Recent findings from Knight Frank show that investment in Scotland's commercial property market is on the rise, attracting an increasing amount of international interest. It may also be of interest to commercial landlords with interests in Scottish property that, in the case of a dispute arising with their tenants, there are remedies potentially available in Scotland, in addition to the usual remedies available in England and Wales, which can be quicker and more straightforward to use.
Summary diligence
One key differences is the prevalence of summary diligence in respect of tenants with a place of business in Scotland. This is an expedited means of enforcing repayment of a financial debt without the need for court involvement. It is only available in select circumstances, namely that parties must have consented to the registration of the lease for “execution”, and the lease must be registered in the Books of Council and Session (a public register of documents in Scotland). Summary diligence measures include:
1. Charge for Payment
A Charge for Payment is quick, relatively inexpensive and is often a very effective way of securing payment. In practical terms, this option involves the service of a written demand for payment on the tenant, giving them 14 days to pay (assuming they are in the UK).
A tenant would be required to evidence that the debt was genuinely disputed or not due in order to defend a Charge for Payment. Similarly to a statutory demand, if the debt remains unpaid, the landlord may petition for the tenant’s liquidation/bankruptcy, but (unlike the statutory demand procedure) it also has the option to instruct court agents to undertake an Attachment (see below).
2. Goods and Money Attachment
Goods and Money Attachments involve the landlord attempting to secure payment of the debt by 'attaching' the tenant’s liability to pay the debt to cash or property owned by the tenant, following service of notice after a Charge for Payment has expired. In practice, this often takes the form of seizing cash from tills (which would be remanded by court officers) and/or taking an inventory of goods for auction at tenant premises (which either stay at the premises, pending further steps or are placed in storage), up to the value of the debt.
Tenants are given 14 days to settle the debt subject to the Attachment, failing which the landlord is entitled to take payment of the cash and/or sell the goods at auction towards settlement of the tenant’s arrears.
This can be a quicker and more straightforward process than comparable procedures in England and Wales. A court order is not needed to undertake an Attachment for the control of goods, provided the lease is registered and a Charge for Payment has been served and expired. There are though certain notification procedures that must be followed in relation to Attachments, as well as restrictions on the types of property that can be attached and times of day an Attachment may be carried out.
3. Arrestment
If the tenant's property is in the hands of a third party, a landlord is also entitled to serve an Arrestment up to the value of the debt due. In a commercial leasing context this usually takes the form of arresting funds in a tenant’s bank account, assuming the tenant banks with a branch in Scotland. Those funds would be ring-fenced for a period of 14 weeks (in effect preventing the tenant from doing anything with them), after which they would be released to the landlord. A tenant can also authorise the release of those funds to the landlord prior to expiry of that 14 week period.
Arrestments are by no means a quick remedy for securing payment. Given that they are not dependent on prior notice or an expired Charge for Payment, however, the “element of surprise” can help to separate those who can’t pay from those who won’t, making it an effective negotiating tool in repayment discussions.
Irritancy (forfeiture)
Irritancy (the Scottish form of forfeiture) is a contractual remedy regulated by statute, which allows landlords to terminate their lease early because of the tenant's breach of contract.
In most cases, assuming the lease is on standard commercial terms, a landlord will be entitled to irritate (terminate) the lease in the event of a tenant breach for (a) breach of monetary obligations, if payment of rents hasn't been made following at least 14 days' notice being given; or (b) breach of non-monetary obligations, for example addressing interim dilapidations at premises, if those obligations haven't been remedied within a reasonable time, following notice being given.
Scottish irritancies typically require at least two notices to be given: the pre-irritancy warning notice, advising the tenant of its breach and setting out a timeframe for that breach to be remedied, and the Irritancy Notice, confirming termination of the lease. If a tenant refuses to leave after the lease is terminated, a court order will typically be needed before a landlord can remove the tenant.
This is very different to a landlord's right to forfeit in England and Wales, which in some circumstances can entitle landlords to take immediate possession, without the need for prior notice and/or a court order. Unlike in England and Wales, however, the rules on waiver (a landlord losing the right to forfeit) and relief (entitling a tenant to claw back the lease by having forfeiture set aside) do not apply in Scotland.
Specific implement (performance)
If threatening to terminate a lease is not likely to bring a tenant to the table, another remedy landlords in Scotland may want to consider is specific implement (performance). This involves seeking a court order that requires the tenant to perform its lease obligations.
An action for specific implement can most commonly appear in interim dilapidations scenarios (i.e. where a tenant is not meeting its ongoing obligations to keep premises in good repair). It does still though require a clear obligation, and a clear breach: this is not typically an issue for most well-drafted modern commercial leases although can present issues where terms have not been clearly and expressly set out.
Specific implement is considered a 'self-help' remedy and is comparable to what in England and Wales is often referred to as a 'Jervis v Harris clause'. A lease which contains such a clause grants the landlord a right to first serve notice on a tenant, specifying any breaches. If the tenant fails to proceed diligently with remedying the breaches or within the specified period (usually two to three months), the landlord may then enter the property to carry out the works and then recover the costs of doing so from the tenant as a 'debt'.
The remedy of specific implement in Scotland is generally much more readily enforceable than is usually the case for specific performance in England and Wales, and can be enforced as an alternative to damages for breach of contract.
Whilst there are obvious differences in the property legal sphere between Scotland and England and Wales, it remains the case that landlords have a wide array of options available to them when a dispute with their tenant arises. If you are a commercial landlord or tenant that would like to know more about what remedies are available to landlords in respect of Scottish commercial property, please get in touch with Nicole De-Pellette or Chloe Postlethwaite in our property disputes team.
