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The Land Reform (Scotland) Act 2016 was passed by the Scottish Parliament on the 17th March 2016. As most readers will be aware, the new Act contains many changes to the law of agricultural tenancies. These changes arise from the recommendations of the Agricultural Holdings Legislation Review Group to improve relationships between agricultural landlords and tenants and to increase the supply of let land. Many criticised the introduction of agricultural tenancy legislation into the Land Reform Bill which was originally meant to relate to wider land reform issues. The criticism centred on the fact that it would have been better if the recommendations had been introduced in a “standalone” Act drafted with sufficient time to give detailed thought to what are quite complex legislative changes and which would have received more detailed scrutiny.

One of the most controversial aspects of the new Act is the introduction of a right for secure tenants under the Agricultural Holdings (Scotland) Act 1991 to offer to relinquish their tenancy to the landlord in return for payment of a capital sum which, if the landlord chooses not to accept the offer then allows the tenant to assign the secure tenancy to a third party for value. This right, which wasn’t part of the AGHLG’s recommendations, was introduced by Scottish Government at Stage 2 of the Land Reform Bill’s progress through the Scottish Parliament. It was also subject to late amendment immediately prior to the Bill finally being passed. In this article I want to look at the detailed provisions as they have now been enacted.

The right only applies to secure tenants under 1991 Act tenancies. The tenant initiates the procedure by serving a notice in writing on the landlord that the tenant will quit the tenancy if the landlord pays a compensation figure to the tenant calculated in accordance with the Act. A copy of the notice has to be served on the Tenant Farming Commissioner.

The tenant is not able to serve a notice of intention to relinquish if the tenant has already served a notice of intention to remove or where the tenant is at least 2 months late in paying rent or has failed to remedy a breach of the tenant’s obligations under the lease or where the tenant has received a notice to quit from the landlord.

The Tenant Farming Commissioner appoints a valuer to calculate the compensation figure. The landlord or tenant has a right to appeal the appointment to the Land Court if the valuer who has been appointed is not independent of the landlord or tenant or does not possess the necessary qualifications, knowledge and experience to carry out the valuation.

The tenant is responsible for paying the valuer’s expenses.

The valuer must value the land at the figure which it would obtain if it was sold with vacant possession and also the figure which it would obtain if sold with the tenant still in occupation. The value of the land is to be assessed having regard to the figure likely to be agreed between a reasonable seller and buyer assuming the seller and buyer are as respects the transaction willing. The valuer must also calculate the amount of compensation to which the tenant would be entitled for tenant’s improvements.

The valuation must take into account when in the normal course of events the landlord would be likely to recover vacant possession of land from the tenant and also the terms and conditions of the lease. However, the valuer is not to take into account the existence of any person to whom the tenant would be able to assign the Lease or to whom the Lease could be bequeathed. In essence, this means looking at the tenant’s life expectancy disregarding any successors. The older the tenant, the shorter the period which the landlord would have to wait until the tenancy comes to an end as a result of death and the smaller the difference between the open market vacant possession value and the sitting tenant value.

The valuer is not to take into account any increase in the value of land resulting from improvements carried out by the tenant and is not to take into account any reduction in the value of the land which results from dilapidations or deterioration or damage caused by the tenant. The landlord and tenant can make written representations to the valuer.

The amount which the landlord must pay to the tenant is calculated by deducting from the value of the land if sold with vacant possession the value of the land if sold with the tenant still in occupation. That figure is then divided by two. There is then added to that figure the amount of compensation which the tenant would be entitled to get for improvements and there is then deducted any figure which the landlord would be entitled to receive for dilapidations.

The valuer must carry out his valuation within 10 weeks of his appointment. Either the landlord or tenant can appeal to the Lands Tribunal against the valuer’s assessment. The tenant is able to withdraw his notice of intention to relinquish within 35 days of receiving the valuation. If the landlord wants to accept the notice of relinquishment after the valuation has been carried out he must give a counter notice within 28 days of the valuation. The landlord is allowed to withdraw the acceptance within 6 months. However, where the landlord then pays the compensation sum to the tenant that brings the tenancy to an end.

Where the landlord doesn’t accept the tenant’s offer to relinquish the tenancy, the tenant is able, within the following year, to assign the tenancy to an individual who is a new entrant or who is progressing in farming. New entrants and persons progressing in farming haven’t been defined but the Act allows the Scottish Ministers to make regulations about this in due course. The landlord has the right to object if there are reasonable grounds for doing so which include that the proposed assignee doesn’t have the ability to pay the rent due under the lease or for adequate maintenance of the land or doesn’t have the skills and experience in order to farm the land. That last objection can be defeated if the proposed assignee is engaged in or will begin before the expiry of 6 months after the assignation a course of relevant training in agriculture which the person is expected to complete satisfactorily within 4 years from that date and has made arrangements to secure that the holding is farmed with reasonable efficiency in the meantime.

However, there are no rules or guidance provided in the Act about how to fix the figure which the new entrant or progressing farmer is to pay and in practice this will be determined by market forces. It will be a very interesting exercise finding out what that figure might be!

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