The Tenant Farming Commissioner, Dr Bob McIntosh, released a Code of Practice on limited partnerships today.
Background to Limited Partnerships
Limited partnerships were traditionally used by landlords to avoid granting agricultural tenants security of tenure. The landlord (the limited partner) entered into a limited partnership with the “farmer” (who was the general partner) and then granted a lease to the limited partnership. The landlord/limited partner could terminate the tenancy by dissolving the limited partnership (a notice of dissolution may or may not have been required), which automatically resulted in termination of the lease.
Since 2003, limited partnerships are no longer used. This is because, for leases granted to limited partnerships after 27 November 2003 where the landlord is a partner, the general partner can enforce the rights of the tenant as if the general partner was the tenant in his own right (section 70 of the Agricultural Holdings (Scotland) Act 2003).
However, a number of limited partnerships created before 2003 are still in existence.
What does the Code of Practice require landlords and tenants to do?
The Code sets out the process to be followed where a limited partnership is approaching its dissolution date or where either party feels that it would be appropriate to discuss the future of the arrangement. A review can be initiated by either party but the Code provides a different timeframe depending on the way the limited partnership is to be dissolved:
Process where notice required to dissolve the limited partnership
The service of a notice of dissolution by the limited partner triggers a statutory process which means that the general partner can in turn serve notice that he wants to become the tenant in his own right (section 72 of the 2003 Act). The landlord can seek to terminate the tenancy if the correct procedure is followed but the general partner is in effect given a further 3 years of occupation (section 73 of the 2003 Act). In these circumstances, the Code only provides that the parties must meet to discuss the arrangement before a notice of dissolution is served.
Process where notice is not required to dissolve the limited partnership
Where the limited partnership comes to an end without a notice, the statutory process is not triggered and this means that the limited partnership will come to an end on the date of dissolution (there is no additional 3 year period for the general partner). In these circumstances, the Code provides that the parties should meet at least 12 months before the dissolution date.
What should the discussions take into account?
The Code provides that discussions should include consideration of any change in circumstances since the limited partnership was established (for example, the introduction of fixed term tenancies), the wishes of the landlord for the future of the holding and the wishes of the general partner with respect to continuing in occupation.
Can landlords still issue a notice of dissolution under the Code?
The Code does not prohibit landlords/limited partners from issuing notices of dissolution and highlights that the result of the discussions may be the service of a notice of dissolution. However, the Code provides that a notice of dissolution should not be served without discussions first taking place. The Tenant Farming Commissioner is seeking to avoid the situation where a landlord/limited partner serves a notice of dissolution to protect their position and then has a discussion with the general partner with the notice of dissolution in the background.
If you have any queries relating to limited partnerships or the Code of Practice, please get in touch with your usual contact in the Land and Rural Business team.
On September 5, 2017