Leases of commercial property are now largely driven by institutional landlords favouring a full repairing and insuring (FRI) lease which originates from south of the border. A commercial lease, even in its shortest form, generally runs on for many pages covering topics including payment of costs other than rent, such as rates and buildings insurance; use and keep open obligations; maintenance and repairs; assignation and sub-letting; tenant’s works and alterations; default and termination. Commercial leases are also subject to underlying principles from the common law as well as regulation by statute. Consequently, there are hidden traps for the unwary.
One such underlying rule is known as “tacit relocation” which provides that a lease continues beyond its contractual termination date unless there is evidence of either party not intending to continue the lease. Ordinarily this is done by service of a formal notice to quit. The operation of this principle and the difficulties it can create were highlighted in a recent dispute between Rockford Trilogy Limited and NCR Limited.
NCR rented a unit in a business park in Woodhead, Motherwell from Rockford under a lease which had an expiry date of 26 March 2020. For around a year or so before the parties had been negotiating terms for a new lease. Ultimately those negotiations were unsuccessful but Rockford took NCR to court seeking payment of rent, insurance and service charge for another year on the basis that, in the absence of sufficient notice to terminate, the lease continued for another year. The court took the view that whilst service of a formal notice to quit was prudent it was not the only way of evidencing an intention not to continue. In this case, the Court concluded there was clear evidence in correspondence between the parties that failure to come to agreement during negotiations meant that the tenant would leave and this was enough to prevent tacit relocation and the lease continuing beyond its contractual termination date.
As noted above and in the case, service of a formal notice to quit is the prudent course of action and except in particular circumstances, would always be our advice. That said, even the service of a formal notice to quit requires attention to detail and careful drafting. Generally, at least 40 days’ notice must be given and the lease often specifies method, place and timing of service. Notices have been deemed invalid where the correct procedure has not been followed.
If you are a landlord or a tenant of commercial premises and are considering bringing a commercial lease to an end, a little time spent in consultation with your solicitor may be worthwhile saving you worry and unwanted expense.