On 24 June 2021, the Scottish Parliament passed the Coronavirus (Extension and Expiry) (Scotland) Bill.
Amongst other things, this further extended (this time from 30 September 2021 to 31 March 2022) the period during which tenants of commercial property in Scotland enjoy a level of protection against their landlords terminating their leases.
By the time 31 March 2022 rolls around, the protection will have been in place for 2 years. In brief, rather than the landlord having to give the tenant a statutory 14-day notice period before terminating the lease due to non-payment of rent, the landlord must give the tenant 14-weeks’ notice.
Earlier in June 2021 the UK Government announced that the existing measures (which apply to the UK excluding Scotland (“rUK”)) protecting commercial tenants from lease termination due to rent arrears would be extended to 25 March 2022. That announcement, though, went further and proposed that legislation would be introduced to “ringfence” rent arrears that built up while a business had to remain closed during the pandemic.
The Government’s intention is that landlords should make allowances for those ringfenced sums, and “share the financial impact” with their tenants. It was envisaged that landlords and tenants would enter into a dialogue and reach an agreement as to recovery of the ringfenced moneys. There is no compulsory method of resolving the issue, but the Government release mentioned (i) the landlord waiving a share of the arrears and (ii) a longer-term repayment plan.
Additionally, the Government’s proposal would require the landlord and tenant (where they cannot reach agreement as to how to deal with the ringfenced arrears) to follow a mandatory arbitration process, which would result in an agreement legally binding on both parties.
While this sounds like welcome news for commercial tenants in rUK, it will be important how the phrase “businesses that have had to remain closed” during the pandemic is interpreted. It seems the intention is that the relief will apply to hospitality businesses, rather than to all commercial tenants. rUK’s landlords may also take a degree of comfort in the announcement expressly stating that if a business is able to pay rent, it must do so. Treasury Secretary Stephen Barclay commented: “all tenants should start to pay rent again in accordance with the terms of their lease or as otherwise agreed with their landlord as soon as restrictions are removed on their sector if they are not already doing so.”
To date the Scottish Government has not made any similar “ringfencing” proposal, and has not made noises about introducing a comparable mandatory arbitration process. However, if virus cases spike and hospitality businesses are again required to close (whether locally, or more broadly), voices will likely be raised calling for Holyrood to help protect the industry.
For more information on commercial leases, please get in touch with Blackadders’ Commercial Property Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth, and across Scotland.
Andrew Yule, Director
The opinions expressed in this blog are of the author only and do not necessarily represent the opinions of Blackadders LLP.
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