27th September 2021

“Congratulations it’s a Rollover” – the winners and losers in Tacit Relocation

For me, the principle of  “Tacit Relocation” always conjures up that part of Kenneth Wolstenholme’s commentary to the 1966 World Cup Final where he says “some people are on the pitch …they think it’s all over “and Geoff Hurst scores the final goal and Wolstenholme says “it is now! ”  Unfortunately for those on the wrong end of Tacit Relocation, as I will explain later, they don’t get to hear Kenneth’s final parting shot (excuse the pun) until sometime later!  

Commercial lease notices
I believe that most Landlords and Tenants when entering into a commercial lease, understandably believe, that the lease has a definitive start and end date, that the Tenant will vacate on that end date and the Landlord will get vacant possession at that time. If that was not to be the case, then why would they not have specified otherwise?  The principle of Tacit Relocation, however, provides that if the parties of a commercial lease do not serve notice of their intention to end the lease (before the end date in the lease) then that lease will automatically continue on the same terms and conditions until one or other of the parties does serve an appropriate notice terminating the lease. If the lease is for more than a year it continues yearly on the same terms and conditions or if it is for a period of less than a year it continues for the same lesser period, until terminated.

Historically, many considered that Tacit Relocation was a fair principle. They argued that if the parties did not intend the lease to continue they would serve prior notice and end the lease.  I confess that I have never quite seen the logic in that argument. Other property people have also historically argued against the principle as they perceived that it operated to the advantage of a Tenant and to the disadvantage of a Landlord.  These people considered that Landlords were likely to want to recover possession of the property at the end of a lease whilst Tenants would wish to remain in occupation of the property for as long as possible.  I suggest, however, that the truth of the matter is slightly different and that the principle can work to the advantage or disadvantage of both parties depending on their future plans.

Pandemic clauses
During the current pandemic, we have seen amendments made to existing commercial leases and provisions inserted into new leases to accommodate tenants.  During these hard times pandemic clauses have been used to provide for extended rent-free periods, discounted rents and the like which a Landlord may not wish to have continue after the date they thought their lease would end, although bad drafting might mean they will. Landlords may also want vacant possession at the end date in the lease because they are looking to redevelop the property or they can see a change in the market which would secure a higher rental value and/or a longer lease period.

Similarly, a Tenant may not wish the lease to continue and to remain in occupation of the property due to their future business arrangements or because they are struggling in the current climate and have not secured the benefit of pandemic provisions. Yet despite the desires and beliefs of a Landlord or Tenant, Tacit Relocation may apply and the parties may find themselves stuck with paying rent for another year or losing a development or other opportunity.

It is imperative therefore that both a Landlord and Tenant bear in mind the principle of Tacit Relocation and how to prevent this from operating. They should be aware that if either party wishes the Lease to terminate at the end date in the lease, then they should serve written notice on the other party doing so by way of a formal “Notice to Quit”.  That notice should follow a tried and tested form. It must be given within a required period prior to the end date in the lease and be served in line with the notice provisions in the lease

Terminating a lease
In the absence of any provisions to the contrary in a lease,  in order to terminate the lease a Tenant or a Landlord must give at least forty clear days’ notice prior to that end date contained in the lease. Many recommend that at least 42 days should be given but the longer period of notice, in most instances, the better. A notice not given within sufficient time or in an appropriate form can be treated as invalid and Tacit Relocation will apply.

There is a recent case of Rockford Trilogy Ltd v NCR Ltd (2021 CSOH,49) which suggests that some lesser form of notice might allow termination. In that case the tenants, NCR, had not given a formal written notice to quit but had sent an email intimating that the only way they would consider remaining at the property they let, was if the building dilapidations were capped at £300,000.00 together with a nil rent for twelve months.  The Court held that this indicated quite clearly that the tenants were not intending to stay on under the terms of the existing Lease. The fact that the tenants had done this meant that unless the landlord were to agree with this proposal the tenants would end the Lease. The Courts, therefore, overrode the assumption on which Tacit Relocation is based which is that the parties had silently agreed to continue the Lease.  I would, however,  caution the reader about relying too heavily on this case and on informal notices as (firstly) the email was sent within the required notice period and (secondly and I suggest more importantly) the Judge made it clear that “the prudent means of giving proper notice is by a notice to quit drafted by an appropriate adviser”. The Court also advised that other means of intimation can create a risk of insufficient notice.

Had the Tenant lost in the case in Rockford then the Landlord would have been looking at receiving an annual rent of £800,000.00., a sum which might have made the Landlord feel a bit like a lottery winner or, dare I say it, a “Rollover” winner. My advice therefore is, using the words of Kenneth Wolstenholme (albeit slightly changed), if you want to avoid being a “Rollover” loser then when you believe that the lease is all over make sure it is!

For help and advice on commercial leases, please contact a member of the Blackadders’ Commercial Property Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth, and across Scotland.

Fraser Hardie, Partner
Commercial Property
Blackadders LLP
@BlackaddersLLP

www.blackadders.co.uk

 

 

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