Update for landlords - action against commercial tenants in Scotland during COVID-19

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NOTE: This guidance was first published on 21 May 2020 and has been subsequently updated. Most recently, it was updated on 29 June 2020 to reflect: (1) the changes effected by the Scottish Government's COVID-19 framework for decision-making – Phase 2 update published on 18 June 2020; (2) Phase 2 guidance contained in "COVID-19 Guidance for Members" published by The Society of Messengers-at-Arms and Sheriff Officers on 5 June 2020; and (3) the coming into force of the Corporate Insolvency and Governance Act 2020 on 26 June 2020. We will continue to monitor the position and to update this guidance on a regular basis.

COVID-19 and measures intended to address its effect have had a significant impact on the remedies available to commercial landlords, in the event of default by tenants. The position continues to evolve rapidly. This note summarises the state of play as at 29 June 2020. It should be noted that the options open to landlords are limited further where a tenant is subject to an insolvency event (e.g. where it is in administration or liquidation) or where a moratorium is in place.

Summary diligence

"Summary diligence" is the collective name given to the suite of remedies available to a landlord under a lease which contains a "warrant for preservation and execution" and which has been registered. These allow a landlord (without first having to go to court) to seek to recover arrears of rent (and sometimes other sums) as if it held a court order for payment.

Summary diligence was unavailable during lockdown. Certain remedies became available as we moved into Phase 1 of the Scottish Government's route map. Now, as we have entered Phase 2 of the Scottish Government's route map, an enhanced suite of remedies is available. However, although a step in the right direction, not all remedies are presently available. We expect the remaining remedies to become available as we enter the later phases of the Scottish Government's route map. We have summarised the current position below:

Charge for Payment

What is it? A formal demand for payment, served by Sheriff Officers, which is an essential prerequisite to attachment (see below) and which, if not satisfied within 14 days, ordinarily would provide a basis for liquidation/bankruptcy. 

Is it currently available? Sheriff Officers are now able to serve Charges for Payment in the usual manner at business, commercial and domestic premises. It is worth noting, however, that the Corporate Insolvency and Governance Act 2020, which came into force on 26 June 2020, provides that winding-up petitions presented to the court, including on the basis of an expired Charge for Payment, in the period 27 April 2020 to 30 September 2020, will be refused by the court unless it can be shown that the debtor's business was not adversely affected by COVID-19. This will be an impossible hurdle to overcome in relation to most tenants.

Arrestment

What is it? A "freezing" order in respect of obligations owed by a third party to a tenant. Arrestments are frequently served on banks, freezing funds in the tenant's bank account. 

Is it currently available? Sheriff Officers can serve Arrestments on banks and other third parties in the usual way.

Attachment

What is it? Attachment involves Sheriff Officers seizing the tenant's movable property (or, in some instances, cash on the tenant's business premises). Ultimately, property can be sold at a court-supervised auction. Cash (in any currency and including cheques and promissory notes) is released to a landlord automatically, unless there is a challenge on the basis that it does not belong to the tenant.

Is it currently available? Sheriff Officers are able to serve Attachments at business and commercial premises only. Attachment at non-business premises will likely be possible once we reach Phase 3.

Court action

What is it? Ordinarily, regardless of whether or not a lease is registered, a landlord can recover arrears of rent and other sums via a court action for payment. 

Is it currently available? Since 15 June 2020, the Scottish courts have been beginning to re-open to non-urgent new civil business. Sheriff Officers are now accepting instructions to serve non-urgent Initial Writs, Summonses and Claim Forms. 

Irritancy/forfeiture/recovery of possession

What is it? A landlord can, in ordinary times, terminate a lease where the tenant is in breach of its obligations and has failed to remedy that breach within a specified time period. The threat of imminent termination is normally one of the most powerful tools at a landlord's disposal.

Is it currently available? The Coronavirus (Scotland) Act 2020 (the Act) has extended the minimum notice period for remedying monetary breaches (e.g. a failure to pay rent) from 14 days to 14 weeks (and the Act allows the Scottish Ministers to extend this period still further). This means that, whilst landlords can threaten tenants with irritancy, there will be no adverse consequence for tenants who do not pay until at least 14 weeks from the date on which they receive a "pre-irritancy warning notice". 

For non-monetary breaches (e.g. using premises in breach of the user provision or failing to maintain), the law remains the same – termination is possible only where, in the circumstances, it is fair and reasonable for a landlord to do so (and this includes giving a tenant a reasonable period of time to remedy the breach). Clearly, the impact of COVID-19 on a tenant will factor into a court's assessment of what is fair and reasonable in the circumstances.

In addition, a landlord that has obtained a court order for removal/ejection of a tenant is now able to enforce this. Sheriff Officers are now able to serve Charges for Removing and Notices of Removal (i.e. statutory notices calling upon a tenant to remove prior to ejection). Sheriff Officers can carry out ejections (i.e. physically removing tenants and changing locks) at business and commercial premises only. 

Statutory Demand for Payment

What is it? A Statutory Demand is a formal demand (similar to a Charge for Payment above), requiring payment within 21 days. If not satisfied, it can form the basis of a winding-up petition/petition for bankruptcy against the tenant.

Is it currently available? The Corporate Insolvency and Governance Act 2020, which came into force on 26 June 2020, provides that Statutory Demands served between 1 March 2020 and 30 September 2020 will be void (in that they cannot be used as the basis for a winding-up petition). There is, therefore, nothing to be gained by serving a Statutory Demand at present.


Information contained in our COVID-19 articles and publications is correct at the time of print. This is, however, a constantly evolving situation across the globe and specific advice and guidance should be sought as required.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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