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Which way will it jump?

16 June 14

Areas identified by the Agricultural Holdings Legislation Review Group to focus on in its further deliberations

by Alasdair Fox

The Agricultural Holdings Legislation Review Group (including prominent lawyers, Sir Crispin Agnew Bt QC and Hamish Lean, solicitor) was established at the end of last year to advise the Government how legislation and policy might be changed to secure the vibrant tenant farming sector for which it strives.

The Group has since met monthly and set in train a wide-ranging research and consultation process, including communication with stakeholders and public meetings. It is now possible to draw out pointers as to the direction it is heading.

Essential elements

It has first identified what it regards as the essential elements of a successful tenant farming sector:

  • A range of flexible tenancy options, meeting diverse business needs and evolving economic circumstances.
  • People (especially new entrants) able to move into, through and out of the tenanted sector as their businesses develop.
  • Business investment to have the same flexibilities and constraints as owner-occupation.
  • Low barriers to entry (including CAP), enabling people with ability, including new entrants, to establish and develop businesses regardless of their background.
  • Rent levels reflecting commercial returns from well- managed farming businesses, using the tenanted land and associated assets according to the Land Use Strategy.
  • The supply of land to be broadly compatible with demand.
  • Risk shared between tenants and landlords in a manner that encourages innovation and provides resilience to unpredictable changes, e.g. in markets, fiscal support etc.
  • The underlying culture to be forward looking, based on shared endeavour, mutual respect and partnership between owners and tenants.

High level principles

The Group then agreed the fundamental policy principles which should guide its deliberations, namely:

  • The purpose – to facilitate innovation and business development in farming, including the encouragement of new entrants.
  • The characteristic – to provide for an appropriate mutuality of rights and obligations between landowners and potential farmers.
  • The consequence – to underpin diverse, vibrant and flexible land use and rural communities.

Where have we gone wrong?

The Group next teased out key areas where current circumstances are not those it considers are required for a healthy tenanted sector, namely:

  • a lack of entry level units, including for would-be part timers;
  • insufficient diversity and flexibility in tenancy arrangements on offer;
  • unavailability of longer term tenancies;
  • difficulties encountered by tenants in obtaining investment capital, often related to lack of security for loans;
  • inability of some tenants to access single farm payment;
  • a tax regime which discourages some landowners from letting land;
  • no strong economic incentive for owners to let land;
  • rent controls disincentivising the supply of land;
  • shortage of affordable housing in rural areas and the high rents obtainable for on-farm residential properties;
  • landowners’ perception of risk and how to promote positive landowner/tenant relationships and mutual confidence.

Drilling down

Against that general background, the Group has identified the following areas which currently cause tension between landlords and tenants and which, therefore, deserve further work:

  • Rent and rent reviews – a less confrontational approach, and possible extension of the period to five years. Investment, improvements, compensation and waygo.
  • Retirement, succession and assignation (with or without landlords’ right to pre-empt) – to smooth transfer to younger tenants and permit tenants to borrow capital. Extension of the right to buy, possibly where the landlord has breached tenancy conditions (but probably not universal ARTB).
  • Letting vehicles for the 21st century – including modification (if required) of LDT and SLDT, and innovative, flexible, new models providing a balance in bargaining power between parties.
  • Small landholdings – to assess whether amending existing legislation might provide a toehold for new entrants. Landowner-tenant relationships – including professional intermediaries, codes of conduct, mediation, arbitration and an ombudsman.
  • Taxation – does capital taxation act as a deterrent to the letting of land?
  • Financial incentives – particularly the Government’s policy re SFP.

The Group is to publish its interim report in time for the Royal Highland Show in June, and its final report by the end of the year. The deliberations and conclusions of the Group are hugely important and, indeed, may make or break the tenancy system as we know it.

Alasdair Fox, consultant, Anderson Strathern LLP

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