Aspects of Leases – Tenancy of Shops

Tenancy of Shops (Scotland) Act 1949

Commissioner

David Bartos

Team Members

Julie Bain, Project Manager
Julia Lopatka, Legal Assistant

The 1949 Act

Retail, Hospitality, and Beauty Businesses: Ending the Lease

The Commission is currently considering the Tenancy of Shops (Scotland) Act 1949, which applies when leases to retail, food and drink hospitality, or hair and beauty businesses, expire. It is also relevant for leases of wholesale units and warehouses. While the 1949 Act gives most tenants of such leases a limited right to seek renewal of the lease, for the reasons set out below it is seen as outdated and ineffective.

Videos

We have recorded two videos to explain the issues and the options for change:

  • A YouTube video (13 minutes), in which the Lead Commissioner summarises the key points
  • A longer webinar (36 minutes), in which the Lead Commissioner discusses the background and options in more detail.

Background to the project - the 1949 Act

Thousands of retail businesses, cafes, takeaways, restaurants, pubs, hairdressers and barbers, and wholesalers lease their premises. What happens as their lease comes to an end? Can it be renewed? If not, how much time should these and other “shop” tenants such as beauty salons and tattoo studios have to find suitable alternative premises for their businesses?  

If such a tenant is unable to obtain a renewal of the lease that will work for them, the Tenancy of Shops (Scotland) Act 1949 enables the retail, food and drink, hairdressing, wholesale and warehouse tenant (with some doubt over restaurants) to request the sheriff court to renew their lease for up to one year. The test for renewal is whether “in all the circumstances” the sheriff thinks renewing the lease, would be “reasonable”. The Act does not limit the circumstances that might be relevant.

Originally intended as a temporary measure to assist small shopkeepers threatened with the closure of their businesses as a result of the shortage of commercial property in the aftermath of World War II, the idea behind the Act was to allow those tenants to obtain additional time to relocate in order to avoid being forced out of business altogether. Against the background of unaffordable rents caused by urban renewal and concerns over the shortness of the standard 40-day notice to quit period, the Act was made permanent in 1964.

Nowadays, the Act is rarely used. When it is used, stakeholders have informed us that the Act is not operating as Parliament had intended. If it exists at all, use of the Act by small shopkeepers appears to be low. Instead we have been made aware of some large retail tenants employing the threat of renewal under the Act, to extract favourable concessions from their landlords during renewal negotiations. The test for renewal has been criticised as vague and productive of uncertainty. Different courts have reached different interpretations. Finally, and not least, it has been suggested that the commercial environment for retail lets has changed so materially since 1964 that the Act has become unnecessary.

Accordingly, in our Discussion Paper on Aspects of Leases: Termination (Scot Law Com No 165) we asked a single question in relation to the 1949 Act, namely: “Should the Tenancy of Shops (Scotland) Act 1949 be repealed?” Answers revealed a significant divergence of views between key stakeholders. Therefore, our Report on Aspects of Leases: Termination (Scot Law Com No 260) reported that further consultation would be necessary to establish the most appropriate route forward.

Completion of our review of the Act and the making of recommendations for its reform or repeal were included in our Eleventh Programme of Law Reform (May 2023).

Discussion Paper on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949

On 30 April 2024 we published a Discussion Paper on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949 (Scot Law Com No 177). An Executive Summary and News Release accompanied its publication.

The Paper describes the historical background and outlines the operation of the Act, including its deficiencies and the difficulties to which it gives rise. The provisional view is expressed that the Act should not continue in its current form.

The Paper then presents stakeholders – and the public at large – with following alternative options for the future of the Act:

(a)   its repeal (without reform or replacement) – this would involve all of the retail, pub, cafe and other leases currently covered by the Act being treated as ordinary commercial leases under our Report on Aspects of Leases: Termination (Scot Law Com No 260), and no differently to say leases of offices or industrial units;

(b)  its replacement with a mandatory notice-to-quit scheme under which landlords would have to give retail, food and drink hospitality and beauty business tenants six months warning of the end of the lease – the aim being to ensure they have enough time to find other premises;

(c)   its reform with the removal of its deficiencies, including the introduction of:  

    • a “statutory statement of objects” together with “statutory disregards” to assist in clarifying for sheriffs what must be established for renewal;
    • a “gateway test” restricting use to “small tenants” to ensure entitlement to make an application be restricted to those less economically powerful tenants who need it; and
    • a requirement for tenants to offer landlords mediation before applying to the sheriff to assist in resolving renewal disputes without expensive, time-consuming, and uncertain litigation.

Consultation on the Paper closed on 31 July 2024.

Next Steps

After taking the outcome of the consultation into account, we aim to publish a report with our recommendations to the Scottish Government in the first quarter of 2025.

Transparency Statement

David Bartos had a connection to this project by reason of his wife having been the landlord of one small high-street style shop until September 2023. However, he has applied the objective test for an interest under section 5.5 of the Code of Conduct for Scottish Law Commissioners (June 2022 version). Having done so and consulted the Standards Commission for Scotland, he does not consider that he has an interest to declare in the project which would prevent him from participating in it. This is because:

  • any recommendations from the project would not in themselves produce a change in the law, but would require to be made law by the Scottish Parliament after debate;
  • the decisions taken and recommendations made as part of the project are informed by the responses to consultations carried out by the Commission obtaining views from a wide range of stakeholders; and
  • there is no likelihood of his wife standing to benefit from such recommendations in the near future. 

Contact

We are always keen to engage with stakeholders who may be affected by or have an interest in the subject matter of this project. We would be happy to hear from anyone who wishes to contribute their ideas or views.

For further information, please contact Julie Bain at info@scotlawcom.gov.uk.