Tenancies and the Land Reform Bill
Agricultural briefing: an outline of the significant reforms to agricultural holdings proposed in the Land Reform (Scotland) Bill
The Land Reform (Scotland) Bill, part 10 relates to agricultural holdings. It contains many (but not all) of the measures recommended by the Agricultural Holdings Legislation Review Group (AHLRG) in its report in January 2015. In some cases only the bones are set out: the flesh is to be added by regulations.
Tenant Farming Commisioner (TFC)
A TFC will be appointed to work with main stakeholders to establish codes of practice providing practical guidance to landlords and tenants, to promote their use and keep them updated. (An interim TFC was appointed with stakeholder agreement, anticipating the bill.) Parties will be able to refer alleged breaches of the codes to the TFC, who will enquire and report. The TFC will have power to request information and fine anyone who does not comply; and to refer questions of law to the Land Court.
A TFC report will be admissible as evidence in arbitration or Land Court proceedings, and the court will be obliged to take it into account where relevant.
Modern limited duration tenancies
The bill provides for the maintenance of LDTs already in existence, and the creation of a “modern limited duration tenancy” (MLDT), with some limited differences aimed at offering increased flexibility in relation to fixed equipment, rent and the purposes of the lease.
Any new agricultural tenancy entered into for not less than 10 years, other than a 1991 Act tenancy, and any lease purporting to be for a term of more than five but less than 10 years, will be a MLDT. MLDTs to new entrants may provide for a break at five years.
Where a tenant remains in occupation on the expiry of a LDT, it will convert to a MLDT for 10 years instead of continuing as a LDT. Existing SLDTs will convert to MLDTs, not LDTs.
1991 Act tenancies
Ministers will have power to provide for conversion of 1991 Act tenancies to MLDTs with a minimum term, which tenants will then be able to assign on the open market for value. Unfortunately the bill provides no detail on this far reaching provision.
Tenants will no longer have to register an interest in land in order to activate the pre-emptive right to buy.
The Land Court will have power to order the sale of a holding on the tenant’s application where the landlord has failed to comply with an order of the court, or an arbitrator, to fulfil obligations under a 1991 Act tenancy and the failure adversely affects ability to farm according the rules of good husbandry. The discretion will be exercisable where greater hardship would be caused by not making the order than by making it and, in all the circumstances, it is appropriate.
The order for sale will, in the first instance, be in favour of the tenant, but if declined, can be to a third party.
The current formula for calculating rents based on open market value will make way for one based on a “fair rent”, taking into account the productivity of the holding including:
(1) its productive capacity, i.e. the income that can be generated by a hypothetical tenant using the landlord’s fixed equipment;
(2) a proportion of the open market rent for any residential accommodation exceeding the labour requirement (excluding the tenant’s own accommodation); and
(3) the open market rent for any land or fixed equipment used for a non-agricultural purpose.
Assignation and succession
The bill proposes to extend the class of persons to whom a tenancy may be bequeathed to include siblings, cousins, nieces and nephews, to name but some.
It will also bring the grounds of objection to assignation to “near relatives” into line with those for succession: lack of good character, insufficient resources for efficient farming, and insufficient training and experience. The last ground will not apply where the potential assignee has started, or will start in the next six months, an agricultural training course, and has made interim arrangements.
For other potential assignees, the landlord will still be able to object “on any reasonable ground”.
The provisions are also intended to simplify notification and objection procedures for succession to and assignation of 1991 Act tenancies and, for 1991 Act and LDTs, to remove the landlord’s ability to object to succession or assignation on the ground that the holding is not a “viable unit”.
Tenant’s improvements: amnesty
Tenants will have a two-year amnesty period from commencement to serve a notice on the landlord of their intention to have specific items treated as tenant’s improvements at waygoing. This will apply where the tenant met the requirements of the 1991 or 2003 Act in terms of obtaining the consent of or giving notice to the landlord, as appropriate, before carrying out the improvement but can find no record of having done so; or consent or notice requirements were not complied with.
An amnesty notice will be invalid where (a) the landlord had actively or passively refused consent to an application for consent; (b) the landlord had previously objected to notice of an improvement or the manner in which it was to be carried out; (c) the improvement was carried out in a different manner from any consent, notice, or Land Court decision; or (d) the Land Court has opined on the matter.
Where the landlord objects, the tenant may apply to the Land Court, which will decide whether it is just and equitable for the landlord to pay compensation at waygo. Proceedings will be avoided if, during the amnesty period, the parties enter into an amnesty agreement whereby the landlord agrees to pay compensation in terms of the relevant Act.
Improvements by landlord
Landlords proposing to carry out improvements (other than emergency work to services etc) will have to give tenants prior notice and to demonstrate that the improvement is necessary for the maintenance of efficient production. The tenant will be entitled to object if the proposed improvement is not necessary for farming according to the rules of good husbandry. Appeal would lie to the Land Court.
Much further work will be required to understand the provisions fully, and much detail will have to await regulations, perhaps long after the bill is passed. It must also be expected that the Parliament will take up some other suggestions of AHLRG, for example those designed to assist new entrants.
I am finally hanging up my boots at the end of August. This may, therefore, be my last briefing. I would like to thank the Editor for his support, patience and revisal skills over the past few years and the many readers who have been kind enough to comment favourably on my articles.
Alasdair Fox, consultant, Anderson Strathern LLP
We in turn thank Alasdair for his commitment over many years to sharing his expertise with readers – Editor.