Automatic Continuation of Commercial Leases

Automatic Continuation of Commercial Leases

Will my commercial lease ever end?

The current legal position in Scotland is that a lease of a commercial premises automatically continues beyond its original contractual expiry date on the same terms (including rent), from year to year, until either the Landlord or Tenant gives notice (usually 40 days) to terminate.  This is known as “tacit relocation”.

You will not see this spelled out clearly in your lease – it’s (unwritten) common law that exists outside of the written terms of your lease. For that reason, it is overdue an overhaul as currently you can be caught out, and sleepwalking into an expensive, unwanted renewal for 12 months can be quite easy.

Change is coming

In October 2022, the Scottish Law Commission (SLC) published its Report on Aspects of Leases: Termination with a view to modernising the current position and making the rules more accessible. This has led to the introduction of ‘The Draft Leases (Automatic Continuation etc.) (Scotland) Bill’.

Some of the key proposals are:

1. Changes to Terminology – It is proposed that the existing terminology should be modernised, replacing the term “tacit relocation” with “automatic continuation”.
2. Statutory Code – A new statutory code should be created to replace the existing common law. While it would still be possible for leases to continue automatically parties will be able to contract out of that position at the start of the lease.
3. Renewal Periods – It is recommended that the default continuation period should be one year where the lease is for a period of more than one year, or a period equal to the period of the lease for shorter leases. The SLC recommends that the parties may agree to reduce these default periods to a minimum of 28 days (for leases granted for more than 28 days). Again, this encourages parties to consider what they would like to happen at the end of a lease and gives parties greater control.
4. Changes to Notice Periods – The SLC has recommended minimum termination periods which are longer than the common law 40-day period. For leases of six months or longer, at least three months’ notice should be given. Where the lease is for less than six months, at least one month notice should be given.

What next?

It remains to be seen whether the Scottish Government will find space for these proposals in its legislative programme. Until then, the old common law still applies, and a great deal of care is required to ensure that your lease ends when you want it to. It is recommended that you discuss this with your solicitor as early as possible.

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