Parties to a commercial lease need certainty about its duration

Parties to a commercial lease need certainty about its duration

When parties enter into a commercial lease, it has a commencement date and a duration. That means the lease will terminate on a specific date. But does it?
In Scotland, whilst a commercial lease has an end date, the principle of tacit relocation applies. Stemming from Roman Law, this means that unless the landlord or the tenant serves a notice to quit on the other confirming the intention for the lease to end and where no alternative arrangements have been made, the lease automatically continues for a further 12 months on the same terms and conditions.

The only way the landlord or the tenant can be certain that the lease will end on the expiry date is to serve the notice to quit at least 40 days prior to the termination date. In the absence of a notice to quit, if one of the parties wishes to claim that the lease has come to an end, there must be clear evidence of communication of the intention that the lease will be terminated given by one party to the other.

What kind of circumstances might exclude tacit relocation from operating?

The recent case of Rockford Trilogy Ltd v NCR Ltd p2021] CSOH 49 is the latest case to examine the principle of tacit relocation. In this case, the tenant, NCR Ltd, did not serve any formal notice to quit but argued that lengthy negotiations between the landlords and tenants’ agents were sufficient indication that tacit relocation was excluded. Whilst decided that tacit relocation was excluded in this case, the judge indicated that negotiation alone is not always sufficient to exclude tacit relocation.
In reaching his decision, Lord Clark, made reference to the tenants’ position as giving a clear indication that it was their intention that the existing lease should end. He cited an email which said (about the tenants’ position) “the only way they would consider remaining at the building is if the dilapidations are capped at £300k together with the nil rent proposed for 12 months”. Despite there being evidence of many exchanges between agents, it was this email that Lord Clark founded on to determine that tacit relocation was excluded.

This case was important for both parties – the annual rent was £800,000 so there was a lot riding on the outcome!

Is this position likely to change in the future?

In 2018 the Scottish Law Commission published a discussion paper entitled “Aspects of Leases: Termination”. This document contains a wide-ranging discussion on the principle of tacit relocation, the history and the notice to quit process as well as options for reform. As a result of this, a Bill entitled Leases (Automatic Continuation etc.) (Scotland) Bill with the aim of dealing with orderly termination of commercial leases. It remains to be seen if this Bill will enter into law. We will continue to monitor the position and, if it does enter into law, we can then review its terms. Its aim is to bring clarity around the term of a lease and its termination date and avoid the confusion caused through the application of the principle of tacit relocation.

Is there anything else I should be aware of?

Whist we have looked at the law surrounding tacit relocation, it is also important to be aware that the notice to quit must be served by one party on the other in accordance with the Notice provisions contained in the lease. If there is a failure to comply with the Notice provisions, the notice to quit may be ineffective.

If you are a landlord or a tenant in a commercial lease and wish to discuss the continuation or termination of the lease or how you can serve a notice to quit, please contact us.