Retail, hospitality, and beauty businesses: ending the lease

Retail, hospitality, and beauty businesses: ending the lease

David Bartos

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? These questions, and others are discussed in the Scottish Law Commission’s Discussion Paper on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949 (No.177), published today.

If unable to obtain renewal on satisfactory terms from their landlord, the 1949 Act allows these tenants – and possibly also restaurant tenants – to apply to the sheriff to renew their lease for up to one year. The test for renewal is whether, “in all the circumstances”, renewing or refusing to do so would be “reasonable”. In certain limited circumstances, such as ongoing material breach by the tenant, the renewal is absolutely excluded. Otherwise the Act does not limit the circumstances that might be relevant.

The 1949 Act was a temporary measure to assist small tenant shopkeepers in the aftermath of the Second World War when there was commercial property scarcity. Renewal was intended to allow them time to relocate and avoid being forced out of business altogether. Against the background of 1960s urban renewal and concern over the shortness of the 40-day notice period, the Act was made permanent in 1964.

Nowadays, the Act is rarely used, except apparently by large retail tenants employing the threat of making an application to extract favourable concessions from their landlords during renewal negotiations. Market conditions have changed greatly since 1964, leading many lawyers to support its repeal. However, tenant representative bodies think some form of protection should remain.

The discussion paper presents three options for ending the leases of tenants covered (or that might be covered) by the Act.

The first is repeal of the Act so that all commercial leases are treated the same. Having separate rules for different types of commercial tenant places an additional burden on advisers to advise correctly, with consequent costs. However it might be argued that there are many businesses of the type covered by the Act that might need additional time to find alternative premises in the same locality in order to avoid closure. If the commission’s Report on Aspects of Leases: Termination (2022, No.260) was implemented, the lease might exclude notice to quit altogether.

That leads to the second option in the paper. Under it, the Act would be replaced with a mandatory notice-to-quit scheme where landlords must give the tenants currently covered by the Act at least six months’ notice to quit, irrespective of any clause in the lease.

The third option would keep the Act but seek to rectify its deficiencies. A “statutory statement of objects” together with “statutory disregards” could assist in clarifying when renewal is “reasonable”. A “gateway test” restricting use to “small tenants” could keep renewal restricted to less economically powerful tenants who need it. A requirement for tenants to offer landlords mediation before applying to the sheriff could assist in resolving renewal disputes without expensive, time-consuming, and uncertain litigation.

Lead commissioner David Bartos said: “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 paper and a response form can be found on the commission’s website.

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