In the first of our series of blogs on the Land Reform Consultation, we are considering the theme of diversification of landownership. In her foreword to the Consultation, Mairi McAllan, Minister for Environment and Land Reform, highlights that increasing the diversity of landownership is one of the three core aims of the Scottish Government's land reform policy.
Why does the Scottish Government consider that diversity of land ownership needs to be increased?
The Scottish Government (SG) asked the Scottish Land Commission (SLC) to investigate Scotland's pattern of landownership, and the issues which may be associated with large scale and concentrated landownership, in 2017.
In 2019, the SLC published its Investigation in the Issues Associated with Large Scale and Concentrated Landownership in Scotland. Based on 407 responses to a call for evidence, the SLC concluded that:
"There is no automatic link between large scale landholdings and poor rural development outcomes but there is convincing evidence that highly concentrated landownership can have a detrimental effect on rural development outcomes…..In some parts of Scotland concentrated landownership appears to be causing significant and long term damage to the communities affected".
The SLC recommended that measures were required to address the impacts of concentrated ownership.
How is the Scottish Government proposing to increase the diversity of landownership?
Part 7 of the Consultation contains a proposal to regulate the land market for by way of, firstly, a public interest test and, secondly, a requirement to notify community bodies of an intention to sell.
These requirements would only apply to "large scale landholdings" (LSL). The proposed criteria for LSLs is:
- A fixed threshold of 3,000 hectares;
- Land that accounts for more than a fixed percentage of a data zone or local authority ward designated as an Accessible Rural Area or Remote Rural Area; or
- Land that accounts for more than a specific minimum proportion of an island which is permanently inhabited.
At this stage, it is not clear whether a "landholding" refers to one geographical block of land, or the amalgamation of any areas of land owned by one legal person.
What is the Public Interest Test?
In 2021, the SLC set out legislative proposals, including the application of a public interest test to determine whether a significant land transfer was in the public interest.
This proposal has been taken forward by the SG, though the Consultation does not provide any commentary on the specific policy driver for this. The Consultation does, however, state that the purpose of the public interest test is to assess whether, at the point of transfer of a LSL, a risk would arise from the continuation or creation of a situation in which excessive power acts against the public interest – from this, we can gather that a monopoly of power appears to be the primary concern.
The public interest test would apply where a LSL is being transferred, or where an LSL would be created as a result of a transfer. The SG is proposing a dual approach – a test would be applied to both the seller and the buyer (who may already have other landholdings). This is a departure from the SLC's recommendation, which focused on the buyer.
The Consultation does not contain any detail on what types of dealing would be within the scope of the public interest test. However, the 2021 SLC Discussion Paper recommended that it cover sales (private and public), changes in trustees, executry transfers and creation of options. If such a wide approach was taken by the SG, it would have a substantial impact on family estates meeting the criteria for a LSL, where events outwith the control of the family (such as death of the older generation, or indeed simply a change in trustee) could potentially result in the "break up" of the estate.
The consultation sets out that the outcome of the application of the test is that (i) the sale can proceed as planned; (ii) that the land in question has to be split into lots and cannot be sold/acquired as a whole unit; or (iii) that the land in whole or in part has to be offered to constituted community bodies in the area and the sale can only proceed if they indicate that they are not interested in pursuing a purchase.
What is the Requirement for Prior Notification?
In addition to the public interest test, the SG is proposing a further mechanism which it considers could bring about greater diversity of ownership. It follows a recommendation made by the SLC in 2022 in its paper Natural Capital and Land: Recommendations for a just transition, and makes provision for prior notice of a sale to be given to community bodies.
The SG sets out that this proposal relates to a concern that land values and off market deals are excluding communities from owning significant landholdings.
The requirement would apply where a LSL is proposed for sale and a community body has not registered a pre-emptive right to buy under Part 2 of the Land Reform (Scotland) Act 2003. The landowner would be required to give notice to community bodies registered in the area (meaning that a register of community bodies would be required). The community body would have 30 days to confirm its interest in the sale, and then six months for the community body to negotiate the terms of the purchase.
Such a measure would sit alongside the suite of existing community rights to buy – the pre-emptive right, the right to buy abandoned and neglected land, and the right to buy land for sustainable development. It is a move away from the current approach, which to an extent relies on a community body being proactive and approaching the landowner regarding a specific area of land which meets the community's needs (rather than simply reacting to a proposal for sale of any land).
The Consultation does not contain any provision for how such a purchase of a LSL by a community body would be funded. If the intention is that such purchases would be publicly funded, substantial investment in the Scottish Land Fund would clearly be required for the measure to have a meaningful impact.
The nature of a consultation necessarily means that the proposals are, at this stage, lacking in detail. However, even at this early stage, it is possible to see the impact that both measures aimed at increasing diversity would have on the land market, and the freedom of a landowner to dispose of significant landholdings. It will be crucially important that all players involved in the land market – including landowners, surveyors and solicitors – contribute to the consultation response and inform further policy development.