Robert Scott-Dempster: Land Reform and Farm Tenancies

WITH the Land Reform (Scotland) Act 2016 having received Royal Assent it is important to understand the magnitude of the amendment in relation to the assignation of farm tenancies.

Robert Scott-Dempster, Head of Land and Rural Business, Gillespie Macandrew. Picture: Peter Devlin
Robert Scott-Dempster, Head of Land and Rural Business, Gillespie Macandrew. Picture: Peter Devlin

This was introduced mid-process with the backing, amongst others, of the Scottish Government and the Scottish Tenant Farmers Association.

Under current legislation there is an expectation that on the retirement or death of a tenant the farm would revert to the landowner in cases where the tenant does not have a close family member to take over the lease. 

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The amendment gives tenant farmers the right sell or assign their tenancy to an individual who is either a “new entrant” or “progressing in farming”  having first given the landlord the opportunity to buy the lease back at a price fixed by a statutory formula.

The rationale behind this amendment is to enable tenants to retire when they choose and to receive compensation for their investment in the farm.  It is also intended to provide an opportunity for those who wish to enter farming or progress up the farming ladder to do so.

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When the amendment was first introduced Scottish Land and Estates (the landowner representative body) expressed grave concern at the retrospective nature of the change and stated the view that it would “cause unprecedented damage to the tenant farming sector”.

The procedure for a tenant wishing to take advantage of the amendment is to serve a “notice of intention to relinquish” (NOITR) on the landlord with a copy to the Tenant Farming Commissioner (TFC). The TFC will appoint an independent and suitably qualified valuer to assess the compensation payable by the landlord to the tenant for quitting the farm.

The valuer will assess the value of the farm if sold with vacant possession or if sold with the tenant still in occupation. They will also assess the amount of compensation the tenant is due for any improvements and/or any special standard of farming. The valuer will also have the option to judge whether or not any compensation is due to the landlord for deterioration to the farm or as a result of the tenant’s diversification on the farm. 

An important last minute change provided that the valuer should not take into account in his valuation the possibility of any future succession to the current tenant. This has the effect of reducing the impact on the vacant possession value and thereby limiting the amount of compensation payable. This has gone some way to assuage landowner concerns.

Where there is dispute over the valuations, the landowner and tenant, or both, will be able to appeal. 

The landlord will have the choice to accept or decline the tenants’ NOITR. If the landlord accepts and pays the statutory compensation, the tenancy will terminate after six months or an earlier date agreed by both parties. 

If the landlord does not accept, the tenant will have a year to assign the lease to an individual who is a new entrant to, or who is progressing in, farming.  Further guidance as to what constitutes a new entrant or an individual progressing in farming will be provided in later regulations.

There will also be certain criteria where a landlord can object to a proposed tenant. These will include inability to pay the rent or adequately maintain the land or a lack of skills to manage and maintain the land in accordance with the rules of good husbandry.  However, the skills and experience criteria will not apply to a new entrant who is undertaking an agricultural course starting within six months. 

This amendment as first introduced caused deep concern among many landowners and was hailed as a triumph by many tenants.  The eleventh hour amendments have gone some way to temper those positions. Whatever view you take only time will tell whether this amendment succeeds in generating new life into the tenancy sector or stems the flow of land coming onto the letting market.

Robert Scott-Dempster, Head of Land and Rural Business, Gillespie Macandrew.