To irritate a lease for arrears (the Scottish equivalent of forfeiture), the landlord must first serve a pre-irritancy warning notice. As per s.4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act (the "1985 Act") the pre-irritancy warning notice must give the tenant at least 14 days immediately following service of the notice (or longer if provided for under the lease) to pay the arrears in full. If the tenant fails to pay, the landlord can serve a second notice (an irritancy notice) which normally terminates the lease with immediate effect.
A pre-irritancy warning notice has a dual function; it is a notice under the 1985 Act and under a lease. In a recent decision from Glasgow Sheriff Court it was found that a notice which is treated as served under the 1985 Act may not be treated as served under a lease.
The 1985 Act states that a pre-irritancy warning notice must be served by 'recorded delivery'. The courts interpret this to mean recorded delivery post, as opposed to service by courier or Sheriff Officer. Many things can prevent pre-irritancy warning notices being received. A tenant might refuse to sign for it or may have vacated the premises already. We're now finding that more pre-irritancy warning notices are simply going missing with postal strikes affecting services.
Modern commercial leases often contain a clause which says that - as long as it is sent to a particular address and by recorded delivery post – a notice will be sufficiently served and is deemed to be served following a certain amount of time after posting (normally 2 days). To date, it has generally been understood that notices served in accordance with such clauses will be treated as served at the time specified regardless of whether the notice is received earlier, later, or not at all (unless the clause includes a qualification such as "unless the contrary is proven"). The purpose of deeming provisions has been understood to be to (a) transfer the risk of non-receipt from the giver to the recipient of the notice and (b) to provide parties with certainty on the timing of service. Our blog on 'deemed service' and 'sufficient service' can be read here.
There has been far less judicial commentary on the requirements laid down by the 1985 Act for service and when service is treated as having occurred under the act. Most solicitors have taken the view that service under the 1985 Act will be deemed to occur at the same time as service under the lease.
In Lujo Properties Limited v Gruve Ltd a pre-irritancy warning notice was sent by recorded delivery post. The lease contained an unqualified deemed service provision of the kind described above. It was a matter of agreement that the notice had not actually been received by the tenant. The central question before the court was whether service had nevertheless occurred under both the 1985 Act and the lease.
The court found that service under the 1985 Act was deemed to have occurred on the day of posting whereas service under the lease only occurred when the tenant actually received it. Because the notice had not actually been received, the Sheriff found that service had not occurred under the lease and that it was accordingly invalid.
The decision is surprising in three respects. First, it represents a clear departure from a long line of authority on how 'sufficient service' and 'deemed service' provisions in leases operate. The Sheriff attached considerable weight to the requirement in the lease that notice had to be "given" to the tenant and found that this implied "actual service, actual delivery". Whether that is correct must be at least doubtful. Most provisions in a commercial lease requiring notice from a landlord or tenant about anything (such as a notice exercising a break right or notice requiring a tenant to carry out repairs) will use the word "give" or "given". It would come as something of a shock to most commercial parties to learn that a notice is not given even if it is served in accordance with the detailed notice provisions in their lease.
Secondly, the Sheriff's conclusion that a notice for the purposes of the 1985 Act is treated as served as soon as it is posted (and therefore before it could ever actually be received) is an interesting proposition. We are aware of at least one prior (unpublished) decision from Glasgow Sheriff Court in which the Sheriff accepted an argument that the 1985 Act required actual service. Several earlier cases (including decisions of appellate courts) have been decided on the basis that service under the 1985 Act occurs at the same time as service under the lease.
Thirdly, the Sheriff found on the facts in Lujo that the landlord's irritancy had been oppressive because it had known that the warning notice had not been received by the tenant and had failed to alert the tenant to its existence by other means. One difficulty, of course, with serving the same notice by different means at different times is the risk that the tenant is left confused about exactly how long it has to pay. There have been lots of cases in which pre-irritancy warning notices have been found to be invalid for this reason.
Whether the decision in Lujo is appealed to a higher court remains to be seen. For now, it has created more uncertainty in an area which is already fraught with risk. It is imperative that landlords take specialist legal advice before exercising their right of irritancy under a commercial lease.
If you require advice in relation to a notice under a commercial lease, please do not hesitate to get in touch with our Real Estate Litigation team or your usual Brodies' contact.