When a commercial lease in Scotland comes to an end but the tenant refuses to vacate, the landlord may be able to claim 'violent profits' as compensation for being deprived of the use of the premises.
What are violent profits?
Violent profits are a form of penal damages which may be payable to an owner of heritable property by anyone, including a former tenant, who occupies the property illegally. The concept dates back hundreds of years and is intended to do two things: compensate the property owner for their loss of the use of the property and deter would-be illegal occupiers by imposing a tough penalty for their actions.
The term itself refers to the 'profits' which are obtained by the unlawful occupier, who is said to have acquired such profits by the 'violence' of their intrusion on the owner's property. It is, however, something of a misnomer – in the majority of cases the party found liable to pay violent profits will not have used any violence in occupying the property and, as we discuss below, the sum awarded need not bear any relation to the profits they have actually received.
When and how can violent profits be claimed?
In order to succeed with a claim of violent profits, it is necessary to prove not only that the defender has occupied the property illegally, but also that they were acting in bad faith in doing so. Where the occupation was lawful at first, such as where the occupier was formerly a tenant under a lease, it is for the owner of the property to show when the occupier began acting in bad faith. This means that violent profits can sometimes, but not always, be claimed by a landlord whose tenant has remained on the premises after their lease has come to an end.
Where the landlord has terminated the lease at its end date by serving a notice to quit at least 40 clear days in advance, it is likely to be able to show that the tenant has acted in bad faith by refusing to leave. This is because the tenant can have no reasonable basis for believing that it is entitled to remain in occupation.
In other circumstances, however, it may not be so clear that the tenant's continued occupation is in bad faith. One example is where the landlord has irritated the lease on the basis of the tenant's non-payment of rent or breach of some other obligation, and the tenant raises a genuine dispute about the validity of the irritancy. A court may find that the tenant is not acting in bad faith by remaining in occupation until the dispute is resolved, and it is therefore not liable for violent profits.
In such a situation, the landlord may instead be entitled to claim damages for the losses it has suffered as a result of the tenant failing to vacate. This could include the rent the landlord would have received from a new tenant. However, the landlord will have to prove the extent of its loss, which it does not have to do in order to claim violent profits.
In terms of timing, a claim for violent profits will normally (but not always) be included as part of a court action for the removal of the tenant. This 'action for removing' is one of the steps a landlord needs to take to evict a commercial tenant that has remained in situ beyond lease expiry.
How are violent profits calculated?
In general terms, violent profits are awarded at the highest level of income that the property owner could have obtained during the period of unlawful occupation.
Traditionally, this was calculated as being double the passing rent for the property. This would inevitably result in something of a windfall for the landlord. In more recent times, however, courts have tended towards reaching a more realistic estimate of the greatest possible profits that could have been generated, and have in some cases required evidence to be led on the subject. This is likely to result in an award which is around the level of the market rent.
If you are a commercial landlord looking for advice on violent profits or any other matter, get in touch with our Real Estate Disputes team or your usual Brodies contact.
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