The pressures on high street landlords are often not part of the recent headlines and articles about the fall-out coming from the collapse of big name high street tenants, but landlords have to grapple with major issues and their lawyers having to move from ‘normal’ landlord/tenant legal issues to those of insolvency law. But these headline cases do expose that these pressures exist and it is still helpful to remember that the ‘normal’ rules normally apply. As a result, with the pressure on tenants cutting across all commercial sectors and rents and other monies not being paid, landlords need to remember that the ‘normal’ laws have to be applied and observed.
A major commercial question when a commercial tenant starts not paying rent or other sums, is whether the commercial landlord is still better to retain that tenant – better the devil you know – or cut its losses hoping a better tenant can take its place. Various commercial factors (including income, repair, insurance and rates ) all play their part in that decision. But if the decision is taken to terminate the lease (that is known as irritating), then certain rules must be observed, and no matter what the lease may (pretend to) say otherwise. That’s because there’s relevant legislation dating from 1985 affecting commercial leases (the Law Reform (Miscellaneous Provisions) Scotland Act 1985). The Act requires that, before being able to irritate a commercial lease, by reason of the tenant’s not paying the rent (or other monies), the landlord has to
- serve formal notice on the tenant stipulating the outstanding sums (and any interest) and warning that the lease may be terminated
- give the tenant at least 14 days to make payment
Service of such a notice on a recalcitrant tenant can be a very effective means of debt recovery but if the tenant fails to pay within the stipulated period then the lease is irritated; a further formal letter should be issued to the tenant so advising. That then entitles the landlord to raise court action to recover the property from the tenant.
The situation is more complicated, and less certain, where non-financial breaches are the source of the landlord’s dispute with the tenant; a different process has to be followed and a court will only order irritancy if it considers a fair and reasonable landlord would rely on the breach.
Often in these situations different interests and perspectives arise and clash. It can be vitally important to get things right from the off and early and focused legal advice can prove to be the key to long term success.