Tenant farmers can share in land value increases

Legislation giving tenant farmers the right to sell their tenancy back to their landlord or offer it for value on the open market was approved by the Scottish Parliament this week.

The relinquishment and assignation provisions in the Land Reform Act 2016, which has been long-awaited by many tenants considering retirement, will now come into force from February 28.

But while the move was welcomed by the Scottish Tenant Farmer’s Association (STFA) as providing the means for tenants to retire with dignity by gaining a share of the increased value in the land they had husbanded, fears were also voiced that raised expectation among many older farmers might not be matched in reality.

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The STFA which has long campaigned for the measure to be introduced said that tenants wishing to retire now had a statutory right to realise value for their tenancies and exit farming at a time of their choosing with the prospect of a ‘retirement package’.

“The provisions enable an existing tenant to relinquish the tenancy on payment by the landlord of a statutory valuation based on the value of the tenancy and the tenant’s improvements,” said STFA chair, Christopher Nicholson who stressed this went beyond the traditional waygo compensation.

He added that where the landlord did not wish to pay the tenant the statutory valuation to relinquish the tenancy, the tenant could assign it for value to a new entrant or progressing farmer.

“This will create new opportunities and help open up the tenanted sector.”

Nicholson said the STFA was aware that of a number of tenants who had been waiting for years to relinquish their tenancies and advised them to consider all aspects – including taxation.

The STFA was encouraging tenants wishing to retire to make an informal approach to their landlords first - before serving relinquishment notices and triggering the statutory process.

“A number of informal relinquishments and assignations have already taken place over the past few years and there are a number of agents who are experienced in negotiating fair end of tenancy settlements with a willing landlord,” said Nicholson, who said the negotiations could still be led by the new legislation.

With the Tenant Farming Commissioner drawing up detailed guidance on relinquishment and assignation, a panel of specialist valuers is being drawn together and valuation guidance is being drawn up and will available before the end of February when relinquishment and assignation provisions come into force.

However, while guidance has yet to be finalised, industry experts pointed to possible difficulties in interpreting the stipulation that the valuation has to factor in when the landlord could have expected to regain the tenancy ‘in the normal course of events’ – as this could bring expected retirement age and/or life expectancy of the tenant into calculation.

With an older tenant, the ‘normal course of events’ would be interpreted as sooner than for a younger tenant - meaning that payments to those approaching (or past) normal retirement age could be less than expected.