It is not uncommon for a business to occupy commercial premises and pay rent on nothing more than a handshake with the landlord.
Months or even years can pass before lawyers are called in and a lease prepared.
Drafts go back and forth and each time the same wording is added and removed. Neither wants accept responsibility for the rising damp in the kitchen and back office.
On top of that, the tenant’s option to buy at the end of year five has been erased and redrafted so many times that no one can remember what it was supposed to say.
A stalemate occurs and the tenant eventually gets fed up, wants to forget the whole thing and move out. He says: “We haven’t got a lease anyway, right?” Wrong.
What the law says
Under the Requirements of Writing (Scotland) Act 1995, any lease or contract for lease for more than one year must be put down in writing and signed by both parties.
However, land contracts which do not conform with the act cannot be invalidated where three conditions are met:
• There is an agreement between the parties.
• One party has relied on that agreement.
• The party relying on the agreement would suffer materially should the other party be allowed to withdraw.
Contractual rights v real rights
This can only apply to contracts for the creation, transfer, variation or extinction of real rights in land (e.g. missives). It cannot be used in relation to deeds affecting a real right in land (e.g. dispositions).
The distinction between contractual rights and real rights can be a problem when it comes to missives of let and leases, which may encompass both. Leases both create the tenant’s real right but and also constitute a bilateral contract. Similarly, missives of let constitute a contract for the lease, but may equally form the basis for the real right.
Frequently, the lease will involve both missives and a lease. Where a previous contract is followed by a lease, the former is clearly intended to embody the contract and the latter the real right. There should therefore be no real question of the provisions of the lease being validated by the statute.
Leave nothing to chance
To minimise the risk of future disputes, use a written disclaimer in contract negotiation correspondence. Expressly state that the correspondence or draft contract is not contractual or that a draft document is not legally binding until it is attached to formal missives.
That makes it difficult for either of the parties to claim that a contract has been achieved.
Tenants and landlords alike should take care not to stumble into a binding contract unintentionally.
Simply taking up or allowing entry to a property, paying or accepting rent or fulfilling other obligations without written agreement could result in the shocked response: “What do you mean there’s a lease?”
Sarajane Drake is a solicitor at Wright, Johnston & Mackenzie LLP , specialising in commercial property work. She can be contacted at sjd@wjm.co.uk. Wright, Johnston & Mackenzie LLP is a full-service, independent Scottish law firm with offices in Glasgow, Edinburgh, Inverness, Dunblane and Dunfermline.
