Law and regulation of rental agreements in Scotland during Covid-19

Updated on 08.04.2020.

1. Is a lessee eligible for rent reduction due to a significant decline in footfall and consequently its turnover as a result of COVID-19?

If the rent, or at least part of it, is based on turnover (which is often the case with retail leases) then the tenant will in any event pay less rent.  However, in respect of any base rent (not connected to turnover), there is unlikely to be a right for the tenant to seek a reduction under the terms of its lease. There is nothing in Scottish law (outside of the terms of the lease) that would give the tenant this right. 

In the event that a tenant fails to pay rent, 14 weeks (rather than 14 days) now requires to be given for the tenant to pay rent before the lease can be irritated (the Scottish equivalent or forfeiture). The Scottish government have introduced this 14-week period which will apply until at least 30 September 2020, which date may be extended.

2. Is a lessee eligible to temporarily close its leased space - on its own initiative – and opt for rent reduction as a result of COVID-19?

Not unless the terms of the lease expressly provide for this. It is very unlikely that a typical Scottish lease would allow for this. Most retail leases will contain a “keep open” obligation on the tenant requiring it to continue to trade. There will be exceptions to this so each lease would need to be checked to ascertain if the exceptions covered the COVID-19 situation, but it may be unlikely that they would.  In any event, it is highly unlikely that the lease would allow for a rent suspension in this scenario.

3. Is a lessee eligible for rent reduction in the event its leased space is closed following an order by the Government as a result of COVID-19?

This will depend on the terms of the lease but may be unlikely in a typical Scottish lease.  There is nothing under Scottish law currently providing for a rent reduction in this scenario.  A tenant’s insurance may respond to business interruption (and the obligation to pay rent) but this will depend on the terms of the insurance policy. 

Whilst Scotland is currently under partial lockdown additional consideration needs to be given to the service of time critical notices and any logistical limitations arising from the lockdown.

4. What kind of security is generally provided by a tenant in connection with a lease, a bank guarantee, a deposit or otherwise?

Rent deposits and parent company guarantees are common in Scotland.  Bank guarantees are also used but are less common.  

It currently appears unlikely that a tenant could use COVID-19 as a means to terminate its lease. However, the position is moving rapidly, and this may change. Tenants should consider engaging with their landlords to attempt to work together to find a solution during this period.

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Paul Carter
Partner
Glasgow