End of restrictions for commercial landlords and a summary of enforcement options

The restriction on commercial landlords irritating (the equivalent in Scotland of forfeiture) leases has ended.

As a result of the pandemic, legislation was brought in to force in Scotland on 7 April 2020 which included an extension of the time period for tenants to make payment of sums due under a pre-irritancy notice from 14 days to 14 weeks. This restriction was then extended several times and was originally due to end on 31 March 2022. Further regulations have now specified that the restriction expires on 30 March 2022. At this point, the notice period for irritancy notices will return to the significantly shorter 14 days. (For any notices issued before this date the 14 week time limit will still apply).

The restriction only applied to monetary breaches (e.g. rent arrears) under commercial leases. The position in relation to non-monetary breaches (e.g. allowing the property to fall into disrepair) did not change during the pandemic and it has always been the case for non-monetary breaches that fair and reasonable notice must be given. The restriction also did not prevent a commercial tenant from being removed. However, the lifting of the restriction will still no doubt be welcomed by commercial landlords.

It is also worth noting that whilst legislation has been introduced in England & Wales in respect of commercial rent debt accrued during the pandemic, this does not apply in Scotland.  A “Code of Practice for commercial property relationships following COVID-19 pandemic” was introduced on 9 November 2021. Although the Code of Practice is UK wide, it mainly relates to the new legislation in England & Wales and so the Code only applies in Scotland in terms of negotiation.

Issues for a Landlord to consider now that the restrictions have been lifted

A landlord seeking to irritate the lease should be mindful of whether there is actually any benefit in taking back possession of the premises. Ultimately the landlord may find that it is just left with a vacant property and all the associated costs and risks that go along with that. In addition, there may be other issues such as dilapidations to consider as well. Lastly, if the tenant doesn’t vacate then the landlord will require to obtain a court order in order to obtain possession of the premises.

It may therefore be worthwhile also considering some of the alternative options for recovering rent arrears that are available to landlords in Scotland.

Reminder of enforcement options in Scotland

Summary Diligence

If the lease is registered for preservation and execution in the Books of Council and Session then summary diligence may be used to recover rent arrears (and possibly other outstanding sums). This can include:

• Arrestment order: An arrestment can be used against moveable goods and money owned by the tenant. It is usually used where money is held by a third party (often a bank) for the tenant. An arrestment would allow the landlord to “freeze” the funds due to it.

• Attachment of goods: goods (e.g. stock) or equipment belonging to a tenant can be attached. It can also be possible in certain circumstances to serve an attachment of money which would attach cash.(A charge for payment requires to be served and expired before an attachment order can be served).

• Service of a charge for payment: Payment of the sum due is required to be made within 14 days. Failure to make payment within the time limit constitutes a ground for winding up (and is also a requirement for other forms of diligence such as attachment).

The restrictions on winding up petitions being issued for commercial rent debt which was unpaid by a reason of the financial effect of Coronavirus is being removed on 31 March 2022. As such it will now also be possible for Landlords to petition for the winding up their tenant.

Court action

It has remained possible throughout the pandemic for landlords to raise a court action in Scotland against a tenant for payment of rent.

Landlord’s hypothec

In the event a tenant goes into administration, the landlord has a right of hypothec over the tenant’s moveable property in the tenanted premises. If there are assets at the leased property and they are sold by the insolvency practitioner (IP), the landlord is entitled to demand payment of its unpaid rent from the proceeds of the sale. However, the landlord does not have the right to sell the assets themselves so if the IP doesn’t sell and no agreement can be reached then the assets will vest in the Crown. The landlord will then have to either arrange to purchase from the QLTR (the Crown’s representative in Scotland) or make arrangements to clear the premises at its own cost.

With the notice period that a landlord requires to give to a tenant to end a lease on the grounds of a monetary breach returning to 14 days, landlords may now be considering this or other enforcement options.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.