The Scottish Government has published Regulations bringing "Relinquishment and Assignation" ("R&A") into force on 28 February 2021.
What is R&A?
R&A was introduced by the Land Reform (Scotland) Act 2016 ("the 2016 Act"). R&A allows secure tenants to offer to relinquish their tenancy to the landlord in exchange for statutory compensation. The compensation is based on 50% of the difference between vacant possession value of the holding and the tenanted value of the holding, plus any compensation payable to the tenant for improvements and less any compensation payable to the landlord (eg in respect of dilapidations). If the landlord chooses to decline the tenant's offer, the tenant can assign the secure tenancy on the open market to a "new entrant" or a "person progressing in farming".
The process involved in R&A (including the process and methodology for valuations) is set out in the 2016 Act, and it is anticipated that the Tenant Farming Commissioner will provide guidance on how the process should be carried out. We will cover this in a separate update.
What do the Regulations do?
The Regulations:
- Provide the form of notice to be used by a tenant offering to relinquish a secure tenancy;
- Provide the specification of any plans to accompany a tenant's notice;
- Provide the form of notice to be used by a landlord accepting a tenant's offer to relinquish;
- Increase the period that the Tenant Farming Commissioner has to appoint a valuer from 14 to 28 days; and
- Define "new entrants" and "persons progressing in farming" (the categories of eligible assignees under R&A).
The definitions of "new entrants" and "persons progressing in farming" are key to R&A and we have commented further below.
Who is a "new entrant"?
The Regulations exclude anyone from being a "new entrant" if they hold any one of the interests below (or have held any one of the interests below within the preceding 5 years):
- A secure tenancy, a limited duration tenancy, a modern limited duration tenancy or a short limited duration tenancy of three years or more;
- A small landholding of more than three hectares;
- A croft of more than three hectares; or
- Ownership of more than three hectares of agricultural land in aggregate;
In summary, a person will not be a new entrant if they hold an agricultural lease of any kind (other than a grazing lease or a short limited duration tenancy of less than three years) or own more than three hectares of agricultural land (or a croft or small landholding of more than three hectares).
The Regulations also provide that a person will be disqualified from being a "new entrant" if they have control of a legal entity which holds any one of the interests above.
The definition of "new entrant" for R&A is similar to the definition of "new entrant" used for Modern Limited Duration Tenancies.
Who is a "person progressing in farming"?
The Regulations exclude anyone from being a "person progressing in farming" if they hold two or more of the interests below:
- A tenancy of more than three hectares of land under a secure tenancy, a limited duration tenancy, a modern limited duration tenancy or a short limited duration tenancy which is not due to expire in less than 1 year from the proposed assignation date;
- A small landholding of more than three hectares;
- A croft of more than three hectares; or
- Ownership of more than three hectares of agricultural land on a single title.
Again, a person will be considered to hold an interest if they have control of a legal entity which holds an interest.
This means that a person who is currently farming land as an owner occupier, crofter, small landholder or tenant under an agricultural lease of any kind can still qualify as a "person progressing in farming" – and they can retain their existing interest as well as taking on the secure tenancy under R&A (and there is no upper limit on the scale of land being farmed). However, a person cannot hold more than two interests otherwise they will no longer qualify as a "person progressing in farming".
Definitions in Practice
The Regulations set out the definitions of "new entrant" and "persons progressing in farming" and the 2016 Act allows a landlord to withhold consent to a proposed assignation on the grounds that the proposed assignee does not meet either of those definitions.
However, neither the 2016 Act nor the Regulations set out what evidence the outgoing tenant should expect to receive from a proposed assignee in order to confirm that the proposed assignee meets the definition of a "new entrant" or a "person progressing in farming", and in turn what information a landlord can expect to accompany a tenant's notice of intention to assign in order to assess whether or not the landlord has grounds to withhold consent. It may be that this kind of detail is dealt with in guidance or a code of practice to be issued by the Tenant Farming Commissioner.
We will be providing further detail on R&A in due course. If you have any queries regarding R&A, please get in touch with your usual Rural Business contact.
Contributor
Partner
