Coronavirus: protection from termination of commercial leases in Scotland

The Coronavirus Act 2020 suspended a landlord’s ability to take forfeiture action for business tenancies in England and Wales so that business tenants who can’t pay their rent will be protected from forfeiture. These measures, effective from 26 March 2020, mean no business tenant can be forced from their premises if they miss a payment in the next three months (ending on 30 June 2020 – a date capable of extension by the UK Government).

These provisions don’t apply to leases of property in Scotland so the Coronavirus (Scotland) Bill has now introduced similar protections for commercial tenants who lease property in Scotland. They will be protected from termination for non-payment of rent by extending the usual pre-irritancy notice period set out in the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 from 14 days to 14 weeks. The Scottish Government has reserved the power to extend the 14-week time limit, meaning that a 14-week notice period could be extended after the notice is served.

The Bill also provides that any pre-irritancy notices for non-payment of rent or other monetary sums due served on tenants prior to the Bill coming into force become void if they haven’t yet expired. The Bill has been passed by the Scottish Parliament so is currently waiting for Royal Assent.

What does this mean for landlords and tenants?

If a tenant has not paid their rent, service charge or the insurance premiums to be reimbursed to the landlord or any other payment due to the landlord, the extension of the notice period gives the tenant some extra time to do so. It also gives a reasonable amount of time for the landlord and tenant to discuss and potentially agree alternative payment arrangements or a deferred payment schedule if required.

However, it is important to emphasise that this new legislation has its limitations. It doesn’t prevent landlords from irritating leases for non-monetary breaches although to do that requires a landlord to meet the objective standard of acting as a fair and reasonable landlord would in all the circumstances which, at present, is not going to be that easy at all for a landlord.

The legislation only protects the tenant from irritancy for monetary breaches by pushing out the notice period. It doesn’t create a rent-free period, nor does it remove the landlord’s other remedies. So, the rent remains due and will need to be paid at some point unless the landlord and tenant can come to a mutually acceptable alternative agreement.

While the Government is keen to encourage co-operation on the basis that “we are all in this together”, a landlord (who is perhaps under financial pressure from its lender) would still be entitled to pursue its tenant by other means to recover arrears such as:

• drawing down payment from a rent deposit
• adding interest in accordance with the interest provisions in the lease
• suing the tenant and/or any guarantor for the debt

Comment

In conclusion, neither landlords nor tenants should assume that this new legislation will resolve the business cashflow issue that the Coronavirus lockdown has caused. Furthermore, it is only likely to be in force for a temporary period of time from April 2020.

For as long as these provisions are in force, they simply provide “breathing space” for a tenant unable to pay the monetary sums due to the landlords.

Commercial landlords and tenants would be well advised to use this time to address whatever cashflow issues arise and, if necessary, agree a mutually acceptable solution if that is possible.

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Landlords should seek advice if they are concerned about what this means for them so that their rights and responsibilities can be explored.