06 Nov 2014

Case Comment: 40 days or 6 months?

Case Comment: 40 days or 6 months?

Ross Webb, Associate takes a look at the recent Inner House decision in Lormor Limited -v- Glasgow City Council [2014] CSIH 80 and its consequences for the commercial landlord and tenant.

Ross Webb, Associate takes a look at the recent Inner House decision in Lormor Limited -v- Glasgow City Council [2014] CSIH 80 and its consequences for the commercial landlord and tenant.

Background

This action concerned the issue of tacit relocation, a principle of Scots law whereby a lease is renewed, subject to its original terms, past its expiry date for up to 1 year where no valid notice of termination is given by either party.  The courts in this action were asked to determine what the required period of notice to terminate a lease  of lands exceeding 2 acres in extent, should be, taking into account both the common law and the Sheriff Courts (Scotland) Act 1907 (‘the Act’).

The parties to this action were Lormor Limited (“Lormor”), the landlords of urban lands in Glasgow, and the tenants, Glasgow City Council (“GCC”). The lease between the parties had continued by tacit relocation for a period of one year to 27 February 2013. In January 2013 GCC gave the common law requirement of 40 days clear notice to Lormor that the lease was to come to an end at the new termination date of 27 February 2013.

Lormor challenged the validity of the GCC’s notice on the basis that section 34 of the Act applied, and therefore GCC were required to give a minimum of 6 months notice in order to ensure that tacit relocation did not operate. It was submitted by Lormor that as a result of GCC’s failure to provide the requisite period of notice, GCC were bound by the terms of the lease for a further period of 1 year.

The parties agreed that a lease is indeed continued by tacit relocation unless a notice brings it to an end,and that common law requires only 40 days clear notice. The only issue therefore for the Sheriff was the application of section 34 of the Act and whether this section displaced the common law rule. The Sheriff found in favour of the GCC and held that the lease did not continue by tacit relocation as the common law ’40 clear days’ notice period applied.

Appeal to the Inner House

Lormor appealed the Sheriff’s decision to the Inner House of the Court of Session, one of Scotland’s most senior civil courts. It was submitted by Lormor that section 34 of the Act, when given its ordinary and natural meaning, did in fact require the tenant to give the same period of notice as is required by a landlord. It was argued that it would have been unlikely that Parliament’s intention was to create a distinction between the period of notice required for a landlord and for a tenant, as equality in terms of periods of notice had ‘practical benefits’, with each party knowing where they stand.

GCC on the other hand submitted that the Act does draw a distinction between the termination of a lease by a landlord and by a tenant. In addition, they argued that as the Act merely governs court procedure, it therefore could not be regarded as capable of altering the rights of the parties as provided for by common law. The Act should be interpreted narrowly and restrictively; thus it is not possible to read section 34 of the Act, which is directed at landlords, as applying to a notice to quit by a tenant.

Inner House Decision

The Inner House agreed with the findings of the Sheriff; they refused the appeal and granted decree of dismissal.  It was held that the Act itself ‘cannot be regarded as the finest example of the Parliamentary draftsman’s art’, and due to the lack of clarity there was no justification for attaching the same notice period to tenants as the Act gives to landlords.  If Parliament had indeed intended that a minimum of 6 months notice of termination was required by both landlord and tenant, this could have easily been provided for in a clearer way.

Conclusion

Missing the deadline to serve a notice of your intention to terminate a lease can have devastating effects for landlords and tenants alike. Being unexpectedly bound by the obligations of a lease for a further year can in some circumstanced have crippling financial consequences for businesses.  It is therefore imperative that legal advice on the correct notice periods required for the valid termination of a lease is sought. This case provides much needed clarity on the interpretation of common law versus statute when it comes to tacit relocation and how much notice is in fact required to terminate a lease of lands exceeding 2 acres in extent.

Ross Webb, Associate


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