision and Amazon has stated that they intend to appeal. If there is an appeal, we may get a binding decision on the issue from the Inner House, which would provide some welcome certainty. Until then, prudent landlords wishing to terminate leases of larger sites would be well advised to give at least a year’s notice, if possible.
One further footnote is that the law in this area is already being considered for reform. Last year, recognising the confusion in this area, the Scottish Law Commission issued a discussion paper on the termination of leases. One of the questions they consulted on was whether “the provisions of the 1907 Act should no longer regulate the giving of notice to quit in relation to the termination of commercial leases”. The Law Society of Scotland, representing the country’s solicitors, answered with one word: “yes”. The Faculty of Advocates agreed, giving their reasons in a couple of sentences that noted that the sections in questions had resulted in confusion and uncertainty. It is anticipated that, in response, the Commission will publish a report and a draft Bill in the near future.
*Case: M7 Real Estate Investments Partners VI Industrial Propco Ltd v Amazon UK Services Ltd  CSOH 73