The Scottish Government released its Consultation on Agriculture – Delivering Our Vision on Scottish Agriculture – on 29 August 2022.
The Consultation sets out the Scottish Government's proposal to realise its vision to become a global leader in "sustainable and regenerative agriculture", reiterating that land use will play a key role in tackling the twin crises of climate change and biodiversity loss.
The proposals cover the future payments framework (what it will involve and how it will be administered); skills, knowledge transfer and innovation; agricultural wages and agricultural tenancies.
The context for (more) agricultural tenancy reform
The proposal for further reform to agricultural tenancies will no doubt be met with some trepidation by landlords and tenants alike, as well as advisors and stakeholders across the sector.
The last round of reform culminated in the Land Reform (Scotland) Act 2016. The reforms included the creation of new tenancies (Modern Limited Duration Tenancies and Repairing Tenancies), amendments to the pre-emptive right to buy, provision for Assignation and Relinquishment, and a new rent review methodology based on the productive capacity of the holding. Significant parts of the 2016 Act remain unimplemented.
The recent Consultation on Land Reform in a Net Zero Nation also contains proposals on agricultural tenancies. It proposes a new type of tenancy, known as a Land Use Tenancy, focused on combining agricultural and non-agricultural use within the same letting vehicle.
The Scottish Government are now proposing further amendments to the agricultural tenancy framework aimed at modernising the legislation and enabling tenant farmers to take advantage of any opportunities available to owner occupiers in relation to climate change and mitigation measures.
What are the proposals?
Flexibility for Climate Change/Mitigation Measures
A number of the proposals reflect the Scottish Government's aim to allow tenant farmers to carry out non-agricultural activities on the land. This includes:
- Amendments to diversification – proposal to give Scottish Ministers the power to determine what is an acceptable diversification.
- Amendments to list of eligible improvements – proposal to amend the list of eligible improvements to enable a wider range of activities, combined with a proposal to allow the Scottish Ministers to amend the list by way of secondary legislation in future.
- Amendments to rules of good husbandry and good estate management – proposal to amend the rules to enable tenant farmer to undertake a wider range of activities on the land, combined with a proposal to allow Scottish Ministers to amend the rules by way of secondary legislation in future.
Taken together, these proposals are aimed at allowing tenant farmers to carry out a wider range of activities on the land and provide for compensation for those activities at termination of the tenancy. The proposals do not contain any detail as to how the proposals would work within the wider legislative framework (for example, in relation to the valuation of those improvements) or the wider framework for financial support and grant schemes.
The Consultation sets out that Scottish Government officials, in partnership with the Tenant Farming Advisory Forum, have now worked through the rent review provisions introduced by the 2016 Act (which have not been brought into force) and propose to repeal them. The Scottish Government is therefore proposing a new approach, which is closer to the methodology currently used to assess open market rent. The only detail provided is that the new approach will include "balancing" of comparable rents, assessments of earnings potential by means of a farm budget, and consideration of economic outlook.
The Scottish Government is proposing to amend the compensation which would be payable to a tenant where land is removed from the tenancy by a landlord for development (and in turn increase the value of the land). Reference is made to the assessment of compensation within the relinquishment and assignation framework, which takes account of the capital value of the land.
The scope of the proposal is unclear from the Consultation, given the inconsistent references to resumption (which in the case of secure tenancies is a contractual right of a landlord to remove parts of land from the tenancy) and notices to quit (which is provided for in statute and involves termination of the lease on specified grounds). Resumption of land from a tenancy and termination of the tenancy by way of notice to quit are entirely different concepts – both in terms of technical process and the issues which they engage (particularly in the context of secure agricultural tenancies). Given the uncertainty regarding what is proposed, it is difficult to comment on the implications – but significant retrospective amendments to contractual agreements between landlords and tenants seems unlikely to build confidence in the sector.
Whilst the "headlines" of the Consultation focus on climate change mitigation measures and offering opportunities to tenants, it is likely to be the reforms relating to rent review and compensation which engage the most discussion and debate – not just on technical matters and ensuring that any proposals are workable for the sector, but also on what constitutes fairness to the parties to the lease.
The Consultation closes on 21 November 2022.