Leases (Automatic continuation etc.) (Scotland) Bill: island community impact assessment

Leases (Automatic Continuation etc.) (Scotland) Bill - Islands Communities Impact Assessment (ICIA)

What are the objectives of the policy, strategy or service?

The Bill implements recommendations of the Scottish Law Commission (“SLC”) published in its Report on Aspects of Leases: Termination (“the Report”).^[1] A lease is an agreement under which one party, the landlord, grants to another, the tenant, the right to use land or buildings for a definite period of time in return for regular periodic payments, more commonly referred to as rent. There are three main types of lease in Scotland: agricultural leases; residential leases; and commercial leases. It is essentially the last category with which the Bill is concerned.

The Scots law of commercial leases is principally governed by common law rules. Where that law is not clear or readily accessible, this can result in unnecessary costs for landlords and tenants. Aside from the monetary costs incurred by legal fees, this can involve delay and inconvenience to tenants and landlords. Needless disputes and litigation can occur with the result that investment in Scotland may be deterred.

The overall policy aim of the Bill is to improve, simplify and update aspects of the Scots law of commercial leases, particularly in relation to the circumstances in which leases continue after their termination dates, so that it meets the needs of a modern Scottish economy. Most businesses, large or small, operate at least to some extent from let premises, entering into leases for a variety of uses - from manufacturing through to professional services, retail, digital start-ups and the hospitality sector - and for widely differing durations. They are one of the essential building blocks of the Scottish economy and a key driver of growth and productivity, taking up 44% of all non-domestic premises that pay rates and the rateable value from those premises (which is based upon annual rent), comes to about £2.6 billion.^[2] The relationship between landlord and tenant is crucial to commercial life in this country and it is important that the law governing that relationship functions effectively.

A number of changes are made to specific aspects of the Scots law of commercial leases, including:

• the common law rules of tacit relocation and the difficulties they cause are replaced by a new statutory code which also clarifies the ability of parties to contract out of automatic continuation of a lease after its termination date;
• the form and content of notices to quit are reformed, with provisions laying out the essential content of a notice, the manner in which they may be communicated and the persons to whom they must be given;
• miscellaneous rules relating to the termination of leases generally intended to clarify the law and make it more straightforward to apply;
• allowing pre-irritancy warning notices to be delivered by sheriff officer, and further recommendations to protect the interests of lenders relying on a lease as a heritable security by allowing them to challenge irritancy notices in certain circumstances;
• an alteration to the law on apportionment of rent paid in advance, introducing an implied term obliging a landlord to repay overpaid rent covering periods after the ending of a lease.

The policy objectives of the Bill will contribute to the National Outcome on fair work and business, by providing the necessary legislative framework to help make our economy more stable, productive and efficient.^[3]

Do you need to consult?

No. In May 2018, a Discussion Paper^[4] was published by the SLC asking how the law of Scotland in relation to the termination of commercial leases should be reformed or clarified. The questions were focused principally on reform of the common law rules of tacit relocation and was open for four months, during which the SLC’s project team delivered seminars on the Discussion Paper to many Scottish law firms, surveyors and organisations with an interest in the law relating to commercial property.^[5] There were a total of 39 responses,^[6] coming from representative organisations such as the Law Society of Scotland, the Faculty of Advocates, the Royal Institution of Chartered Surveyors and the Scottish Property Federation, as well as a range of legal firms, academics, businesses and interested individuals.

In December 2021, the SLC invited comments on a draft Leases (Automatic Continuation etc.) (Scotland) Bill, particularly on certain provisions which had been developed after publication of the Discussion Paper. There were 25 responses received from a wide range of practitioners, academics and representative groups. A final version of the draft SLC Bill was published in its Report.

How are islands identified for the purpose of the policy, strategy or service?

The islands have not been specifically identified for the policy and we do not anticipate that the Bill provisions will affect differently those who live on the islands compared to those who live on the mainland.

What are the intended impacts/outcomes and how do these potentially differ in the islands?

The Bill aims to make changes to improve, simplify and update aspects of Scots commercial law.

Most businesses, large or small, operate at least to some extent from let premises, entering into leases for a variety of uses and for widely differing durations. They are an essential building blocks of the Scottish economy. The Bill makes no distinction between the leases of let properties situated on an island or the mainland. The reforms proposed in the Bill will apply to all commercial leases.

The Bill also applies to holiday lets, but as with short lets of under 3 months they are excluded from most provisions of Part 2 because they are currently excluded from the rules on tacit relocation which the Bill replaces. Accordingly no rights will be lost under the Bill.

Overall, the Scottish Government does not expect the Bill to impact differently persons residing in the islands measured against persons living on the mainland.

Is the policy, strategy or service new?

No. The Scots law of commercial leases is well-established and is widely used in the Scottish economy. The Bill aims to make changes to improve, simplify and update aspects of this area of law.