A right and its exercise

Agricultural landlords may have more freedom than some believe, to prepare for a transfer of land without triggering the tenant's right to buy

The Journal, September 2005, page 40

Although in some instances the drafting of the Agricultural Holdings (Scotland) Act 2003 is not entirely clear, and until a body of case law has built up, we can do no more than supply our own interpretations (with suitable health warnings) when advising clients, there are, I think, some areas of the Act where unduly pessimistic views are being expressed. 

One is section 16 (fixed equipment etc), and I am already on record (Journal, March 2004, page 56) as suggesting that this can be interpreted in such a way that there are limitations on the landlord’s responsibilities for the provision of fixed equipment, if leases are carefully drawn. Others, I know, take a more cautious view.

Another area in which there is lack of clarity is in relation to the tenant’s right to buy (Part 2) and, in particular, a landlord’s freedom (or otherwise) to take actions, short of actual disposal of his property, to pave the way for disposal. On a detailed analysis of the relevant provisions, there appears to be a discrepancy between the circumstances in which a tenant (assuming he has registered his interest in the land) acquires the right to buy and those in which he is able to exercise that right, which may allow the landlord rather more latitude than is popularly believed to be the case.

The starting point is section 28(1), which confers the right to buy where either (a) the owner (or creditor) gives notice to the tenant under section 26 of a proposal to transfer the land or part of it, or (b) the owner (or creditor) “takes any action with a view to the transfer of the land or any part of it”.

Section 28(3) provides that “action is taken with a view to a transfer of land” when it is (a) advertised or otherwise exposed for sale; (b) the owner, creditor or an agent enters into negotiations with another person with a view to transfer; or (c) the owner, creditor or agent proceeds further with any proposed transfer initiated prior to registration of the tenant’s interest.

This certainly suggests that the tenant may proceed to exercise his right to buy not only where the owner/ creditor serves a section 26 notice but also where the latter takes action with a view to transfer of the land. But the mechanism by which the tenant may proceed to buy the land (in accordance with section 32) contained within section 29 contradicts that. First, under section 29(1) and (2), a tenant who wishes to proceed is required to give counter-notice to a section 26 notice issued by the owner or creditor.

Section 28(1), remember, is in two parts. Section 26, however, requires the owner or creditor to serve notice on the tenant in the first place, only where he “proposes to transfer the land or any part of it to another person” – i.e. only in the first of the circumstances in which the tenant’s right to buy arises under section 28(1). The owner/creditor is apparently not required (or empowered) to serve notice where the owner/creditor takes action with a view to the transfer of the land. If this is correct, the tenant cannot enforce his right to buy under section 28(1)(b) by serving counter-notice under section 29(2), simply because there is no provision by which the owner/creditor is obliged to serve notice (under section 26) on the tenant in the first place, where the owner/creditor is going no further than taking action with a view to transfer, without actually proposing to transfer.

This, in my opinion, allows the owner/creditor a much freer hand than some suggest (and, I admit, than I had previously thought) to take steps preliminary to a sale – for example obtaining planning permission, exercising a contractual power of resumption (arguably not “action with a view to... transfer” in that the tenant is not “another person”), and perhaps negotiating with a third party – even though a tenant may have a right to buy.

The tenant will not be unduly prejudiced in that, as soon as soon as “action with a view to... transfer” becomes “a proposal to transfer” – for example on conclusion of missives – the owner/seller is bound to serve the section 26 notice by which the right to buy may be triggered (although there is no immediate penalty on an owner/creditor if he fails to do so). Furthermore, if the owner/creditor transfers the land without first giving the tenant the opportunity to exercise the right to buy, the tenant may exercise the right (under sections 28(2) and 29(3)) against the transferee, within three years of the transfer. The tenant, therefore, continues to hold the ultimate sanction and thus is fully protected. It is only at the earlier stages that the landlord’s hands may be untied.

Alasdair G Fox, Anderson Strathern