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By Liz Stewart, Partner

Landlords and tenants face a red-letter day this weekend with November 28 signalling conversion of certain long leases in Scotland to ownership. For those which qualify, the change will have a significant impact upon landlords, tenants and in some instances, neighbouring proprietors.

Landlords and tenants face a red-letter day this weekend with November 28 signalling conversion of certain long leases in Scotland to ownership. For those which qualify, the change will have a significant impact upon landlords, tenants and in some instances, neighbouring proprietors.

Companies, partnerships and individuals could all benefit. Leases which qualify must have been granted for more than 175 years, with more than 100 years still remaining for residential properties, or more than 175 years for any other type of property.

There are some exceptions - for example, where the annual rent is more than £100, Harbour Authority leases, mineral leases and those granted for the sole purpose of installing and maintaining pipes or cables. In the right circumstances, a sub-tenant can also acquire ownership of the property.

When a qualifying long lease converts to ownership, the tenant will be due no further rent. If rent is already overdue, landlords should take steps now to recover that rent prior to November 28, after which no recovery proceedings can be raised.

Compensation may be payable to a landlord for loss of rent under a long lease converted to ownership. Steps must be taken by the landlord to claim the compensation within two years of the conversion date - the clock is ticking.

For landlords who retain ownership of property on shorter leases, the question of payment of annual rent is a key issue in what are challenging times for many commercial tenants. The spectre of tenant insolvency is a daunting one and while the law is not automatically supportive of landlords in such circumstances, steps can be taken to better protect their interests.

Insolvency proceedings largely prevent a landlord from raising court action without the express permission of the insolvency practitioner or court. A landlord may stand a better chance suing for unpaid rent as an expense of company administration where the premises continue being used for the tenant’s business or to accommodate a fire sale. A landlord may also be able to exercise its right of hypothec – a useful tool for securing rent arrears.

November 28 also looms large as the next quarterly rent payment date for the vast majority of commercial leases. The burden of a quarter’s rent can put significant pressure on a tenant’s cash flow where market conditions are challenging. For landlords, the key will be to plan ahead.

Know your tenant’s business and the pressures currently faced. Visit the premises and get a feel for how the business is operating. Maintain communication. Keep on top of rent recovery. Agreeing a monthly rent cycle may ease sufficient pressure on a tenant’s cashflow and benefit a landlord in the long run.

If a tenant becomes insolvent, make early contact with the liquidator or administrator. Ascertain whether the business will continue trading and if so, for how long. Pre-emptive steps with early legal advice will prove far more beneficial than facing lengthy litigation after the event.

 

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