The Team

Make sure your commercial lease ends when it’s supposed to end!
20/05/2022
Make sure your commercial lease ends when it’s supposed to end!

There is a principle in Scots law known as tacit relocation. That means if you do not serve notice to quit in good time as your commercial lease comes to an end, it will continue for a further 12 months. This applies to both the landlord and tenant.
 

A commercial lease contains many clauses and these include the commencement date and the duration. To the unexperienced, there is an assumption that the lease will come to an end on the termination date in the lease. It is likely to come as a surprise to many that even though the lease has a duration, the lease will only come to an end once either the landlord or tenant take certain action.
 

To bring the lease to an end, either party must serve a notice to quit on the other at least 40 days before the termination date. If the parties fail to serve such a notice, unless there is clear evidence of communication between the parties of a clear intention to terminate the lease from one of the parties, the lease will continue as the principle of tacit relocation applies.
 

Apart from a notice to quit, what else excludes tacit relocation from operating?

A good example of the extent to which either party must go to exclude the principle of tacit relocation from operating can be found in the case of Rockford Trilogy Ltd v NCR Ltd p2021] CSOH 49. The tenant in this case was NCR Ltd. They had entered into lengthy negotiations with the Landlord but did not serve a notice to quit before the termination date of the lease. The landlord, Rockford Trilogy Ltd argued that the absence of a notice to quit meant the principle of tacit relocation applied and the lease should continue for a further 12 months.
 

The judge indicated that negotiations on their own were insufficient to indicate that tacit relocation should not apply. However, Lord Clark indicated that a clear intention to bring the lease to an end was contained within the negotiation communications. In relation to the tenant’s position, he pointed to an email send on their behalf stating “the only way they would consider remaining at the building is if the dilapidations are capped at £300k together with the nil rent proposed for 12 months”.
 

One of the key elements of tacit relocation is that the rent and all other conditions in the lease remain the same. It was particularly important for both parties in the Rockford case because the passing rental was £800,000 per annum!
 

Is there any change on the horizon?

The Scottish Law Commission published a discussion paper called “Aspects of Leases: Termination” in 2018. There is a full discussion about the principle of tacit relocation and the notice to quit process. It also contains options for reform and in December 2021, a draft Bill entitled Leases (Automatic Continuation etc.) (Scotland) Bill was published. The aim of this Bill is to deal with terminating a commercial lease in an orderly fashion. This is not yet law, however, should it become law, we will bring the new provisions to your attention.
 

Are there any other potential pitfalls in the lease?

If your lease is coming to an end, it is very important to pay attention to the terms of the Notice clause in the lease. There is no point in service a notice to quit in the wrong way or to an incorrect address. All that will mean is that the notice is ineffective and tacit relocation will apply!
 

If you need any advice or assistance in relation to the termination of a commercial lease or any other element of your commercial lease, please get in touch with us.