What You Need to Know About Notices of Termination for Commercial Leases
On the face of it, a lease will state in black and white what the date of expiry, or termination date is. So, why should you bother with a termination notice?
In Scotland, a lease does not automatically terminate at the expiry date – it requires advance notice to be served by either party. For a tenant, if notice has not been properly served by either party within sufficient time of the expiry date, the lease will continue for a further year. If the lease has not been validly terminated and the term of the lease is less than 1 year, e.g. 6 months, the lease would instead continue for a further 6 months. The lease would continue on this basis, year in, year out, until either party serves sufficient notice (or until the lease was brought to an end by other means, such as irritancy).
For a tenant, it may be less than desirable to say the least, to find that you are obliged to pay rent etc. under a lease for a further year. For a landlord, an invalid notice may scupper any imminent plans to redevelop the subjects or to sell onto a third party with the benefit of vacant possession. This of course is all under the assumption that the landlord hasn’t e.g. accepted delivery of the keys from the tenant and otherwise put matters beyond doubt from their actions that the lease has been terminated at expiry. A commercial lease does not always end amicably between the parties and this article looks to address common circumstances where disputes occur.
How Much Notice is Required?
Unless the lease states otherwise, 40 clear days is usually the required period (different rules apply for the lease of an area over 2 acres, for crofts or for specialist agricultural tenancies). The significance of the word “clear” is that, at the very least, you can discount the date of service of the notice and the date of delivery from your 40 day period. Also, a lease may also state in some cases, that a notice will be deemed to be delivered to the other party, 48 hours after the service of such a notice. So, unless there is sufficient time to obtain written confirmation from the other party that the notice has been validly served, you should add a further 2 days to the required period.
In the case of a break option or early termination date under a lease, the length of notice will vary, but a typical commercial lease with a break option will often state that no less than 6 months prior written notice is required prior to the break date. The terms of the lease should be checked thoroughly however, to ensure any such notice is served correctly and well in advance of the relevant time limit.
Does the Notice Require to Take a Certain Form?
Yes and no. While a notice of termination doesn’t need to adhere to a certain style, it must comply with the terms of the lease and must not contain any incorrect information, or that could easily invalidate the notice. It is always advisable to take advice from your solicitor and instruct them to prepare and serve any such notice. The Notice provisions within a lease have to be complied with to the letter, e.g. sending the notice to the correct tenant and to their current registered office, not to their solicitor’s or agent’s address (although it is often a good idea to send a copy to them also).
A notice can also easily be served on the incorrect party due to the age of the lease and a change in legal personality or company name. In addition, the wrong form of words might be used making a notice’s intention dubious and open to challenge or a pre-condition in the lease might not be properly complied with. These are all factors which your solicitor should take into account when instructed to prepare a notice of termination.
Can the Notice be served at any Time?
Yes, provided the minimum required notice is given, notice can be served as far in advance as you like. The best practice is to allow sufficient time for the notice to be prepared, checked, served and if possible, acknowledged by the party receiving the notice. If there is then an objection to the validity of the notice at a later date, you either will have your acknowledgement signed by the landlord to rely on or if you discover that the notice contains a potentially fatal error, you should still have sufficient time to try again.
Summary
The legal position on notices of termination under commercial leases is much more complicated than common sense might suggest. It needs to be remembered however that whether you are a landlord seeking to enforce your rights or terminate a lease, or you are a tenant having been served with a notice, obtaining proper legal advice is critical and may save you significant expense at a later date. If you have prepared and served a notice to the other party direct and any of the above has rendered a notice invalid, you may not find out until it is too late.
If you have any queries in respect of notices under commercial leases, please contact Craig Smith, Senior Associate on 0131 220 7128 or cjs@tcyoung.co.uk.
