Scottish Law Commission Discussion Paper published on Tenancy of Shops (Scotland) Act 1949

Should there be special cases for termination of leases?

The Tenancy of Shops (Scotland) Act 1949 provides limited protection to tenants of certain properties where they have been served with notice to quit and are unable to find suitable alternative premises. The tenant can apply to the sheriff court for a renewal of the lease, within 21 days of service of a notice to quit, for a maximum period of one year. The position has been under review over several years and the SLC Is now consulting on the various options available. The SLC invites views from everyone with an interest from businesses to investors, by 31 July 2024. 

Issues with status quo

The Act is not well used as a time-buying measure by tenants, possibly because it is not well known. There are also several grey areas in terms of which premises the Act applies due to the increasing number and type of services which are now made available to the public from ”retail” premises, compared to when the Act was introduced. 
The Act was introduced as a temporary measure at a time of post-war austerity to assist operators in providing essential services, and over time, it was made permanent and the type of premises caught has been extended, in part due to employment legislation. It is now understood the Act applies to shops of all types, garden centres, car showrooms, cafes and restaurants, takeaways, public houses, warehouses and wholesale units, retail auction rooms, hairdressers, but not beauty salons, nail bars or tattoo parlours. The position becomes more confused when considering mixed use premises. 
Currently, the sheriff has discretion on whether or not to grant a lease renewal, and the Act does not make  clear whether it is for the landlord to establish that granting vacant possession is reasonable, or for the tenant to establish that renewal is reasonable. This did not appear to cause an issue until lease practice changed and longer leases were entered into. Although there is a dearth of case law, two cases involving large operators in 2013 and 2015, were decided in favour of the landlord. It was considered that the Act was not restricted to assisting small businesses, and the sheriffs considered various issues, in assessing what was reasonable. Every case is decided on its merits, making it very difficult to predict the outcome of an application for either party. 

There are six mandatory grounds where the sheriff must refuse renewal:

1. tenant is in breach of lease terms to a material extent;
2. individual tenant is apparently insolvent, or company tenant is unable to pay its debts;
3. landlord has offered to sell the premises to tenant with price fixed by arbitration or court;
4. landlord has offered suitable alternative accommodation to tenant on reasonable terms;
5. tenant has served notice of termination as a result of which landlord has entered  into a contract to sell or lease, or taken other steps as a result of which it would be seriously prejudiced if it could not obtain possession;  and
6. having regard to all the circumstances, the sheriff believes greater hardship would result from a decision to renew. 

What changes are proposed 

The consultation seeks to establish if the Act should be repealed and is no longer required due to a changing market and changes in the way services are provided to the public; or if the Act should be amended or replaced with legislation which involves a different process and perhaps applies to small retailers only, which are perceived as needing more protection than large national operators. 
There are several questions and issues posed for consideration, but in brief the options proposed are:

1. Repeal the Act and replace with mandatory notice of 6 months for leases more than a year; 3 months for leases between 6 months and a year; and 1 month for leases between 3 and 6 months. Failure to serve notice would result in automatic continuation of up to a year, subject to a tenant break right on 3 months’ notice.  
2. Repeal the Act so there is one rule for all. Shops would be subject to existing rules usually getting only 40 days’ notice. As currently, it would be open to the parties to agree a longer period of notice or to dispense with notice. 
3. Maintain a court process to enable renewal for up to a year, but create a gateway test to restrict applicants to “small” tenants, perhaps aligning with the definition of micro entities for the purposes of reporting to Companies House. Criteria would be set out which the court must consider in deciding whether to grant a lease renewal. Mediation would be a condition precedent of being able to make an application and there would be a cap on recoverable expenses from the court process.   
4. Continue with the status quo, given that the Act is little used, but becoming more difficult to navigate 70+ years on. 

The Scottish Law Commission are holding webinars to discuss the proposals the next of which is on Thursday 20 June 2024 at 12.45pm. Anyone interested may attend and the link to the website is here. They are keen for people to engage in the consultation and express their views. The response form contains 81 questions, but they stress you do not need to answer them all, and indeed you can simply answer the last one confirming your preferred option for the future.  

Further reading

Link to Scottish Law Commission News Release, Executive Summary and Discussion Paper are here