Irritancy in Scotland also under Scrutiny

The Law Commission in England and Wales has recently published a report on forfeiture in leases, with recommendations for replacement of the current arrangements with a statutory scheme. In Scotland, where the equivalent process – irritancy – has been regulated by statutory irritancy provisions under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 for a number of years, there was also a review of the law by the Scottish Law Commission, culminating in its Report on Irritancy in Leases of Land in June 2003.

The present statutory control of irritancy in Scotland is contained in Sections 4 to 7 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, which introduced mandatory rules on the exercise of conventional irritancies in commercial leases, but not residential or agricultural leases. The application of the provisions of the 1985 Act has proved problematic over the years.  For example the "fair and reasonable landlord" test in Section 5 can require lengthy consideration of the particular circumstances of each case, including taking into account the interests of an insolvency practitioner in insolvency situations, which has made it more difficult to identify cases where irritancy would be unreasonable. The need for costly and protracted litigation has meant that the remedy of irritancy is often seen as an impractical remedy.  The scope of the Commission's review also considered the three legal irritancies relating to non-payment of rent (two of which apply to agricultural properties).

The Proposed Scheme

A comprehensive statutory scheme regulating irritancy as it applies to leases of land is proposed, which will apply to conventional irritancy clauses, however expressed, and rights to terminate the lease due to a material breach of contract. To this extent, the scope of the scheme is the same as the 1985 Act, but instead of being restricted to commercial leases, there should be a uniform regime, which will apply to all leases of land, including commercial, agricultural and residential leases.

The pivotal principle of the scheme is that a landlord will only be able to irritate a lease by serving a notice of termination on the tenant, the effect of which will be to terminate the lease, and there will be statutory controls on the circumstances in which a notice of termination may be served. The statutory scheme will distinguish between remediable and non-remediable breach, differing from the current law, which distinguishes monetary and non-monetary breaches.

Remediable Breach

The purpose of an irritancy clause should be primarily to encourage performance of the lease conditions. In cases where a breach is remediable therefore, it should not be possible for a landlord to serve a termination notice on the tenant, without first having sent out a warning to the tenant, giving him the opportunity to rectify the breach.  There will be a clear notice procedure so that the tenant is in no doubt about what to do, and the consequences of doing nothing. A minimum notice period of 28 days is proposed, extending the current period of 14 days which applies to monetary breaches only, and which the Commission considered to be too short a period.

The period of time in cases of non-monetary breach should however be sufficient to give the tenant a reasonable opportunity to comply, and the courts will have authority to determine what period is reasonable in the circumstances, and to extend the period if it is considered too short, or allow further time where performance has been substantially completed.

Cases of Insolvency

If an insolvency event triggers the irritancy procedure, then in cases where the lease is capable of being assigned, the landlord will have to serve a moratorium notice, before he can issue notice of termination. A moratorium notice gives the insolvency practitioner at least 6 months to assign the lease, and the landlord may only serve the notice of termination if the insolvency practitioner does not take up this opportunity, or the lease is not assigned within the requisite period, although the landlord may be entitled to terminate the lease on other grounds of breach within that period.

Non-remediable Breaches

The view of the Commission is that irritancy should be permitted in cases of non-remediable breach (other than an insolvency in an assignable lease) unless that remedy would be out of proportion to the breach in question. The courts will therefore be given authority to delay or prevent an irritancy being exercised if it is considered to be an excessive response to the breach.

Other provisions

The Report proposes that legal irritancies should be abolished. There is evidence that these are rarely used, although they may be useful in cases of leases which do not contain a conventional irritancy clause. The report proposes that it will not be possible to contract out of these remedies in any lease, except where specifically permitted by statute.  This is similar to the application of the present rules in the 1985 Act.

Draft Leases (Scotland) Bill

Attached to the Report is a draft Bill, embodying the Commission's recommendations, and which will form the basis of a Bill to be introduced to the Scottish Parliament in the future, should the terms of the Report be broadly accepted.

So far there has been no sign of this Bill in the Scottish Parliament's Legislative Programme.  Perhaps now that Westminster may be taking steps to reform the equivalent law in England and Wales this long overdue reform for Scotland may finally move into the legislative spotlight.

To access a copy of the Scottish Law Commission's Report on Irritancy in Leases of Land go to their website at: www.scotlawcom.gov.uk/downloads/rep191.pdf

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