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Scottish leases – what a franchisee should know

Scottish franchise legal advice

By David Kaye, Harper Macleod

Any potential franchisee, who is about to take a lease of a property in Scotland, needs to understand certain legal points relating to Scottish property law, and also that there are some important differences between Scottish and English property law. Some of the more common issues are as follows:

  • If your lease is actually a sublease of the property, your lease will terminate if the head lease comes to an end. So if, for example, the head landlord takes back the head lease because your own landlord has breached the terms of the lease, your own sublease will automatically terminate as a result. Subtenants of properties in England have the right to apply to court for relief in such circumstances, but there is no similar right in Scotland.
  • It is vital that you have the right to come out of your lease when your franchise term ends. This is the case in Scotland and in England. Therefore, if your lease is for a longer period than your franchise term, your lease must include an option for you to break the lease at the end of your franchise term. Similarly, if your lease is for a shorter period than your franchise term, your lease should include an option to extend it for the period of the franchise term. Care should be taken to ensure that the lease can be extended either on the same terms as the original lease, or at least on terms which are acceptable to you.
  • A very important point to note, especially for franchisees who are used to dealing with properties in England, is that leases in Scotland do not automatically terminate at the end of the contractual term of the lease. Instead, a Scottish lease will automatically continue on the same terms except as to duration (in the case of a lease originally granted for a period in excess of a year, for a further period of one year) unless either the landlord or the tenant serves a valid notice of termination on the other at least 40 days prior to the contractual expiry date specified in the lease.
  • It is also important to note that the Landlord and Tenant Act 1954 does not apply in Scotland. Therefore, tenants do not have an automatic right to agree a new lease following the end of their current lease. Accordingly, if a tenant needs to continue in occupation of a property, it needs to agree an express right to extend the lease, and this right should be in the original lease before it is signed. Otherwise, the landlord will not be obliged to grant the tenant a right to stay on in occupation, once it has served a notice to quit upon the tenant.
  • If you are taking on a lease anywhere, whether it be in Scotland or in England, it is essential to take legal advice on limiting your obligations, especially in terms of items such as repairing the property. It is advisable to commission a full structural survey of the property before you are contractually bound to enter into the lease. This is because commercial leases are generally on full repairing terms, which means that you will be obliged to maintain and repair the property even if the cause of the damage is not your fault or indeed where the damage was there when you first took entry. Certainly, you should never be obliged to repair damage caused by something against which the landlord has (or should have) taken out insurance. Ideally, your solicitor will be able to negotiate with the landlord’s solicitor that you will not be liable to repair damage caused by defects in the property which were not evident when you took occupation, or which pre-dated your occupation. If the property is not new or is not in very good condition you should attempt to limit your repairing obligation by reference to a Schedule of Condition which should be prepared at the outset of the lease to record, by both photographs and narrative, the condition of the property as at the commencement of the lease. The lease should provide that the tenant will not be obliged to put the premises in to any better condition that evidenced by the relevant Schedule of Condition.
  • It is also important to consider exactly what payments you will require to make in terms of the lease. As well as rent, there will often be a reimbursement to the landlord of all or part of the landlord’s insurance premiums. There will also often be a service charge and an obligation to pay items such as rates, utilities etc. Leases for any medium or long term will very often contain provisions to review the rent after a certain period (often after 5 years), and your solicitor will be able to advise you on the provisions relating to rent review.
  • If you wish to be able to sell your interest in the lease at some future date, or sublet all or part of it, your solicitor will need to ensure that you are entitled to do so in terms of the lease. Often, leases will provide for you being entitled to do this, but only with the consent of the landlord. In Scotland, there is no general, implicit requirement upon landlords to act reasonably in considering whether to give their consent to, for example, a sale of your interest or a sublease of all or part of it. Therefore, it is important that the lease explicitly states that the landlord must act reasonably. This requirement of reasonableness does not just apply to situations where you wish to sell or sublet. It is important to ensure that, wherever your lease obliges you to obtain your landlord’s consent (e.g. to the display of signs or to carry out alterations/fitting out works), this consent is not to be unreasonably withheld or delayed.

 

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