Commercial tenants in Scotland are less protected over Covid-19 rent arrears than rest of UK – Ben Zielinski

Code of practice for landlords is less extensive north of border

Ben Zielinski is a Principal Associate, Shoosmiths

Commercial tenants and landlords need to be wary of differences in Scotland and the rest of the UK.

The retail, leisure and property sectors have been working closely with UK Government on a code of practice for commercial property relationships during the pandemic. Guidance for Scotland looks less clear.

The voluntary code has been introduced with an intention to balance the interests of landlords and tenants, encouraging tenants to pay, and landlords to be supportive where possible. While adherence to the code is voluntary, the UK government has extended, until 30 September, restrictions on landlords in England and Wales forfeiting commercial leases or using the commercial rent arrears recovery process.

Despite the code’s encouragement of tenants to pay rent if possible, these measures – plus restrictions on statutory demands and winding up petitions, also with effect until 30 September – have largely removed, until October, landlords’ remedies for non-payment of rent south of the border. In effect, the UK Government is prioritising protection of commercial tenants in the short term.

In Scotland, apart from the UK-wide restrictions on statutory demands and winding up petitions, temporary restrictions on a landlord’s remedies for non-payment in Scotland are less extensive. Under Scottish Parliament emergency legislation, since 7 April 2020 the minimum warning period landlords of commercial property have had to give tenants before irritating (forfeiting) the lease for non-payment of rent or other sums payable under the lease has been extended from 14 days to 14 weeks. Unlike England, there is no moratorium on forfeiture. A landlord can still start the procedure to end the lease, but must give the tenant just over three months to pay the arrears with interest before they can complete the process.

As restrictions on business have continued, many commercial premises have been unable to open for more than three months. It is now more than three months since the emergency legislation came into effect, and some 14-week irritancy warning notices served by landlords may expire imminently.

The emergency legislation gives the Scottish Government power to extend the 14-week period by regulation. Although no announcement has been made, it must now reasonably be anticipated that the Scottish Government will be considering whether to exercise that power.

It might also be considering whether restrictions should be placed on a landlord’s ability to use summary diligence (various forms of enforcement carried out by sheriff officers) to pursue recovery of rent arrears. Until very recently, there was a practical barrier as lockdown restricted the activities of sheriff officers. However, in Stage 3 of the Scottish Government’s Roadmap, sheriff officers’ professional body guidance indicates they can carry out various enforcement actions.

To date, the Scottish Government has given no suggestion that it intends to restrict summary diligence. That may be deliberate, in that it considered that preventing winding up petitions and delaying irritancy is enough protection for commercial tenants. Or it could be that the Scottish Government has yet to find a way to restrict the use of summary diligence for the recovery of rent arrears, without having potentially wide-reaching ramifications in other areas. Does the Scottish Government think it unlikely that landlords will use summary diligence for rent arrears? If it is landlords’ only effective short-term option, why wouldn’t they?

Now, commercial tenants are less protected and landlords have more options in respect of rent arrears in Scotland. Whether that will lead to different arrangements being negotiated or landlords and tenants taking different approaches is yet to be seen.

Ben Zielinski is a Principal Associate, Shoosmiths