In the fourth of our series of blogs on the Land Reform Consultation (the Consultation), we are considering the theme of 'natural capital'.

The rise of natural capital

The Land Reform (Scotland) Act 2016 introduced a variety of measures, including a requirement to develop a Land Rights and Responsibilities Statement (LRRS). It also provided for the establishment of the Scottish Land Commission ('SLC'), on 1 April 2017, aiming to address issues relating to the ownership of land, land rights, management of land, and use of land.

Alongside land reform, responding to climate change has been high on the Scottish Government's agenda, with the Climate Change Act 2019 delivering ambitious new targets to reduce emissions by 75% by 2030 and to net zero by 2045. These targets have driven up investment in carbon and natural capital which has a knock-on effect - offering both opportunities and risks - for landowners and communities.

In June 2022, the SLC published its report Natural Capital and Land: Recommendations for a Just Transition. The report makes recommendations to the SG on how investment into Scotland's land and natural capital can be attracted in a "fair and effective" way. The SLC considers that these recommendations will shape land markets and emerging natural capital markets in the public interest.

The SLC also published a protocol on responsible natural capital and carbon management on 4 August 2022 which we reported on recently. The protocol is designed to encourage a climate-conscious approach to owning and managing land, and forms part of a series produced by the SLC to help support the LRRS.

Climate targets have become a significant part of the land reform dialogue, and consideration of Scotland's natural capital is therefore a key element of the Consultation.

There are two main proposals in the Consultation which relate to natural capital. Firstly, there is a proposal to create a new flexible form of tenancy – a Land Use Tenancy. Secondly, the Consultation considers private investment in natural capital and poses a question as to how community and national benefit can be maximised from such investment.

Land Use Tenancies

Agricultural holdings legislation requires agricultural tenants and small landholders to carry out agricultural activity on the holding (subject to an agricultural tenant's right to diversify into non-agricultural use).

The Consultation explains that the SG is committed to tackling climate change and biodiversity. It suggests that some tenants are unable to take forward certain forms of non-agricultural activity within the current confines of the agricultural holdings framework, and this may lead tenants to end their tenancy early.

Part 9 of the Consultation proposes a new type of tenancy, called a Land Use Tenancy, which would allow agricultural tenants and small landholders to engage in different types of activity – for example: woodland management, agroforestry, nature maintenance and restoration, peatland restoration, as well as agriculture.

The Consultation contains limited detail regarding Land Use Tenancies. It sets out that the legal framework could include:

  • key elements to be agreed by a landlord and tenant at the start of the tenancy;
  • how benefits would be shared;
  • the range of activities to be considered throughout the tenancy; and
  • the process for ending the tenancy.

The Consultation also proposes allowing tenant farmers and small landholders to convert an existing tenancy into a Land Use Tenancy with the agreement of the landlord.

The Consultation seeks views on various matters in relation to the proposed new tenancy, including the types of activity to be included, conversion of existing tenancies, calculation of rent, and the process for managing disputes.

The key issue which is not explored in detail in the Consultation is the extent to which the parties will have freedom to contract in a Land Use Tenancy. Careful consideration will be required as to the extent to which landlords and tenants should be free to agree their own terms in relation to non-agricultural uses, given that leases for non-agricultural uses are currently outwith the scope of heavy regulation.

Private investment and community benefits

Prior to the Consultation, in March this year, the SGs set of Interim Principles for Responsible Investment in Natural Capital was published, committing to the development of a high-integrity, values-led natural capital market to empower communities and deliver local benefits.

Part 12 of the Consultation addresses 'other land related reforms' and comments on the need for private investment in natural capital to be responsible – to achieve climate targets as well as wider land use and environmental policy objectives. Views are sought on how investment in natural capital could be used to maximise both community and national benefit.

Conclusion

Natural capital is a fundamental theme of land reform, bound up with Scotland's climate targets. The Consultation touches on natural capital in a number of ways. It proposes a new tenancy vehicle aimed at allowing agricultural tenants to contribute towards reaching net zero and biodiversity targets, which in turn means that agricultural tenants would also benefit from the opportunities associated with natural capital. Furthermore, the Consultation queries how to maximise community and natural benefit from investment in natural capital.

The Consultation's proposals and questions relating to natural capital are consistent with the messaging from SG and the SLC that the opportunities and benefits associated with climate change action should be shared fairly. We will be addressing these proposals when responding to the Consultation in due course.

Contributors

Ros James

Associate

Kate McLeish

Partner

Chloe Wales

Senior Associate