Tenant Farming Commissioner, Bob McIntosh, has this month issued a new code of practice on the Maintenance of the Condition of Tenanted Agricultural Holdings. The TFC was tasked with preparing practical guidance to assist in the negotiations between Landlords and Tenants as part of the Land Reform (Scotland) Act 2016. The code is the fourth code in a series to be produced by the TFC, to assist in communications between Landlords and Tenants. The new maintenance code offers a route towards agreement between Landlord and Tenant where one party cannot secure the agreement of the other, or, in circumstances where an attempt has been made but the parties disagree. The key principles in the code are set out below.
The terminology set out in the code is clear. Where the code uses the term "must" there is a legal requirement to fulfil the action and non-compliance constitutes a breach of the Agricultural Holdings legislation. In situations where the code uses the term "should" this means that failure to behave in such a way may constitute a breach of the code and could result in a formal complaint being made to the TFC. The code also "recommends" various courses of action but understands that other approaches could be used and failure to follow a recommendation would neither be a breach of the code nor the Agricultural Holdings legislation.
Landlords and Tenants must comply with their respective legally binding obligations towards the maintenance/repair/renewal of the fixed equipment as regards the condition of the holding. On the Tenants side, the tenancy may be put at risk if a Land Court judgement concludes there has been a failure to meet an obligation.New, but not yet in force, under Part 10 of the Land Reform (Scotland) Act 2016 are provisions relating to Landlords in material breach of their obligations. In these situations the Land Court may ultimately decide an enforced sale of the holding is appropriate if certain conditions are met in extreme circumstances.
The code notes that Landlords and Tenants should meet regularly to discuss the condition and to agree on what needs to be done, and by whom, to ensure obligations are met. This seeks to bring a degree of formality to regularly reviewing the condition of the holding. The code recommends these discussions should take place every five years and could perhaps form part of a rent review meeting. If parties cannot agree on a proposed route, it is recommended that a third party such as a mediator, expert or arbitrator is sought prior to resorting to litigation.
Landlords and Tenants should agree on an appropriate approach to the preparation and maintenance of a record of condition. At the start of a new lease, parties must record the fixed equipment being provided by the Landlord and its condition. In circumstances where there is not a record of condition, or if it is inadequate, the code recommends that a record of condition is prepared at the shared cost of the Landlord and the Tenant.
Landlords and Tenants should maintain, and retain, effective records of agreement made and repairs and maintenance carried out. Following an on-farm meeting, within one month the parties should agree upon a proposed schedule of work (to be agreed within six months) covering work to be achieved by Landlord and Tenant within a three to five year period. The code suggests that where one party does not have the financial capacity to meet an obligation within a reasonable timeframe, then it may be that the other party could pay the sum due with an adjustment in rent in return. This type of arrangement would need to be clearly documented in writing and there are issues of risk which the parties would have to consider. In situations where wear and tear has been made worse through a lack of maintenance by the Tenant, it may follow that there is an increased burden on the Landlord to renew or replace an item. If this is the case, the code notes that it may be appropriate for the Tenant to make a contribution towards the cost of the replacement or renewal. The schedule of works should be considered to be a binding contract between the Landlord and Tenant and that failure to meet the terms set out in the schedule could be a breach of the code as well as potentially breach of contract. For alleged breaches of the code, either party may refer the matter by making a formal inquiry to the TFC.
The introduction of the codes by the TFC adds a new dimension to managing agricultural holdings. They should not alter the underlying legal position, but breaches of a code may also have consequences for the parties. If you are unsure of how to apply the codes of practice to a particular set of circumstances please speak to your usual Brodies contact.