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Historic Protections for Modern Tenants

Posted on Nov 25, 2015 by Helen McGrath  | 0 Comments

 

MBM Commercial Property

There is little legislation governing the law of commercial leasing in Scotland, unlike south of the Border, so when a case arises which reminds us of a little-known statute which does, it’s looked at with interest.

 

Over the past few years, there have been a number of cases on the application of the Tenancy of Shops (Scotland) Act 1949 (“the 1949 Act”) to modern leases, the most recent of which being Select Service Partner Limited v Network Rail Infrastructure Ltd 2015 (“the Select Case”).

The 1949 Act

The 1949 Act is a succinct piece of legislation (only 3 sections) and, while it does not say so in the Act itself, was brought in after the Second World War to protect small shopkeepers against property speculators who had created a practice of buying up properties and then forcing the tenants to either buy at an inflated price or be evicted.

In short, the 1949 Act allows a shopkeeper who has received a valid notice to quit requiring them to remove at the end of the agreed tenancy and has been unable to agree satisfactory terms for a renew with their Landlord to make an application to the Sheriff Court for a renewal. If the conditions of the Act are met, then the Sheriff has the discretion to impose a new lease on the Landlord for up to a year and otherwise on such terms, and at such a rent, as the Sheriff considers reasonable.

This can be quite a shock for Landlords who, quite reasonably, would assume that they will be able to recover possession of their property at the end of a Lease where they have served the correct amount of notice to do so. Even if they were aware of this particular piece of law, it may still surprise a Landlord to discover that it is most often relied on by large, multi-national chains, can be used repeatedly and may not be limited to the traditional idea of what is a ‘shop’.

With such a powerful protection for tenants, the question turns to what criteria must be met for the 1949 Act to apply. 

The first hurdle is that the Lease in question must relate to a ‘shop’. The statutory definition includes any premises where a retail trade or business is carried out. This means that your local sandwich shop or coffee bar would easily fall within the protection of the Act.

The second hurdle is that the Tenant must raise their application with the Sheriff Court within 21 days of receiving their Notice to Quit from the Landlord and before the Lease comes to an end. Not much time to agree terms for a renewal- the 1949 Act referring to the fact that a Tenant will have been ‘unable’ to do so before making their application.

The third hurdle is the following conditions must apply- if they don’t, then the Sheriff is precluded from granting the Tenant’s application:-

  • the Tenant must not be in material breach of their Lease obligations;
  • the Tenant must not be bankrupt or insolvent;
  • the Landlord must not have offered to sell the premises to the Tenant at such price as, failing agreement, has been fixed by an independent arbiter;
  • the Tenant must not have served notice to quit following which the Landlord has subsequently sold or let the property or otherwise acted in a way which would seriously prejudice him should he not be able to obtain possession;
  • the Landlord must not have offered the Tenant reasonable alternative accommodation, suitable for their business; and
  • having regard to all circumstances, greater hardship would be caused by a refusal to grant the renewal than by granting it.

Finally, despite arguments in the past to the contrary (see the case of Edinburgh Woollen Mill v Surinder Singh & Others 2013), it is settled that the 1949 Act does not oblige a Sheriff to impose a new Lease on a Landlord even where all of the above criteria are met if they do not feel that it would be reasonable to do so. 

The Select Case

In the Select Case, the site in question was the ‘Upper Crust’ sandwich shop at Waverley Station. As this site involved a retail element, the first hurdle had been passed and it was deemed to be a shop to which the protections of the 1949 Act would apply. 

The Landlord was planning a redevelopment of the Station which would involve closing all food and drink outlets within the Station for a couple of years while works were carried out. The only site which would not be affected was the Tenant’s, but their lease was coming to an end. The Landlord decided it would be beneficial during and in the run up to the period of the works for the only food outlet to be a well-known coffee shop and served a Notice to Quit on the Tenant requiring them to remove at the end of their Lease. 

The Tenant submitted their application to the Sheriff Court within the 21 day period to do so, but the question arose as to whether they were obliged to have sought to obtain a renewal of the Lease direct from the Landlord before they did. While the Court acknowledged that the tight timescale may mean that not much could be done towards agreeing a renewal, the implication was that something was required on the part of the Tenant (although a simple approach to the Landlord requesting a renewal which was not successful would probably be sufficient). The Tenant in the Select Case, therefore, had not met the second hurdle.

Notwithstanding this, the Sheriff went on to consider whether the third hurdle would have been met in the Select Case. It was not disputed that the Tenant was in breach of its lease obligations and it was certainly not insolvent. There had been no offer to sell the premises to the Tenant, the Tenant was not the one who served the Notice to Quit and the Landlord had not offered any alternative accommodation. Therefore the only question was whether the burden of hardship would rest more on the Landlord or the Tenant were the Lease allowed to terminate or be renewed by the Court.

The Tenant cited the economic impact giving up such a prominent site would have on its business, the effect of the loss of their only ‘Upper Crust’ site in Edinburgh on their brand and the likelihood of having to let staff go if they had to close. They argued that they were able to meet the same needs as the Landlord’s proposed coffee house tenant and therefore there would be little to no impact on the Landlord by letting them stay.

The Landlord argued that it was reasonable for them to want to have a leading brand in its only outlet for the duration of the works which would result in more income to them, that the Tenant was currently the worst performing brand within the station and that the impact on the Tenant was overstated given the size of their organisation. The Landlord also argued that the impact of a renewal on the end users i.e. the railway customers, should be taken into account and that they would prefer a leading, coffee based brand as the only outlet during the works to a lesser know, food-based brand.

In the end, the Sheriff decided that hardship would be no greater felt by either party but that ultimately it would not be reasonable to grant the Tenant’s application.

While they reiterated that the 1949 Act was not restricted to protecting ‘small shopkeepers’ against a Landlord acting unscrupulously (as the Act itself does not contain these restrictions), the size of the Tenant could be considered when considering reasonableness and hardship.

In the Select Case, the Tenant was a billion pound, multi-national operator and the site in question was only one of around 2000 run by them under a number of well-known brands. The loss of trade and goodwill was therefore not significant to them and they had the capacity to absorb the employees into other outlets operated by them (including another elsewhere within the station).

So, while the Select Case has been another blow to the use by large multi-nations organisations of the protections in the 1949 Act, it is far from fatal.

Contact MBM Commercial

If you have If you have any questions about the 1949 Act or any of the issues raised in this article, please contact a member of the MBM Commercial LLP Property Team.

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