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Tenancies: the shape of things to come?

16 March 15

Agriculture briefing: the main headlines from the final report of the Agricultural Holdings Legislation Review Group

by Alasdair Fox

The Agricultural Holdings Legislation Review Group recently issued its final report, fulfilling its remit to mend the perceived deterioration in landlord/tenant relationships and stimulate the letting of agricultural land, particularly by providing opportunities for new blood. The report makes 49 recommendations, although it is actually more as there are a number of matters on which it concludes that the status quo should be maintained.

Space only permits a canter through the report’s headlines, be they proposals for change or for no change. They fall into the following categories:

General

  • The Government should encourage industry-led initiatives to improve landlord-tenant relations.
  • It should appoint a Tenant Farming Commissioner to act as an ombudsman, underpinned by robust codes of practice and empowered to initiate enquiries and levy penalties.

Termination of tenancies

  • Both 1991 and 2003 Act tenancies (including new forms of LDT – see below – but excluding SLDT and seasonal lets, which should terminate automatically) should be terminable on not less than two nor more than three years’ notice.
  • Irritancy should continue to be permitted, subject to exemptions brought in by the 2003 Act, provided they are not so flexible as to affect security of tenure.

Rent review

The three-yearly rent review cycle should not be disturbed, nor should rent reviews become mandatory. Resumptions from or additions to holdings, whether or not rent is adjusted, should not break the review cycle. Additional rents should be levied in respect of non-agricultural activities and/or surplus housing.

Statutory rent review should be on the basis of the productive capacity of the holding, farmed by a hypothetical tenant who is efficient, experienced and adequately resourced, using the landlord’s fixed equipment and taking account of a budget. The paper recommends a process to be followed.
Where the rent increase determined is greater than 30%, it should be phased in over three years.

Where the productive capacity test would not give the landlord a reasonable return or cover the costs of fulfilling their statutory responsibilities re fixed equipment, they should be given the right to apply to the Land Court for modification of such obligations, including the declaration of fixed equipment no longer required as redundant. NB no provision is made for what happens if the figure is still a nominal or negative amount.

Diversification

The landlord’s right to object to a proposed diversification by the tenant should be restricted to a single notice. There should be a presumption that diversification will be permitted if planning permission has been granted for it.

Improvements

There should be a three-year amnesty to allow parties to agree or for the Land Court to decide whether or not improvements carried out by the tenant without following correct procedures or to fulfil landlords’ ingoing obligations are to be compensatable.

Improvements which give rise to compensation (sched 5) should be reviewed.

Retirement, succession and assignation

Aged tenants should be encouraged to retire by expanding the class of persons who may succeed to tenancies and by permitting assignation for value.

Assignation should be achieved only by tenants converting 1991 Act tenancies into 35-years minimum, statutory, LDTs, which may be assigned within the expanded class of potential successors.

Planning policy and guidelines should be amended to permit retirement housing for outgoing tenants close to their former holdings.

Stimulation of new tenancies

Two new forms of “modern LDT” should be introduced:

1. A minimum term of 10 years, encompassing freedom of contract on some aspects, including rent (but with fallback to the proposed new rent review formula: see above), with an optional break after five years where the tenant is a new entrant.

2. A full repairing, replacing and renewing LDT with a minimum term of 35 years and the rent being fixed according to the proposed new statutory formula.

Both modern LDTs should be assignable and transferable on death. Future SLDTs should be abolished; and cropping should be added to mowing and grazing as permitted activities for seasonal lets.

Right to buy

  • There should be no absolute right to buy – but tenants should no longer have to register their interests in order to enjoy the pre-emptive right to buy, the triggers of which should be clarified.
  • Pre-emptive right to buy should apply to a transfer of shares as a means of transferring the land where the landowner is a company and if there is an interposed lease.
  • Consideration should be given to a compulsory right to buy, or of sale subject to tenancy, where the landlord persistently fails to fulfil their obligations and, through the land reform process, to address situations where land is managed in such a way as to create barriers to local development.

New entrants

  • Where tenants wish to avail themselves of the right to assign to a new entrant, they should be able to do so on a staged apprenticeship basis.
  • Starter units should be encouraged by the Government releasing publicly owned land and through discussions with “larger” private landlords.
  • Financial incentives (not only in the agricultural sector) should be reviewed to facilitate support for new entrants.

Game

The tenant should have a claim should the landlord use the holding for sporting purposes beyond those contemplated at the commencement of the lease.

Tax and CAP

  • The Scottish Government should co-operate with Westminster to reform IHT reliefs, tax treatment of rental income and VAT to incentivise landlords to let land.
  • It should review the public interest justification for exempting land from business rates and a possible land value tax, in the context of land reform.
  • Consideration should be given to treating LBTT on leases on a par with share or contract farming agreements.
  • Measures should be undertaken in the application of the Common Agricultural Policy and Scotland Rural Development Programme to divert subsidies from “larger” landowners to new entrants and “small” tenants and also to encourage landlords to let land.

Investment

1991 Act tenancies (but not LDTs) should be registrable so they can be offered as security for borrowings by tenants.

Observations

The above list is not comprehensive.

At present these are no more than recommendations, and it will be interesting to see which, if any, find their way onto the statute book.

The Government’s intention, as I understand it, is to include measures in relation to agricultural holdings in its forthcoming Land Reform Bill so that they pass into law during the current Parliament.

There are a number of recommendations which are for consideration only, or fall to be discussed in other contexts (e.g. land reform or planning), or are outwith the competence of the Scottish Government (e.g. tax).

Many of the recommendations are quite vague or broad in their terms, and great care will have to be taken to convert them into legislation which is clear, unambiguous and workable. The Government will, in addition, have to consider closely whether any of the recommendations infringe ECHR property rights, especially those of landowners.

Alasdair Fox, consultant, Anderson Strathern LLP

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