New Discussion Paper questions future of the Tenancy of Shops (Scotland) Act 1949

When the Scottish Law Commission (SLC) first invited comments in 2018 on the wide-ranging topic of termination of leases, it sought views not only on those elements which were subsequently covered in its draft bill, the Leases (Automatic Continuation etc) (Scotland) (Bill) published in 2022, but also on the Tenancy of Shops (Scotland) Act 1949.

Given the diverging views on the 1949 Act, the SLC decided that it merited a separate consultation, which led to the recently published Discussion Paper. This consultation closes on 31 July 2024.

Background

The 1949 Act was brought in after the Second World War to address the issue of a number of landlords looking to obtain vacant possession of their properties for the purpose of redevelopment, leaving a dearth of available retail premises and a loss of livelihood for the evicted tenants.

It was originally passed on what was intended to be a temporary basis in 1949, but by 1964 this had been made permanent.

The protection that the 1949 Act provides is to allow a tenant, having been served with a notice to quit, to apply to the court for a renewal of the lease for up to one year, with no limit on the number of times this can be exercised.

The original consultation in 2018 asked simply whether the 1949 Act should be repealed, with the vast majority of respondents indicating that it should be.

However, with those opposed to repeal including a significant retailer and also the Federation of Small Businesses, the SLC consulted further with 20 stakeholders - an even split of representatives of large and small retailers. The majority confirmed that they were opposed to wholesale repeal.

Given the overall lack of consensus, and the SLC’s recognition that the COVID-19 pandemic had significantly affected both landlords and tenants and that impact should be reflected in any recommendations, it is perhaps not surprising that the preference was to omit any reforms to the 1949 Act from the draft bill published in 2022 and to put the 1949 Act back to further consultation.

Repeal, replace, reform or retain? 

The new Discussion Paper invites comments on a range of possibilities, described as the replacement, repeal, reformation or retention of the Act, and breaks the discussion into the following issues:

1. Should there be a separate legal regime for retail, food and drink, hair and beauty tenants, as currently covered by the 1949 Act?  This covers the arguments for and against there being separate rules for a certain class of business and considers what those businesses should be.
2. Assuming that it is agreed that certain businesses should be covered by such rules, it suggests that for these a six-month mandatory notice to quit be introduced, as opposed to the three months which is contained in the draft Leases (Automatic Continuation etc) (Scotland) Bill.
3. As an alternative to the six-month notice to quit, the paper explores various options for reform of the 1949 Act to cover the issues that have been identified. Options include:

• Stipulating a “statutory statement of objects” to guide the court on when renewal is reasonable, and a list of “disregards” not to be taken into account in determining reasonableness.
• Introducing a “gateway test” to restrict the 1949 Act’s application to small businesses only – with possible thresholds involving turnover, assets and number of employees.
• Reform of the process for applications and the subsequent court procedure.

It is acknowledged that the precise reforms needed will only become clear once the consultation has been completed.

The Discussion Paper puts forward no fewer than 81 questions, the final one being which of the four identified options is preferred:

• A – replace the 1949 Act with the mandatory six months’ notice to quit system
• B – repeal the 1949 Act without replacement
• C – reform the 1949 Act to address the issues identified
• D – retain the 1949 Act in its current form

Next steps

It is hoped that as many stakeholders as possible, both landlords and tenants, will take part in the discussion to ensure that a wide range of views is taken into account.

It is likely that occupiers will continue to resist a simple repeal of the 1949 Act that provides some form of security of tenure at expiry of their lease. There is, however, a feeling that the 1949 Act is in need of reform and clarification, so we would expect that some form of consensus is reached to allow for the law to be modernised and clarified to the benefit of all parties involved in the market.