The Current Legal Position: Tacit Relocation
In Scotland, commercial leases operate under the principle of tacit relocation. This allows leases to automatically continue for another term beyond the expiry date, unless either the landlord or tenant serves a notice to terminate. This system, rooted in Roman law, was originally designed to support agricultural activities but is now often at odds with modern commercial leasing practices. Under the current system, parties must give 40 days' clear notice before the lease term ends to prevent automatic continuation. Different rules can apply for properties larger than two acres, with notice periods ranging from one to two years in terms of the Sheriff Courts (Scotland) Act 1907 ("1907 Act"). In December 2024, the Scottish Government introduced the Leases (Automatic Continuation etc.) (Scotland) Bill ("the Bill") to simplify and update these rules.
Issues with the Current System
The current tacit relocation system presents several issues:
- Being part of Scots common law, its existence is not evident from the face of the lease and so parties are unaware of its existence.
- It is outdated and mismatched with modern commercial lease practices.
- There is uncertainty about the interaction of the common law notice periods and the longer statutory notice periods for larger properties under the 1907 Act, which causes confusion.
- The automatic renewal process can be unclear for both landlords and tenants, leading to potential misunderstandings about lease continuation.
The Leases (Automatic Continuation etc.) (Scotland) Bill
To modernise and clarify the common law rules on tacit relocation, the Scottish Government introduced the Bill in December 2024. The Bill aims to streamline how leases can automatically continue after their initial term, replacing the outdated rules of tacit relocation.
Key Provisions of the Bill:
- Ending a Lease: The Bill allows parties to agree to contract out of automatic continuation meaning that the lease will automatically end at its termination date. Alternatively, one party can serve a notice to end the lease.
- Notice Requirements: For leases of six months or longer, the notice must be given at least three months before the termination date. For leases shorter than six months, the notice must be given at least one month before the termination date.
- Additional Rules: In addition to codifying the common law rules on tacit relocation, the Bill addresses some other areas relating to leases where the current law is unclear or unsatisfactory. For example, the Bill includes provisions for determining the start date and duration of a lease when this is unclear, and it also mandates that all parties must provide a UK address where documents can be sent. It also clarifies the process for landlords to terminate leases early (irritate), particularly if there is a standard security over the lease.
- Rent Repayments: If rent or other payments were made in advance and cover a period after the lease ends, the Bill allows for repayments to be made.
What the Bill Means for Tenants and Landlords
If the Bill becomes law, it will provide clearer rules regulating when and how commercial leases continue beyond their initial term. The Bill’s provisions would help ensure that both landlords and tenants understand their rights and obligations, reducing the potential for disputes.
For Tenants: The Bill will provide more stability and predictability, with clear rules ensuring that leases automatically renew unless proper notice is given to terminate them. This could benefit tenants who wish to maintain occupancy without the uncertainty of having to renegotiate leases every year.
For Landlords: The Bill could allow landlords to adjust their strategies for managing lease terms and will provide greater clarity for landlords managing lease renewals and terminations. The clearer rules around notices and termination will make lease agreements easier to navigate, reducing the risk of accidental renewals or confusion over termination dates.
The Legislative Process
The Bill is currently at stage one of three of its legislative journey. The Delegated Powers and Law Reform Committee have opened a call for views to aid in its consideration of the Bill. The call for views closes on Friday 7 March 2025. The next step in the process is for the Bill to be examined by the lead committee, with other committees potentially reviewing the Bill as well. Once the Bill passes through the committee stages, all members of the Scottish Parliament will debate its general principles before voting. If the principles are agreed upon, the Bill will proceed to subsequent stages before potentially becoming law. Parliament has agreed that Stage one must be completed by 19 September 2025. Therefore, if the Bill does become law, it will be sometime before we see the effects.
What Now?
The introduction of the Bill marks an important step towards modernising the legal framework surrounding commercial leases in Scotland. By replacing the outdated and often confusing rules of tacit relocation with a clearer and more predictable process. The Bill will provide both tenants and landlords with the certainty they need regarding lease renewals and terminations. If passed, it promises to simplify lease agreements, reduce disputes, and align Scotland’s leasing practices with contemporary business needs.
For both tenants and landlords, it’s important to stay informed about the progress of the Bill and its potential impact on leases and lease management. If you have questions or need guidance on any aspect of the Bill, please contact a member of the Real Estate team.
This article was written by Sasha Fothergill, a Trainee Solicitor in the Real Estate team.
