The Leases (Automatic Continuation etc.) (Scotland) Bill ("the Bill") was introduced to the Scottish Parliament in December 2024, with the aim to modernise and clarify the law around how commercial leases can continue automatically past their termination date, as well as other procedural elements relating to ending leases.
Our Real Estate team have provided an excellent overview of the proposed changes in the Bill, and what these mean for landlords and tenants here.
This article will focus on the proposed changes in relation to irritating (terminating) a lease and apportionment of rent.
Terminating a lease early
A landlord is generally entitled to bring a lease to an end early if the tenant has materially breached the lease, and where the breach can be remedied does not remedy the breach within a fixed notice period. This is done by serving a notice of intention to irritate (an irritancy warning notice) that clearly sets out details of the breach and gives a timeframe within which the breach must be remedied. If the breach is remedied, then the landlord cannot take further steps to terminate the lease. If the breach is not remedied within the specified timeframe, then a notice of irritancy can be issued which brings the lease to an end.
The proposed changes
Service requirements
Currently, irritancy warning notices for monetary breaches of a lease, such as failure to pay rent or other sums due, can only be issued to the tenant by recorded delivery post. The Bill amends existing legislation to clarify that when a notice is served by recorded delivery, it is deemed sufficiently served if sent to:
- the last postal address in the UK provided by the tenant to the landlord,
- the tenant’s registered office, or
- where no address has been provided and there is no registered office, the tenant’s last known address.
In addition to service by recorded delivery post, the Bill proposes that such notices could also be served in Scotland by a sheriff officer. This is a change to the current position and would be a welcome development, as service by sheriff officer can often be carried out more quickly than recorded delivery and provides greater certainty that the notice has been delivered.
The Bill also allows parties to a lease to agree other methods of service, provided these are specified in the lease, alongside recorded delivery, or service by a sheriff officer. However, specifying an additional method of service does not remove the need to serve the notice by either recorded delivery post or by sheriff officer, so parties may be reluctant to add an additional service requirement.
Notification to heritable creditors
The Bill introduces a new requirement where there is a standard security over the lease - in these circumstances, the landlord must serve a copy of any irritancy or irritancy warning related notice on the creditor where the creditor has a postal address in the UK. The copy notice can be sent by recorded delivery post or served by sheriff officer. If a copy notice is not served on the secured creditor, then the landlord is not entitled to rely on the irritancy-related notice to bring the lease to an end, and the secured creditor could challenge the validity of the notice and/or the termination of the lease. Many leases already have provisions regarding service of notices on secured lenders, but plenty do not so this will standardise the process, at the same time as adding additional requirements to the checklist for the solicitor responsible for the notices.
Apportionment of rent
Leases ordinarily provide that the tenant pays rent in advance. Another change proposed by the Bill, is that where a lease ends other than by way of irritancy, the landlord is required to pay to the tenant no later than ten working days after the lease ends, any rent or other payment due under the lease that the tenant has already paid but which relates to a period falling after the end of the lease. This would be a welcome change for tenants, who may currently be unable to recover any sums paid in advance for a period beyond the end of the lease unless an express provision in the lease allows it.
What's next?
There is currently a call for views on the Bill to be submitted by 7 March 2025 and thereafter the committee will consider and report on the Bill in advance of a vote by all MSPs on the general principles of the Bill. This vote is expected to take place before the end of September 2025. If the Bill passes this vote, then there will be a period for amendments to the Bill and thereafter a debate and a final vote to determine whether the Bill is passed and should become law.
It will be some time before the various stages are complete and, if voted through, the Bill becomes law. Whilst the proposed changes will not be of immediate impact on those involved with commercial leases, landlords, tenants, and their advisors will be keenly monitoring developments.
