Rent recovery and protection in Scotland – what commercial landlords can do

Out-Law Guide | 29 Jun 2020 | 4:49 pm | 5 min. read

Landlords' ability to recover outstanding rents has been impacted by the coronavirus and associated legislation, guidance and practice directions issued, but some options can still be explored.

The options landlords in the UK have differ depending on which part of the UK they are operating in. We explore the options open to landlords in England and Wales in a separate guide, but here we look at the options landlords retain in Scotland and what factors they should take account of.

There are proposals for a government-sponsored code of practice to govern the relationship between some commercial landlords and tenants in England and Wales as the June quarter day approaches. Publication of a draft code is expected imminently for consultation and it is expected to be voluntary rather than to have any legal effect. We await clarification on whether the code will apply in Scotland.

Current restrictions

The restrictions imposed during the Covid-19 crisis on landlords' remedies for recovery of sums due from tenants include:

  • The landlord may not terminate a lease for non-payment of rent unless the tenant has been given a period of not less than 14 weeks to pay the sums due under the terms of the Coronavirus (Scotland) Act 2020.
  • Statutory demands and winding-up – The Corporate Insolvency and Governance Act prohibits the presentation of a winding-up petition based on an unsatisfied statutory demand served between 1 March 2020 and 30 September 2020. It is also not possible to present a winding up petition between 27 April and 30 September unless it can be shown that coronavirus has not worsened the debtor's financial position or the debtor could not have paid its debts even if there had been no such worsening of its financial position.

Despite these restrictions, a range of options remain open to landlords. Some of these options are the same in Scotland as they are in England and Wales and are explained in our sister guide. These include recovery from existing guarantors, rent deposits, statutory demands and winding-up petitions, while the positions in respect of rent and other sums due under lease as expense of an administration and in relation to protecting landlord's voting rights on a CVA are also the same across Great Britain.

The options specific to Scottish landlords include:

Debt proceedings

There are currently no restrictions on landlords from pursuing court action to recover arrears of rent from tenants. Whilst it is not yet business as usual, the courts continue to operate and a number of digital and remote business solutions have been implemented to allow cases to progress. However, some delay should be expected.

Irritancy

The landlord may only terminate a lease, known as irritating the lease, after it has given the tenant a period of time within which to remedy the breach. The Coronavirus (Scotland) Act extends the period of time to 14 weeks for non-payment of rent effectively creating a block on a landlord on terminating during that period. Previously the landlord only had to give 14 days notice before bringing the lease to an end. The 14 week period may be extended by the Scottish ministers under the Coronavirus (Scotland) Act.

There is no statutory relief from irritancy in Scotland so if the tenant does not clear the rental arrears within the 14 week period the landlord will be entitled to issue a notice to terminate the lease should they wish to do so.

Summary diligence

Parties to a lease can agree to an expedited means of enforcement of financial debts without the need for a court action – known as summary diligence. 

Within the body of the lease the parties must have confirmed their consent to "registration for execution" or "registration for summary diligence" and registration must have taken place – usually in the Books of Council and Session. Most commercial leases in Scotland have been registered for execution in the Books and Council and Session.

The financial obligation must be either expressly set out in the lease itself or the mechanism for identifying the financial obligation must be ascertainable. 

Subject to certain exceptions, summary diligence must be executed on behalf of the landlord by officers of the court, who are sheriff officers for the sheriff court and messengers-at-arms for the Court of Session – for ease we will simply refer to sheriff officers in the rest of this note. At the start of lockdown in March, sheriff officers were unable to carry out summary diligence, unless it was urgent, due to social distancing measures. However, in line with the Scottish government's phased approach to lifting lockdown, sheriff officers have started to resume some of their services, with more to follow in the coming weeks. The main restrictions at present are that summary diligence will only be conducted at commercial premises and neither attachment nor money attachment is currently available.

Charge for payment

This is often the first step of enforcement and is a necessary prerequisite for an attachment or money attachment. Sheriff officers deliver a written demand for payment to the tenant. The tenant then has a period of 14 days in which to pay. If he fails to do so, the landlord may take further sums to recover the debt. In some cases the arrival of sheriff officers at the door in itself is sufficient to encourage cooperation. 

Arrestment

This involves the attachment of money or moveable property belonging to the tenant in the hands of third parties – usually money held in banks or shares in a company. Arrestment is only effective over money or property in the hands of the third party at the moment the arrestment is served. The third party in under a duty to disclose the nature and value of the property arrested within three weeks of the date of the arrestment. Sometimes the tenant will sign a mandate or formal authorisation to allow release of the arrested funds to the landlord. If he fails to do so, a court action can be raised for the court's authority to release them.

Inhibition

This prevents the tenant from selling or granting a security over lands and buildings. If the tenant wants to sell or mortgage the property they normally have to pay the sums due. This option is often ineffective against corporate tenants who tend not to own lands or buildings in Scotland.

Attachment

This allows the landlord to "attach" goods and equipment belonging to the tenant in the tenant's possession. A sheriff officer will call at the premises of the tenant to value and "tag" items up to the value of the debt. Unless the debt is cleared, an auction will then be arranged to sell the tagged items to recover the monies due.

Money attachment

This secures cash, cheques or other payment instruments owned by tenant and held on premises occupied by tenant, other than home. Sheriff officers can attend one or more premises occupied by tenant and seize monies to the value of the debt. The attachment must be reported to the court within 14 days and then within 14 days of that, the landlord can apply to the court for transfer of the funds.

Ability to charge interest and recover costs under leases

Although landlords are not able to irritate a lease on the grounds of non-payment of rent during the period of suspension, the tenant is still liable for rent during this period. Most standard leases provide that where rent is unpaid, interest accrues on the unpaid sums at a specified rate. This will be payable in addition to the rent arrears at the end of the suspension period. 

Additionally, most commercial leases provide that the tenant will be liable for the landlord’s costs of any notices and also often for costs associated with claiming or recovering any arrears of rent and any other action to remedy breaches. Those provisions do not prevent the court exercising its jurisdiction to determine costs liability in any civil proceedings.