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Holding out for reform

17 September 12

Developments relating to the Scottish Government's reform agenda for agricultural tenancies

by Alasdair Fox

Recent events leave us in no doubt that the Scottish Government sees rural issues, including land reform and agricultural tenancies, as lying at the heart of its agenda for this, its second term of office. 

On land reform, it has just established a group to review the Land Reform (Scotland) Act 2003 and to come forward with radical proposals for amendments to make the legislation more effective in the delivery of its objectives, particularly community ownership.

So far as agricultural tenancies are concerned, the Agricultural Holdings (Amendment) (Scotland) Act was given Royal Assent on 12 July 2012. It completes the legislation, the first stage of which was the Public Services Reform (Agricultural Holdings) (Scotland) Order 2011 (in force 22 March 2011), required to put into effect the package of recommendations made by the Tenant Farming Forum (“TFF”) which the Scottish Ministers agreed in 2010.

The 2012 Act:

  • extends the class of persons protected from incontestible notices to quit (1991 Act, s 25) on successors to tenancies, “near relatives” (surviving spouses, civil partners and children), to include grandchildren;
  • nullifies provisions in limited duration tenancies for upward-only and landlord-only initiated rent reviews; and
  • provides that changes in rent resulting from the exercise or revocation of the option to tax by a landlord, or a change in the rate of VAT where such an option has effect, do not qualify as a “variation of rent” such as would prevent the parties from seeking a determination from the Scottish Land Court on the rent for a period of three years.

But the process is not to end there. The Government has made it plain that it wishes to see a vibrant tenanted sector in Scotland and that it has high expectations of stakeholders and, in particular, landlords to deliver this. It has committed itself to a further review of the Agricultural Holdings (Scotland) Acts before the end of the current administration and will, if it considers it necessary, legislate to provide the framework before the next election. The Cabinet Secretary has met with the TFF, which agreed to consider during that period and recommend to the Government what further measures are required to deliver a tenanted sector which is fair, commercially viable and attractive, in particular to new entrants.

As the first step, the TFF has appointed its own group to review the 1991 Act, s 13 (rent variation), as amended in 2003, which came under scrutiny in the recent Moonzie case, with radically different interpretations by the Land Court and, on appeal, the Court of Session. This has focused attention on rent review as the most contentious issue in the relationship between landlord and tenant. Having sought the initial views of the principal stakeholders, Scottish Land & Estates, NFU Scotland and the Scottish Tenant Farmers’ Association (STFA), the TFF’s rent review working group has had its first meeting and is now seeking responses on how the rent review process currently works in practice and what, if any, changes or improvements should be made to the legislation.

In particular it has posed the following questions:

  1. What are the main strengths and weaknesses, in principle and practice, of s 13?
  2. How are 1991 Act rent reviews presently conducted in Scotland, and will the Moonzie case materially alter present procedures?
  3. Where the parties are not able to agree a revised rent themselves, how best should that dispute be resolved?
  4. Comparing and contrasting s 13 with alternative rent review provisions (including those applying south of the border), what changes would provide material differences in the outcome?

Views on rent review are, unfortunately, already polarised. Landlords’ interests favour sticking with the existing process, based primarily on evidence of comparable lettings (in reality nowadays LDT and SLDT duly adjusted). The STFA prefers assessment of rent based on the productivity of the holding. It was, no doubt, the intention of Parliament in 2003 that at least as much weight should be given to “current economic circumstances” as to comparables. The Review Group faces a major challenge to square the circle by coming up with a process which is acceptable to all interests, workable, and renders Land Court proceedings less complicated, lengthy and costly.

Other issues the TFF has undertaken to review include improvements, waygoing compensation, repairs and renewals, diversification, succession and assignation. It is not difficult to think of many other matters which, coupled with those already enacted in 2011 and 2012, would make it more sensible to tear up the 1991 and 2003 Acts and start again, hopefully with something much less complicated, less prescriptive, more relevant to the second decade of the 21st century, and in a single Act. 

Alasdair G Fox, consultant, Anderson Strathern LLP