Is it time to repeal the Tenancy of Shops (Scotland) Act 1949?

Commercial leases end when they say they end. That is the general rule. Unless the lease contains an option for renewal, it ends at the ish - provided that there has been notice to quit.  However, there is one small exception to this: the Tenancy of Shops (Scotland) Act 1949.

The 1949 Act applies to “shop” leases. Confusingly, this is not restricted to retail businesses. Under the Act, a “shop” is defined to include cafes, pubs, hairdressers, barbers, warehouses, and wholesale units. It is possible that restaurants, nightclubs, and beauty businesses are also covered, although the Act is notoriously unclear.

Tenants of such “shop” leases are given a limited right to seek renewal of the tenancy past its ish. The landlord’s consent is unnecessary, and it is up to a single sheriff either to renew the lease on terms and conditions that they consider to be “reasonable” in all the circumstances, or to dismiss the application. The maximum period of renewal is one year but there is no limit on the number of renewals that may be sought by the tenant.

The Act was introduced in the post-World War II period to protect small shopkeepers who, at that time, due to a shortage of commercial premises were forced to either buy the rented property at an inflated price, pay an inflated rent or face eviction with the likely effect of business closure. The one-year renewal was intended to provide such tenants with more time to find replacement premises and relocate to them.

Despite initially being a temporary measure, because of the continuing scarcity of premises, unaffordable rents, urban development, and concerns that the 40 day notice to quit period was insufficient, the Act became a permanent feature of Scots law in 1964. It has not been reviewed since that time.

Scotland’s commercial property market has changed drastically since 1964. A lack of available commercial premises across urban areas is no longer a prevalent issue; rent does not appear to be at an unreasonable level and landlords no longer enjoy the strong negotiating powers that they once did. Having special legal rules for “shop leases” but not those used for other business purposes is now difficult to justify.

While the notice to quit period continues to be a short 40 clear days, the Scottish Law Commission (“the Commission”) in its 2022 Report on Aspects of Leases: Termination (“2022 Report”) recommended that the default minimum period should be three months’ notice with the possibility to contract out of giving notice altogether. The recommendations are the subject of the Leases (Automatic Continuation etc.) (Scotland) Bill (“Leases Bill”) which has been introduced into the Scottish Parliament. Given these developments an important question arises: is the 1949 Act now unnecessary?

In addition to its dated nature, there are many other issues that with the Act. The vagueness and lack of guidance in the circumstances to be taken into account in the application of the “reasonableness” test has resulted in decisions under the Act being highly unpredictable. This uncertainty encourages the leading of high volumes of evidence, exacerbating the high costs and delay involved in going to court. Accordingly, the 1949 Act has become inaccessible for most tenants and especially the small businesses that it was enacted to protect. Nowadays, in the rare instances it is used, it tends to be by parties and for purposes that were never envisaged: large commercial tenants who use it as leverage to strengthen their position when seeking to renew a lease.  

Given the many difficulties that plague the Act, it was no surprise that a review of this legislation was included in the Commission’s Eleventh Programme of Law Reform. The project has now been concluded with the publication of the Report on Aspects of Leases: Tenancy of Shops (Scotland) Act 1949 (“the Report”).

The Report was preceded by a Discussion Paper in 2024. That Paper presented four options for the future of the 1949 Act: keeping an unamended Act, reforming the Act to address the issues that afflict it, replacing it with a mandatory notice to quit scheme, or repealing it to bring “shop” leases into line with the rules on termination that apply to all commercial leases. Both businesses and the legal profession were consulted on these options. 

The Report has concluded that the best way forward is simple repeal. Why then did the Commission decide to reject the other options?

• Given the many difficulties with the 1949 Act and the lack of support for its retention, the option of keeping an unamended Act was rejected:
• Reform of the Act was focused on the removal of the uncertainty over the criteria for renewal, the restriction of renewal to “small” businesses, and the capping of recoverable expenses. However, consultee responses showed much dissensus over these reforms. This unveiled a divergence in stakeholders’ views on the aims of a reformed Act in the modern marketplace. However, without these changes it would be unlikely that a reformed Act would succeed in tackling the problems of the current Act.
• Under the mandatory notice to quit scheme, “shop” tenants would benefit from a three or six month mandatory notice to quit that would not extend to other commercial tenants. The Report identified that there was no compelling justification for providing such favourable treatment and thus disturbing the unity of the recommendations that are to be implemented by the Leases Bill. Lastly, there was an overall lack of support from stakeholders for this option.

Despite the 2024 Discussion Paper presenting various options for the future of the 1949 Act, repeal was the option most favoured amongst consultees.

The legal uncertainty, high costs and delays associated with the Act would disappear. An obsolete piece of legislation that no longer serves its purpose and potentially discourages investment into Scotland’s commercial property market would be removed. Unity in the rules applicable to the end of a commercial lease would be returned. Following repeal of the Act all commercial tenants would benefit equally from the new rules that are to be introduced by the Leases Bill.

It is for the Scottish Government to take forward the recommendations of the Report. One way forward would be through an amendment to the Leases Bill. One way or another, the curtain appears set to fall on this unusual and outdated piece of legislation. The full Report can be accessed on the Commission’s website.

Written by Julia Lopatka, Legal Assistant on the Aspects of Leases project, Scottish Law Commission.