Tacit relocation – or termination?

Scotland

A recent case in the Scottish Sheriff Court considers what parties require to do to end a lease. What are the lessons for landlords and tenants?

Background: Brucefield Estate Trustee Company Ltd v Computacenter (UK) Ltd [2017] SC Liv 38

The landlord, Brucefield, raised an action against its tenant, Computacenter, seeking a declaration from the court that the lease between the parties had continued by tacit relocation for a period of one year until 28 May 2016.  The landlord also sought rent of £72,647.44 for the period in question.  The tenant denied it was due to pay rent, arguing that continuation of the lease had been excluded by certain actions taken by the landlord.  

Tacit relocation: was written notice required?

The expiry of the agreed duration of a lease does not automatically bring the lease to an end.  If neither party gives notice to terminate the lease, the parties are, by their silence, presumed to have agreed that the lease is to be prolonged.  Tacit relocation then operates to extend the period of the lease, in most cases, by one year. 

The landlord argued that, in the absence of written notice, the lease continued by virtue of tacit relocation.   Clause 9 of the lease stated: “Any notice, request or consent under this lease shall be in writing…”  The landlord contended that if either party wished the lease to terminate at its normal termination date, they would have to give written notice to the other party. 

The tenant argued that to hold that clause 9 required a written notice to exclude the operation of tacit relocation would remove the parties’ common law rights, which allow verbal intimation to be given. This would not be an  appropriate way to interpret the lease. The Sheriff agreed.  While it would be possible for parties to exclude the operation of the common law, this would require clear and express provisions in the lease. Clause 9 should not be read as removing the parties’ rights to give notice informally – whether that be verbally, or even by means of their actions.

Did the landlord’s actions bring the lease to an end?

Although the tenant argued that it had no liability to pay rent beyond the expiry date of the lease, it did not maintain that it did or said anything to make the landlord aware that it wished the lease to terminate.  Instead, the tenant argued that the landlord’s actions made it clear that the landlord wished the lease to end, and prevented the lease continuing by tacit relocation. 

Inquiry by an agent

The tenants had sublet the premises to another company around 2012.  That company went into liquidation at about the time the lease was due to terminate in 2015.  According to the tenants, around that time, an agent of the landlord contacted an individual, believed to be an agent of the tenant, to “inquire about” the ability of the subtenants to pay rent.  The tenants maintained that this inquiry made it clear that the landlord planned to terminate the lease with the tenants at its expiry date, and to put in place a new lease with the subtenants, with the subtenants paying rent direct to the landlords. 

The Sheriff pointed out that the tenant did not say that the landlord had instructed – or even knew about - the inquiry carried out by its agent.  Unless the agent had authority, it was “difficult if not impossible” to see how these discussions could be seen as a notice by or on behalf of the landlord. 

Even if that was wrong, the Sheriff took the view that:

“…an inquiry about the subtenants’ ability to pay the rent could never in my view amount to the “explicit” notice to the tenants that the lease was being brought to an end.  An inquiry is just that, an inquiry.  It is not a definite and unconditional intimation to the tenants that the lease was being brought to an end.”

Subsequent actions as a basis for termination

The tenant argued that the landlord’s subsequent actions were consistent with notice to terminate having been given and accepted.  The Sheriff considered whether he needed to hear evidence about these actions. Based on the matters relied upon by the tenants, the Sheriff decided that nothing could take the tenant’s statements about the landlord’s actions to the level where they might be considered as clear notice to the tenants that the lease was to end. 

As there appeared to be no dispute about the level of the rent, the Sheriff awarded the rent sought by the landlord for the period during which the lease continued by tacit relocation.

Comment

In practice, most notices to quit are issued in writing.  The case is a clear reminder that in certain types of leases, notice to terminate can be given verbally or even by the actions of the parties.   Care should be taken in relation to the actions of the parties to a lease and their agents to ensure that these do not, unintentionally, amount to sufficient notice.   It is worth bearing in mind the distinction between the interests of landlord and that of the tenant when terminating a lease. The landlord should ensure, particularly when it wishes to rely on the notice to evict the tenant, that it has served a formal written notice to quit. The tenant, arguably, is not similarly constrained, and provided it has given sufficiently clear verbal notice of its intention at least 40 days before the lease is due to end,  that will be sufficient.  In spite of that, it seems unlikely that either  landlords or tenants will choose to  depart from the relative safety and certainty of issuing formal written notices to quit when a lease is coming to an end.