COVID-19: Safeguarding commercial tenants in Scotland
Last updated 18 May 2022
In an article published on 25 March 2022, DLA Piper’s English Real Estate and Restructuring lawyers assess the options available to Landlords now, as the debt collection restrictions contained in the Corporate Insolvency and Governance Act 2020 (Act) (and the subsequent regulations) and the Coronavirus Act 2020 to safeguard commercial tenants against aggressive rent collection tactics come to an end.
In this article, DLA Piper’s experienced Scottish Real Estate and Restructuring lawyers consider and assess the impact of those restrictions as to how they apply in Scotland.
During the COVID-19 pandemic, the remedies available to a landlord of commercial premises in Scotland for unpaid rent were restricted as a result of the emergency - pandemic legislation and as a result of the Act. We have summarised the current position below:
| Option | Summary | Current position |
| Irritancy (Scottish equivalent of forfeiture) | A monetary or non-monetary breach of the lease by a tenant could expose a tenant to the possibility that the landlord exercises a contractual right to terminate the lease in the event that the breach was not remedied within a time period specified in the lease, or a reasonable period in the case of non-monetary breaches. |
The Coronavirus (Scotland) Act 2020 (Coronavirus Act) which came into effect on 7 April 2020 extended the minimum notice period for remedying a monetary breach (e.g. non-payment of rent) from 14 days to 14 weeks. This measure expired on 31 March 2022. |
| Court proceedings | Where a tenant is in breach of their monetary obligations under a lease, a landlord can raise a Court action for recovery of arrears and other sums due under a lease (e.g. in respect of dilapidations). | New actions for recovery of debt are now being accepted and progressed again in both the Court of Session and sheriff court. Many hearings are still taking place on a remote basis. |
| Charge for payment | Most commercial leases contain a clause allowing the lease to be registered for execution. Where this is the case and where a tenant is in breach of their monetary obligations, a landlord can commence enforcement action against the tenant without the need to go to court first. The first step in this process is for a formal demand for payment to be served on the tenant by Sheriff Officers. The tenant then has a period of 14 days from the date of service to make payment failing which the landlord can pursue further enforcement action such as liquidation / bankruptcy actions against the tenant. Please note that a lease would require to be registered at the Books of Council and Session to afford a landlord this remedy against the tenant. | Services have resumed and Sheriff Officers will serve a charge for payment at commercial and business premises. |
| Arrestment | This is a method of enforcement undertaken by Sheriff Officers whereby the assets of the debtor (such as a bank account) are “frozen” and the debtor is therefore prevented from using/accessing them. | Services have resumed and arrestments are being served again. |
| Attachment | Attachment is a method of enforcement where Sheriff Officers can seize a tenant’s moveable property (e.g. stock or cash) which are then sold at auction. Proceeds from the sale are then passed to the landlord unless a challenge is made by a third party to indicate that the property seized did not belong to the tenant. | Services have resumed and attachments at commercial premises are now being carried out. |
| Statutory Demand for Payment | A statutory demand is a written demand for payment of a debt. It has often been used as a quick and relatively inexpensive method for landlords seeking to enforce non-payment of rent. Statutory demands are often issued to seek to pressure debtors into paying the sums due prior to more formal legal action in the form of a winding-up petition, although a landlord is not required to issue a statutory demand before issuing a winding-up petition. | Prior to 1 October 2021, there was a blanket ban on statutory demands being used for presenting winding up petitions (whether the debt related to unpaid rent or otherwise). The blanket ban was lifted with effect from 1 October 2021, however due to restrictions on winding up petitions they had been of little effect. As from 31 March 2022, statutory demands are effective again. |
| Winding-up petition | A winding-up petition is essentially a court application for a debtor to be put into compulsory liquidation on the grounds that it is unable to pay its debts. A landlord that has not been paid could simply present a winding-up petition at court. Commonly, however, a statutory demand that has not been paid within 21 days is used to establish the debtor’s insolvency. | Since 1 October 2021 it has been possible to petition for a debtor to be wound up if certain conditions were met. The key condition for commercial landlords was that the debt owed must not be unpaid by the tenant due to a financial effect of COVID-19. These restrictions were lifted on 31 March 2022. |
| Administration order | A creditor has standing to make an application to court for administrators to be appointed in respect of a company. However, this is a more costly and complex method than presenting a winding-up petition and has not been commonly used in practice by landlords. Please bear in mind that the right for a landlord to pursue an administration order will be subject to the irritancy provisions in the lease and therefore those provisions should be read carefully before this avenue is explored by a landlord. | No restrictions. |
| Rent deposit | Many landlords hold a rent deposit on which they can draw when rent is not paid. | No restrictions. |
| Guarantee | Landlords could also seek to recover rent from any third parties who have guaranteed the tenant’s liabilities under the lease. | No restrictions. |
In addition to the restriction in relation to the presentation of winding up petitions, the Act includes a new standalone moratorium and new restructuring plan (including a cross class cram down). Please see our articles dated 1 April 2021 and 6 October 2020 for an in-depth analysis of these measures.
More on the restrictions
Irritancy
The Coronavirus Act, which became law on 7 April 2020, extended the minimum notice period from 14 days to 14 weeks which a landlord must give a tenant of commercial premises from 14 days to 14 weeks before it can irritate a commercial lease for a monetary breach. This measure has expired as of 31 March 2022.
Winding-up petitions and statutory demands
Please see our commentary in our article published on 25 March 2022.
Rent deposits
Please see our comments contained within our article published on 25 March 2022.
Court proceedings
During the pandemic, court proceedings have progressed more slowly than they might do normally as the Scottish Courts have prioritised urgent and essential business. Although it is now possible to raise an action for payment, again the threat of proceedings will be less likely to prompt an immediate payment unless the tenant has assets over which an inhibition or arrestment on dependence of the action can be obtained.
Administration order
Please see our comments contained within our article published on 25 March 2022.
Action against guarantors
Please see our comments contained within our article published on 25 March 2022.
For further discussion of these issues please see our Q&A on the Act which is contained within our article published on 25 March 2022.
Our teams are available to advise and assist on available options and work with landlords and tenants to refine their strategies and approach. Please contact your usual DLA Piper contact if assistance is needed. Our advice remains that landlords and tenants should work collaboratively together to achieve best mutual outcome in these unprecedented times.
