Pragmatism paramount in challenging times
The Scottish Government’s Coronavirus (Scotland) Bill, which seeks to protect the public, maintain key public services and support the economy during the Covid-19 outbreak, also addresses the challenges for the country’s commercial property sector.
The Bill includes changes to the notice period required by landlords to ‘irritate’ – or take back – a lease and pursue tenants for unpaid rent.
This is now extended from 14 days to 14 weeks, but with the potential to be extended further. Any termination notices for non-payment of rent served within 14 days prior to the Act coming into force will be void.
This is welcome news to occupiers, but they must remember that rent still remains due, including interest on late payments. And, in contrast to the position in England and Wales where a moratorium has been imposed, Scottish landlords will still be able to immediately start termination proceedings.
As landlords and tenants try to adapt to the challenges faced by the outbreak, pragmatic discussions will be essential to help the sector get through what is undoubtedly one of the biggest blows it has faced in recent times.
Indeed, many commercial landlords have already offered rent deferrals and holidays to tenants struggling with cash flow difficulties.
Suddenly, many tenants either don’t require their premises or are unable to use them due to the lockdown, and the last few weeks have seen wholesale closures of shops, offices and other facilities, with a growing number of tenants unable to afford rental payments.
Some are asking landlords to reduce these payments, or to waive them completely until things improve.
While the measures within the Coronavirus (Scotland)
Bill will provide some shortterm support, the practical measures resulting from discussion between landlords and tenants are likely to be even more critical in this time of crisis.
Another important aspect of the Bill are the measures to allow conveyancing transactions to continue, following the emergency suspension of the application record of the Land Register of Scotland.
The new legislation allows for the electronic delivery of documents for registration, a move which the wider commercial property sector hopes will become permanent.
The Bill also includes provisions to extend advance notices, which provide protection against registration of a competing deed, until ten days after the Land Register fully reopens.
The legislation follows changes already made to nondomestic rates in Scotland for 2020-21, to help businesses deal with the impact of the pandemic.
While this provides relief for some sectors, including retail, hospitality and leisure, these changes do not yet address the issues being faced by landlords who are unable to re-let vacant properties.
The introduction of empty rates relief during the lockdown would help many landlords facing cashflow issues at this time.
The Covid-19 outbreak is having a profound impact on the global commercial property model, where tenants pay rent to occupy premises owned and maintained by their landlords. Ultimately, this public health crisis could lead to a push for wholesale changes in how leases are structured.
Darina Kerr is a partner and real estate specialist at CMS
“The last few weeks have seen wholesale closures of shops and offices, with a growing number of tenants unable to afford rental payments”