While the Land Reform (Scotland) Bill still has Stage 3 of the legislative process to complete, it is important to understand the magnitude of the amendment introduced during Stage 2 with the backing, amongst others, of the Scottish Government and the Scottish Tenant Farmers Association.  

By Robert Scott-Dempster, Head of Land and Rural Business, Gillespie MacAndrew

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.  The big change introduced into the draft legislation is designed to enable tenant farmers to 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.Scottish Land and Estates have said the amendment and in particular its retrospective nature would “cause unprecedented damage to the tenant farming sector” and that their independent legal advice suggests it could infringe European human rights laws in relation to property ownership.

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. 

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 has caused deep concern among many landowners but has been hailed as triumph by many tenants.  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.  Whatever, the proposed legislation is complex and there is still much to be clarified.  Stage 3 is awaited with considerable interest.