Scottish appeal court considers effectiveness of Notice to Quit under a commercial lease (Rockford Trilogy Ltd v NCR Ltd)

The Inner House of the Court of Session has issued its decision in the case of Rockford Trilogy Ltd v NCR Ltd [2021] CSIH 56. An appeal by Rockford Trilogy Ltd (“Rockford”) against the first instance decision in favour of NCR Ltd (“NCR”). The Inner House has upheld the first instance decision. This case raises important practical issues in relation to the termination and negotiation of leases.

Background

The parties agreed the facts of the case before the first instance hearing. Rockford was the landlord of the property that had been let to NCR under a commercial lease. The Lease commenced in 2003 and was due to expire on 26 March 2020 (“the Lease”). Rockford had argued at first instance that NCR had failed to serve an effective notice to quit with the minimum period of notice (being forty days prior to the termination date of the Lease) and therefore the Lease would continue until 26 March 2021, under the Scots law doctrine of tacit relocation.

NCR argued that the parties had been in negotiation since June 2019, via their agents, regarding both the termination of the Lease and the agreement of a new lease that would allow NCR to stay in the property on renewed terms. In the course of these negotiations, it was argued that NCR’s agent had made clear that it was their client’s intention that the Lease was to terminate and the possibility of a new lease to be taken by NCR was to be explored. In an email dated 21 January 2021, the agents for NCR gave an indication of the conditions which would have to be met for NCR to remain in the premises. Negotiations between the agents for the parties continued up until the beginning of February 2020. At that point, the agents for NCR confirmed that they would like to agree formal heads of terms for a new lease to allow them to remain in the property. On 26 February 2020, the agents for Rockford stated that no formal notice to quit had been received in relation to the Lease and therefore it would continue for a further year by operation of tacit relocation.

First instance decision

At first instance the Commercial Judge, Lord Clark, provided a useful summary of the law relating to the termination of leases and the operation of tacit relocation. He ultimately concluded that an email of 21 January 2020 gave “sufficient notice, or overt intimation” that NCR intended to terminate the Lease. In his decision, Lord Clark was of the view that a clearly intimated intention and statement of that fact was not diminished in any way by the fact that it was communicated in the course of negotiations with Rockford’s agents.

Inner House Decision

Rockford argued at appeal that the email of 21 January 2020 was not sufficient under Scots law to terminate the Lease. That being the case, tacit relocation operated and the Lease continued until March 26 2021.

NCR argued that the doctrine of tacit relocation relied on the silence of the parties in order for it to operate. In the present context there was no such silence and indeed there had been a very clear statement of intention by the agents for NCR with regard to their intentions.

The Inner House agreed with the first instance decision and confirmed that the law had been correctly applied. Paragraph 6 of the Judgment reads as follows:-

“The concept of tacit relocation is based upon presumed consent by silence. If neither party has given notice of its intention to terminate the lease at its expiry the parties are by their silence presumed to have agreed that the lease is to be prolonged on the same terms. The law implies consent to relocation if parties are silent on the matter of consent. Negotiations between the parties about other potential arrangements are not per se inconsistent with the finding that there has been silence on whether the existing lease be continued. However, where parties have reached an agreement inconsistent with consent to prolongation, tacit relocation will be excluded.”

The Inner House noted that, whilst service of the notice to quit would be the typical means of stating a clear intention to terminate a lease, as long as any form of notice narrated a sufficient intention and could be understood by the receiving party as doing so, then it was an effective means of termination of a lease. The Inner House specifically agreed with Lord Clark’s assessment of the email from NCR’s agent of 21 January 2020 as being the communication that conveyed NCR’s specific intentions regarding the Lease. It was very clear from the terms of that email that NCR had no intention of continuing in occupation of the property under the terms of the Lease.

Implications

It would be unwise for parties to a lease to rely on informal communications to bring about its termination. Service of a formally drafted Notice to Quit will continue to be the prudent method by which an intention to terminate a lease in Scotland is communicated. The decision of the Inner House means that landlords and tenants, and their agents, must take great care in what is said in correspondence where it might have an unintended legal impact.

It remains to be seen if a further appeal will be taken by Rockford to the Supreme Court of the United Kingdom. In the meantime, this decision will undoubtedly feature in the ongoing discussions about the development and reform of this area of Scots Law resulting in changes which stipulate the formality and content of Notices to Quit.