There are two main types of arrangement allowing a person, company or other organization to occupy real estate for a limited period of time without buying it outright.
The first is a lease, which grants the right of exclusive possession of the property for an agreed period of time. A lease confers on the tenant contractual rights and (in most cases) a “real right” in the property enforceable against the landlord’s successors. The tenant’s interest in a lease can be transferred to a third party subject to specific restrictions set out in the lease.
The second is a licence which grants permission to occupy the property. Unlike a lease, the occupier of a property under a licence does not have exclusive possession and cannot transfer the licence to a third party. In addition, under a licence the period of occupation does not have to be fixed.
In granting a licence, property owners need to ensure that they are not inadvertently granting a lease. The courts will not consider whether the document is called a lease or a licence but will instead look at the substance of the agreement to determine whether it constitutes a lease or a licence.
Scots law differentiates between leases and ground leases, which are more akin to ownership of a property. Normally leases are used for commercial premises and generally much more often than ground leases.
The Economic Crime (Transparency and Enforcement) Act 2022 applies to all UK property. In broad, and simplified, terms, the Act prevents:
unless the relevant overseas entity has first become a registered overseas entity and complied with updating requirements under the Act. Selling or granting a charge over a leasehold interest is also prohibited unless the Act has been complied with. To become a registered overseas entity, the overseas entity must file information about itself, its managing officers and its beneficial owners (among other things) on the Register of Overseas Entities at Companies House. Failure to comply with the Act is a criminal offence punishable by significant fines or, in some cases, imprisonment.
Last modified 13 Mar 2025
There is no standard length. However, current market trends are for leases of between 5 and 15 years, although it is also common to find leases with shorter terms and/or with tenant's break options.
With effect from June 2000, no lease of any type of real estate can be granted for a period of more than 175 years.
On 28 November 2015 certain categories of long lease (in which the annual rent was not more than £100) were converted automatically into tenants' ownership by virtue of the Long Leases (Scotland) Act 2012. Leases which qualified for conversion into tenants' ownership were leases that (1) were originally granted for over 175 years; (2) in the case of residential leases, had over 100 years left to run from 28 November 2015; and (3) in the case of non-residential leases, had over 175 years left to run from 28 November 2015. In calculating the period for which a lease was granted, break options are disregarded, but landlords' obligations to renew are included. Mineral leases are specifically excluded from the provisions of this legislation. The legislation contains provisions under which landlords could, in the two-year period after 28 November 2015, claim (limited) compensation for loss of ownership.
There is a statutory implied condition in leases in excess of 20 years (subject to exceptions specified in the Land Tenure Reform (Scotland) Act 1974) that the property should not be used as a "private dwelling-house" (although this implied condition does not apply to private residential tenancies as defined in the Private Housing (Tenancies) (Scotland) Act 2016). In addition, leases of residential properties are subject to important statutory regimes relating to matters such as standard of repair, health and safety, and tenancy deposits.
With effect from June 2000, no lease of any type of real estate can be granted for a period of more than 175 years.
Rent for retail premises is sometimes based on business turnover. Depending on the location of the retail premises the tenant may incur further obligations relating to opening hours, servicing times, signage restrictions and other management controls. The landlord may also have the benefit of a pre-emption right in the event that the tenant proposes to transfer its interests under the lease. Hotel leases share some of these features with retail leases.
It is unusual to find office leases with a rent review based on anything other than open market rent.
The National Security and Investment Act 2021 applies to transactions entered into from 12 November 2020, introducing a mandatory and a voluntary notification regime for transactions which could affect national security and where a sensitive sector is involved (for example, defence). The legislation could cover the transfer of a leasehold interest or the grant of a new lease for a property which is, or is proximate to, a sensitive site, such as a government building or site of national critical infrastructure. However, little guidance has been given on the definitions of "proximate" or "sensitive". The regime will also cover foreign to foreign transactions with a UK element (such as an acquisition by one foreign investor of a data storage company in another country, if that company performs services which may impact on national security in the UK). Government approval would be required prior to completion of affected transactions and without it, the transaction would be void.
Last modified 13 Mar 2025
There is a statutory implied condition in leases in excess of 20 years (subject to exceptions specified in the Land Tenure Reform (Scotland) Act 1974) that the property should not be used as a "private dwelling-house" (although this implied condition does not apply to private residential tenancies as defined in the Private Housing (Tenancies) (Scotland) Act 2016). In addition, leases of residential properties are subject to important statutory regimes relating to matters such as standard of repair, health and safety, and tenancy deposits.>
With effect from June 2000, no lease of any type of real estate can be granted for a period of more than 175 years.
Rent for retail premises is sometimes based on business turnover. Depending on the location of the retail premises the tenant may incur further obligations relating to opening hours, servicing times, signage restrictions and other management controls. The landlord may also have the benefit of a pre-emption right in the event that the tenant proposes to transfer its interests under the lease. Hotel leases share some of these features with retail leases.
It is unusual to find office leases with a rent review based on anything other than open market rent.
Last modified 13 Mar 2025
There is no statutory provision for continuation of the period of a real estate lease beyond that provided in the lease other than the Tenancy of Shops (Scotland) Acts 1949 and l964, which provide limited security of tenure to tenants of retail premises. Under common law, if notice of termination is not given at the appropriate time by either the landlord or the tenant, the lease continues by 'tacit relocation' for a further period of up to one year on generally the same terms (including the amount of rent payable), and so on from year to year until proper notice is given.
Last modified 13 Mar 2025
The landlord must serve a formal notice on the tenant to quit the premises on the expiry of the term. The requisite period and form of notice depends on the area of ground and period of lease; however for leases of subjects up to and including two acres, of more than one year, a notice to quit of at least 40 days must be given.
Last modified 13 Mar 2025
The landlord has no automatic right to terminate the lease except where the lease provides for a landlord's break right or the landlord exercises its right to 'irritate' the lease (ie bring the lease to an end).
Leases normally contain a detailed clause which sets out the basis on which the landlord can terminate the lease on the grounds of the tenant's non-compliance with its obligations, for example non-payment of rent, breach of non-monetary obligations, or as a result of the tenant's insolvency.
In the case of a breach of the terms of the lease, the landlord must serve a formal notice on the tenant requiring compliance with the obligations in question within a “reasonable” period (which in the case of non-payment of rent is subject to a statutory minimum period of 14 days ). If the tenant fails to comply with this notice then the landlord will need to raise a court action to recover possession, which can take several months.
Last modified 13 Mar 2025
A local authority has the right to require the compulsory termination of a lease as a result of compulsory purchase of the premises.
Compulsory purchase powers are subject to rigorous controls and are usually exercised only where the local authority is constructing a new road or other public services.
The landlord and tenant would both be entitled to compensation for losses suffered as a result of compulsory purchase. Levels of compensation are calculated in accordance with the relevant statute.
Last modified 13 Mar 2025
Rent deposits or parent company guarantees may be provided.
Last modified 13 Mar 2025
The lease will contain numerous conditions relating to the use of the premises, including the specific obligation to use the premises for a particular purpose.
In addition, the tenant is obliged to comply with all the statutory provisions relating to the use and occupation of the premises.
There will normally be a specific obligation to comply with all planning/zoning legislation relating to the use of the premises.
Last modified 13 Mar 2025
The tenant's right to alter/improve the premises is normally restricted by the lease.
An absolute prohibition on structural alterations is now standard, and non-structural alterations require the landlord's consent, although this must not be unreasonably withheld or delayed.
The tenant is normally required to remove any alterations, if the landlord requires this, on the expiry of the lease.
Last modified 13 Mar 2025
Under Scottish law, if the lease does not specify otherwise, then the tenant can transfer its interest to a third party without the landlord's consent. However, in practice, almost all leases include restrictions on transfer.
Transfers of part of a leased premises are usually prohibited and complete transfers are usually subject to the landlord's consent, although this must not be unreasonably withheld.
Under Scottish law (unless the lease expressly provides otherwise) the original tenant is no longer liable for any future obligations under the lease from the date of transfer onwards.
Under the Economic Crime (Transparency and Enforcement) Act 2022, generally, a transfer of a Scottish leasehold interest of over 20 years is prohibited if either the tenant or the proposed transferee of the leasehold interest is an overseas entity which has either not registered on the Register of Overseas Entities or not complied with the related updating requirements.
Last modified 13 Mar 2025
In certain leases, there is provision for a stepped rental increase. However, for leases of over five years the accepted market practice is to schedule a rent review on the fifth anniversary of the date of entry and every five years thereafter.
Last modified 13 Mar 2025
Rent is normally linked to the open market rent which would be payable for equivalent premises on the same terms and conditions.
The relevant provisions normally mean that rent can only be increased and not decreased, although it has recently been suggested that the government may introduce a restriction on 'upwards only' rent review mechanisms.
The rent review clause also normally contains a provision for the resolution of any disputes relating to the rent review.
In the case of retail leases rent may be based on a percentage of the turnover obtained from the tenant's activities on the premises.
Last modified 13 Mar 2025
Normally leases provide for the tenant to pay VAT where this applies. The standard rate of VAT is currently 20% and is payable if the landlord has elected to charge VAT in relation to the premises.
Last modified 13 Mar 2025
The landlord in a ‘private residential tenancy’ (the default type of tenancy in the private sector) would need to serve 28 days' notice to leave on the tenant, specifying (as the eviction ground) that the tenant has been in rent arrears for three or more consecutive months.
If the tenant refuses to leave, the landlord can apply to a body called the First-Tier Tribunal for Scotland (Housing and Property Chamber) (FTT) for an eviction order. Assuming the FTT decides to exercise its discretion to issue the order, it is likely to take at least eight weeks to be issued. Before making the application to the FTT, the landlord has to give notice of their intention to do so to the local authority in whose area the let property is situated.
The Private Housing (Tenancies) (Scotland) Act 2016 makes provision for a pre-action protocol which landlords can elect to follow before starting eviction proceedings for arrears of rent. Elements of the protocol include providing the tenant with clear information on how to access advice on their rent arrears, and making reasonable efforts to agree a reasonable payment plan with the tenant. Whether landlords have followed the protocol is considered by the FTT in deciding whether to grant an eviction order.
Once an eviction order is issued by the FTT the landlord can serve the tenant with an official letter giving 14 days to vacate, following which officers of the court (known as sheriff officers) would need to be appointed to remove the tenant.
Last modified 13 Mar 2025
Land and Buildings Transaction Tax (LBTT) (charged at 1% to the extent that the net present value of the total rents payable during the period of the lease is between £150,001 and £2,000,000 and at 2% to the extent that the net present value exceeds £2,000,000) ) is payable by the tenant on commencement of the lease.
Special LBTT rules apply where the exact amount of rent is unknown.
If a capital payment is due on the grant of the lease, LBTT is also charged on that sum, starting at 1% for non-residential properties on any part of the capital payment between £150,001 and £250,000 (or on any part of the capital payment between £0 and £250,000 if the average annual rent is £1,000 or more) and rising to a rate of 5% on any part of the capital payment in excess of £250,000.
The tenant is also liable for all other outgoings relating to the premises, including payment of business rates and charges for electricity, water, gas, telephone lines and other utilities.
Last modified 13 Mar 2025
The tenant is almost always liable for common expenses. In larger multi-let developments a service charge is normally established to cover common expenses. Each tenant then pays a proportion of the service charge, according to the size of their unit in relation to the total rentable area of the property.
Last modified 13 Mar 2025
According to Scottish common law the landlord is obliged to keep the premises wind- and watertight. However, the lease will normally include a specific statement that the tenant has accepted that the premises (and the common areas) are in a good condition and state of repair and fit for their purposes.
The tenant is then responsible for the repair, maintenance and decoration of the premises, as well as any necessary rebuilding and restoration except where this is covered by insurance.
In this case the landlord is normally responsible for using the proceeds of an insurance claim to make good any damage.
Last modified 13 Mar 2025
Contracts for telecommunication services are usually concluded with individual tenants. In consequence, several telecommunication agreements may exist in relation to one property. In the case of utilities serving multiple occupiers, contracts are usually concluded by the landlord and the costs transferred to tenants according to the contractual agreement.
Last modified 13 Mar 2025
Generally, leases will require the landlord to insure the real estate for its full reinstatement value against a range of normal commercial risks, including fire, subsidence, lightning, thunderbolt, explosion, riot, civil commotion, storm and flood etc as well as loss of rent and service charges. The tenant is normally obliged to reimburse the landlord for the cost of insurance.
In this case the landlord is normally responsible for using the proceeds of an insurance claim to make good any damage.
Last modified 13 Mar 2025
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?
There are two main types of arrangement allowing a person, company or other organization to occupy real estate for a limited period of time without buying it outright.
The first is a lease, which grants the right of exclusive possession of the property for an agreed period of time. A lease confers on the tenant contractual rights and (in most cases) a “real right” in the property enforceable against the landlord’s successors. The tenant’s interest in a lease can be transferred to a third party subject to specific restrictions set out in the lease.
The second is a licence which grants permission to occupy the property. Unlike a lease, the occupier of a property under a licence does not have exclusive possession and cannot transfer the licence to a third party. In addition, under a licence the period of occupation does not have to be fixed.
In granting a licence, property owners need to ensure that they are not inadvertently granting a lease. The courts will not consider whether the document is called a lease or a licence but will instead look at the substance of the agreement to determine whether it constitutes a lease or a licence.
Scots law differentiates between leases and ground leases, which are more akin to ownership of a property. Normally leases are used for commercial premises and generally much more often than ground leases.
The Economic Crime (Transparency and Enforcement) Act 2022 applies to all UK property. In broad, and simplified, terms, the Act prevents:
unless the relevant overseas entity has first become a registered overseas entity and complied with updating requirements under the Act. Selling or granting a charge over a leasehold interest is also prohibited unless the Act has been complied with. To become a registered overseas entity, the overseas entity must file information about itself, its managing officers and its beneficial owners (among other things) on the Register of Overseas Entities at Companies House. Failure to comply with the Act is a criminal offence punishable by significant fines or, in some cases, imprisonment.
Last modified 13 Mar 2025