The Land Reform Bill – Implications for Landlords and Tenants of Agricultural Holdings

The Scottish Government has now published the latest Land Reform Bill. While focussing on measures to encourage a greater diversity of land ownership, the Bill is also being used to propose a number of changes to agricultural holdings legislation, changes which will impact on landlord/tenant transactions in a number of ways.

A key objective has been to ensure that tenant farmers are able to comply with, and benefit from, the proposed new rural support scheme which will, through a combination of incentives and cross compliance, expect all farmers to deliver more actions which support enhancement of biodiversity and a reduction in net greenhouse gas emissions. The Rules of Good Husbandry are being extended to embrace such activities so that a tenant engaging in biodiversity and climate change related actions will not risk being in breach of the terms of the lease.

Rent reviews can be a stressful and difficult experience and the current focus on rents of comparable holdings as the main source of evidence is often unsatisfactory because of the difficulty of sourcing identifiable comparable holdings where transparent and appropriate adjustments have been made to account for key differences in land quality etc.  The Bill proposes that an additional factor, the productive capacity of the holding, should be used as evidence. This is likely to involve the production of a farm budget, based on a hypothetical tenant and having discounted tenant’s improvements, to arrive at a surplus to be divided between landlord and tenant. Further guidance of the use of productive capacity will be provided.

Previous proposals to provide an easier route for 91 Act tenants wishing to register a pre-emptive right to buy their holding have not been enacted so the Bill proposes to provide Scottish Ministers with the ability to come forward in the future with proposals that would be enacted by means of secondary legislation. The key issues will be whether there should be an automatic pre-emptive right to buy and what level of detail needs to accompany a registration.

The method of determining compensation payable to tenants when a landlord exercises a right to resume land from the lease is to be amended. It is proposed that an additional payment will be available to the tenant based on the capital value to the tenant of the land resumed. In essence this involves taking half the difference between the open market value of the land and the value with a tenant in place.

The Bill proposes to reform the basis on which a landlord can consent (or object) to a proposed diversification and to make environmental projects eligible for compensation.  Landlords will need to consider the impact of a proposal across the whole of the tenant farmer’s holding, rather than only the part of the holding where the diversified activity will take place.  The landlord will have to provide more detailed information and reasons if they object to the proposal.

Tenant’s improvements eligible for compensation at waygo will in future be based more on a set of principles rather than a list. This will avoid the need to update the lists periodically. A new type of improvement, a Part 4 Improvement, is being added which will focus on improvements that deliver sustainable and regenerative agriculture.

Delays to finalisation of waygo payments can be frustrating for tenants who are moving to another holding, or into retirement, without knowing what the financial settlement is to be so the Bill proposes a tightening up of the timescales involved in waygo negotiations with the aim of having the final settlement agreed when the lease terminates.

Tenants will be able to claim compensation for a wider range of losses caused by game. In addition to damage to crops it now includes damage to fodder, grass for livestock, grazing, disease impact on livestock, damage to trees for the purposes of short rotation cropping, damage to trees which are planted for sustainable and regenerative agriculture, damage to trees planted for non-agricultural purposes, and damage to fixed equipment. The Bill does not, however, provide guidance on how the value of such damage is to be assessed.

The Bill also proposes to update the very old legislation which regulates the position of small landholders and will bring their rights and responsibilities more in line with those of agricultural tenants.

These are quite far reaching proposals and the fine detail of how some of the proposals will operate have still to be finalised. It is important therefore, that landlords and tenants and their agents and representative bodies engage fully with the process and make their views known as the Bill progresses through the Scottish Parliament.