Scottish Tenancy Review January 29, 2015 12:00 am The Agricultural Holdings Legislation Review Group published its final report on Tuesday 27th January. The report is described as ‘bold and radical’ and includes a significant package of 49 recommendations. It is published against the background of a 42% decrease in the area of let agricultural land in Scotland since 1982. The country now has one of the lowest proportion of tenanted land anywhere in Europe; the main driving force behind the review. Tenant Farming Commissioner One of the recommendations to come out of the Review is for a new Tenant Farming Commissioner to facilitate Landlord and Tenant issues. The Review Group found that there were many situations where the relationship between Landlord and Tenant had broken down to such an extent that they were actually ‘dysfunctional’. The Tenant Farming Commissioner would have extensive powers based on formal codes of practice in a number of key areas; Negotiating rent reviews Agreeing and recording Tenant’s improvements Negotiating fulfilment of Landlords’ and Tenants’ obligations Enabling succession and assignation Determining way-go compensation Negotiating the terms of a modern LDT Sporting relationships and game management Rents The Group recognises that a fair rent lies at the centre of any Landlord and Tenant relationship. But with such a limited amount of land available there is a market imbalance. For these reasons, the Review recommends that legislative provisions on setting rents under secure 1991 Act Tenancies should be amended. This would mean that rents, at least for the time being, are determined on the basis of the productive capacity of the holding and ensure a fair sharing of its capacity to generate a financial surplus. Rents would be calculated by building up a budget for the holding and then splitting the resulting surplus between Landlord and Tenant. Proposals are also included to deal with issues of diversification and co-investment in fixed equipment. The Group has also recognised that over the years the capital employed that is provided by tenants has risen significantly and the review recommends that, in these circumstances, Tenants should have the ability to grant security over their lease to a lender when seeking to raise capital. Retirement, Succession and Assigning The demand for tenancies in Scotland far outstrips supply, with many tenants over the pensionable age, but the Review found giving up a Tenancy has both financial and emotional implications. It has therefore given some attention to mechanisms to facilitate this. The Group has recommended that current legislation should be amended to allow secure 1991 Act Tenancies and LDTs to be assigned by the Tenant farmer in their lifetime bequeathed where this is permitted in the lease, or transferred by a Tenant’s executors on death, to any living parent, or anyliving descendant of a parent, or spouse or civil partner or any living descendant of a parent of the Tenant or of the Tenant’s spouse or civil partner. It also recommends that current legislation should be amended to remove a Landlord’s ability to object to the lifetime assignation or the succession of a tenancy on the grounds that the agricultural holding is not a ‘viable unit’ and the Landlord intends to amalgamate it with another holding. A further mechanism that the Review recommends to counter the imbalance of available tenanted land and encourage retirement is the provision to enable any secure 1991 Act Tenant to convert the tenancy into a new long duration modern LDT with a minimum term of 35 years and then be able to transfer that agricultural tenancy to anyone on the open market for a value. Right to Buy There has been a lot of talk about the ‘right to buy’ for secure 1991 Act Tenancies. There is already a pre-emptive right to buy where the Landlord has decided to sell the holding, but this requires the Tenant to register an interest in advance, which has been known to sour relationships. The Group has therefore recommended existing provisions on the pre-emptive right to buy for 1991 Act Tenants should be amended to remove the need to register a notice of interest so that all such Tenants have an automatic statutory pre-emptive right to buy their agricultural holding, should it come up for sale. The Group has also recommended that a provision should be made to enable a 1991 Act Tenant to request the Scottish Land Court to order the sale of a holding where the Landlord has persistently failed to fulfil their obligations under the tenancy, triggering the Tenant’s right to buy. The Scottish Land Court will have discretion to order the sale, taking into consideration the respective rights and interests of both parties. Future Lettings In looking at ‘letting vehicles’ for the future, it was noted that although when first introduced in 2003 there was enthusiasm surrounding LDTs very few have been created in recent years. With regards to freedom of contract, which works well in other sectors, it decided that freedom of contract for long term letting of agricultural land would probably result in contracts being agreed to the significant disadvantage of the Tenant. Recommendations for future lettings include: A new ‘Modern LDT‘ with a minimum 10 year term, to enable Landlords and Tenants greater freedom in agreeing terms relevant to the type, duration and purpose of the holding and lease. An optional break at 5 years should be available where the Tenant is a new entrant. Provisions to allow for a modern ‘full repairing’ LDT, where a Tenant takes full responsibility for all repair, renewal and replacement of fixed equipment on the holding in return for a minimum term of 35 years and mandatory application of the new rent review provisions recommended the Review (see earlier). Modern LDTs should include a requirement for Landlords to give written notice of intent to terminate not less than two and not more than three years before the expiry of a modern LDT, failing which the lease will continue for one year at a time subject to termination on the same notice period. Robust arrangements for compensation giving Tenants confidence to invest Provisions should be made to enable land to be let for a period of up to one year, which will end without notice, for the purpose of grazing, mowing or cropping. The above only includes some of the key recommendations, but it can be seen that the review proposes some quite radical changes for the Scottish agricultural tenanted sector. The full report can be found at http://www.scotland.gov.uk/Publications/2015/01/5605/0. The report will now be debated in the Scottish Parliament, any changes could be included in a Land Reform Bill by the end of the Parliamentary session in March 2016.
