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New Protections for Commercial Tenants in the Coronavirus Outbreak

In response to the dramatic reduction in cashflow for most small businesses, commercial tenants in Scotland are now benefiting from additional protection from eviction on the grounds of non-payment of rent amidst the COVID-19 pandemic.

The Coronavirus (Scotland) Act 2020 became law on 6 April 2020. As part of government measures to protect small businesses, this Act has brought in an extension on the period of notice for termination of a lease as a result of non-payment of rent.

The law on irritancy pre-pandemic

Previously, a landlord was only required to give 14 days’ written notice to terminate a lease on the grounds of non-payment of rent, unless any provision in the lease stated a longer period. During the notice period, the tenant has an opportunity to bring the rent up to date, in which case the tenancy could not be terminated. If the arrears are not cleared, the landlord can take steps to evict the tenant after the 14-day period.

What are the changes?

The minimum 14-day period of notice has now been extended to 14 weeks under the new legislation. Whether or not the tenant was in breach prior to the change in law on 6 April 2020, they must now be given 14 weeks’ notice. If notice was served before this date, the lease cannot be terminated after just 14 days, unless that period had already expired before 6 April. Unless that is the case, a fresh notice needs to be served which provides a minimum of 14 weeks’ notice, subject to any longer period stated in the lease. In any event, the courts and tribunals are currently dealing with urgent business only, and it is therefore unlikely that eviction proceedings will be processed and heard for some time. Practically, landlords will largely be unable to evict commercial tenants for non-payment of rent until at least July. However, it is important to remember that the new legislation only deals with payment of rent, and it’s therefore important for tenants to make sure they continue to comply with other tenancy obligations in the lease.

How long will these changes last?

The Coronavirus (Scotland) Act 2020 will remain law only temporarily, and until 30 September 2020. However, this may be extended by 6 months to 31 March 2021, and again to 30 September 2021 if deemed necessary.

What is not affected?

The new legislation does not amount to a payment holiday and does not alter the tenant’s obligations to make payment to the landlord. It simply affords a longer period to do so without consequences of termination of the lease, and it should be borne in mind that there are other risks for tenants who withhold rent (such as forfeiture of deposits and break options) and we recommend that tenants take specific legal advice on these matters. It also remains possible for landlords to enforce payment of overdue rent by debt recovery procedures. Whilst consideration has been given to introducing legislation suspending creditors’ ability to take steps enforce payment of debt by way of Statutory Demands, no measures in Scotland have yet been put in place to that effect – read our blog on this issue for more information. Any negotiation of payment holidays should be agreed voluntarily and directly with the landlord, and agreed in writing. You may also need the consent of lenders and other parties.

If you need any assistance with these negotiations, advice on your rights or obligations, or with documenting what has been agreed, please contact MBM Commercial’s Dispute Resolution team on 0131 226 8200 or at DisputeResolution@mbmcommercial.co.uk and we will be happy to assist.

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