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Automatic Continuation of Leases – Reform on the way.
What is Automatic Continuation?
Automatic continuation (‘tacit relocation’) is a principle of Scots law where the lease of a property (with some exceptions) is automatically extended by the period of the original lease (up to a maximum of one year). This extension is granted on the same terms and conditions when neither the Tenant nor the Landlord has issued a ‘notice to quit’ to terminate the original lease. Therefore due diligence in awareness of termination dates is important, as there can be significant consequences for an unwary landlord or tenant.
Why can issues arise?
Both landlords and tenants can be caught out by automatic continuation because there is uncertainty and confusion over the form and period of notice required to end a lease. Recently the M7 Real Estate Investments Partners VI Industrial Propco Ltd v Amazon UK Services Ltd [2019] CSOH 73 case debated this matter. The Sheriff Courts (Scotland) Act 1907 and the common law were examined to determine whether a notice to quit for terminating a lease of commercial premises over 2 acres in size required a notice period of 40 days, or 12 months. The 1907 Act includes a procedural minimum notice period of 12 months for an ‘action of removal’ to proceed without the need for obtaining a court order. Tacit relocation required at least 40 days’ notice. The decision of the court was that the 1907 Act and tacit relocation supplemented each other to the effect that the shorter notice period was valid. The notice to quit (which was less than 12 months before the expiry date) by the landlord was successful.
Leases (Automatic Continuation etc.) (Scotland) Bill
The Scottish Law Commission has examined this area of law over several years, culminating in the release of a draft Bill, the Leases (Automatic Continuation etc.) (Scotland) Bill. The SLC’s final report and draft Bill was submitted to the Scottish Ministers in October 2022. It can be viewed here.
The Bill makes provision for a range of measures relating to the termination of a lease at its expiry.
The final draft of the Bill is currently being considered by Scottish Ministers, and is likely to begin its journey through the Scottish Parliament during the 2023/24 legislative programme.
In summary, the Bill seeks to address the following topics:
1. Contracting Out
It will be possible to use specific contractual wording to ensure that a lease will terminate on its expiry date, and that tacit relocation/automatic continuation shall not apply.
2. Automatic Continuation (Conduct of the Parties)
In consolidation of the existing common law and practice, a lease shall be deemed to continue automatically if there is evidence that the landlord or tenant have acted as if the lease is continuing beyond its expiry date (such evidence could include the tenant paying and the landlord accepting rent after the expiry date, or the landlord fails to take action to remove the tenant after the expiry date).
3. Excluded Leases
The new legislation intends to deal with commercial leases and will not apply to holiday lets, agricultural lets, student lets or private residential tenancies.
4 Notice Period
For leases lasting more than 6 months, the notice period (widely been accepted as being 40 days for most commercial leases), shall be extended to 3 months. For leases of less than 6 months, the notice period shall be 1 month.
Once the Bill becomes law, it should make the process for terminating leases for both landlords and tenants a much more certain and transparent experience.
To find out more about how Craig or the Commercial team can help with commercial property matters visit our website or contact Craig at craig.veitch@raeburns.co.uk or on 01224 332400
