A new leasing bill provides some clear rules to a complex feature of Scots law, writes KATIE CORRIGAN
Three years ago we highlighted the risks inherent in the automatic renewal of commercial leases (known as tacit relocation) and noted that the Scottish Law Commission had recommended reform to this peculiarity of Scots law. Now change is finally here as new legislation has been tabled to create a statutory framework with clear rules.
The key issue with tacit relocation is lack of transparency: the necessary notice period and the automatic renewal if no notice is served, is not set out in leases.
To avoid the trap of a commercial lease renewing automatically requires knowledge. And to add to the risk, notices must strictly follow the notice requirements set out in the lease. A failure to do so will invalidate any notice and lead to the lease continuing for another year.
If all that was not bad enough, to compound matters, the law is not clear on whether parties can contract out. The case law on this is vague, but it is not common in practice, and this lack of clarity has left businesses relying on a system that is often difficult to navigate and prone to costly mistakes.
Replacing Tacit Relocation with Automatic Continuation
Under the Leases (Automatic Continuation etc.) (Scotland) Bill, we will get clearer rules. Tacit relocation is renamed as “automatic continuation”, although the principle remains the same. However, what the Bill puts beyond doubt is that landlords and tenants can opt out of automatic continuation, if clear wording to that effect is included in the lease.
Changes to Notices: Greater Flexibility and Reduced Risk of Rejection
The Bill loosens notice requirements, reducing the risk of a lease continuing due to either oversight or immaterial errors, and a notice will remain valid as long as its intent is clear, even if:
- The name or address of the sender/recipient contains minor errors.
- The property description is slightly inaccurate but still identifiable.
- The termination date in the notice is up to 7 days late, provided it does not create genuine uncertainty.
New Notice Period Rules
The Bill also introduces clear default rules for the timing of a notice to terminate a lease :
- Leases of six months or longer – Three months’ notice is required.
- Leases under six months – Notice must be given at least half way through the lease period.
- Leases of 28 days or less – No notice is required.
Notice is considered given when received, and while these rules can be modified within leases, they must apply consistently to both landlords and tenants, so these changes move to standardise notice periods and reduce uncertainty around lease termination.
New Rent Repayment Rules: Protecting Businesses from Overpayments
Currently, tenants have no automatic right to a rent refund unless the lease explicitly allows it. The Bill, however, introduces a statutory right for tenants to reclaim advance rent payments if a lease ends early, and under the new rules, unless stated otherwise, Landlords must repay any rent covering a period beyond termination (for any reason other than irritancy) within 10 working days.
Impact on the Commercial Property Market
This Bill represents a long-awaited modernisation of Scotland’s commercial leasing laws, providing much-needed certainty for landlords and tenants alike by introducing clear statutory rules on lease renewals, notice periods, and stakeholder rights.
While the Bill simplifies many aspects of lease management, it also introduces new obligations that businesses must be aware of. As the legislation progresses through the Scottish Parliament, landlords and tenants should take the opportunity to review their lease arrangements to ensure they are prepared for the changes ahead.
This may all seem dry and mechanical stuff, but these changes are significant and will have far reaching commercial effects for both landlords and tenants.
Katie Corrigan is a senior legal director and head of real estate at Vialex
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