In December the Land Court issued a decision in Esslemont v Fyffewhichisa case relating to the agricultural tenant's right to diversify.
I won't rehash the procedure under the diversification rules but, in brief, secure "1991 Act" tenants and tenants under LDTs (and, going forward,MLDTs) have a statutory right to usethe holdingfor non-agricultural purposes, provided they follow the rulesin theAgricultural Holdings (Scotland ) Act 2003, as amended. (NB thisright applies even if the lease contains a provision restricting the use of the land to agriculture - it is not possible to contract out)
A tenant wishing to take advantage of the rules must give advance written notice of their proposed diversification to their landlord, who is then entitled to ask the tenant for information (but only on one occasion, following changes in the Land Reform (Scotland) Act 2016) and, potentially,to object or impose conditions.
There are a number of grounds for objection which relate to concerns about the amenity of the farm or surrounding area, hardship on the part of the landlord, lack of viability etc. However, what is interesting about Esslemont v Fyffe is that the landlord's objectionturnedon whether or not the tenant'sproposed diversification actuallymet the requirements of2003 Act.
The landlord's firstargument was that the diversification was not a prospective one, as envisaged by the legislation.Instead, the tenant was looking to have an existing business operation (the storage of building/construction materials for conservatories) approved/consented by using the diversification rules. The Land Court agreed with the landlord on this:
"We do not consider that there is anything in the language of Part 3 of the 2003 Act to suggest that the regime introduced thereby was intended by the Scottish Parliament to operate as a means by which a tenant's subsisting breach of the use clause of his agricultural lease might be cured, either retrospectively or for the future"
This alone put the kibosh on the tenant's case, but the Land Court went on to consider the landlord's second objection as well. The secondary point wasthat the purpose of the diversification had to be use by the tenant.In this case, the tenant wholly owned and controlled a company (Monarch Conservatories Scotland Ltd) and it was clear that it was Monarch (rather than Mr Esslemont, as tenant) which would be undertaking the diversified use. The landlord argued that any notice of diversification for a purpose which would be carried out by any legal person other than the tenant was ineffective and incompetent. Even though the tenant held a controlling interest in Monarch, the Land Court agreed with the landlord:
"Even where the tenant's intended use of the land for the non-agricultural purpose is in furtherance of a business, it must still, in terms of the legislation, be the tenant's intended use"
In summary, an agricultural tenant's proposed diversification must be prospective (i.e. not yet happening) and it must alsobe for the tenant'sown use.
This is an interesting little case which serves as a reminder that landlordsshould look very carefully at any notice of diversification (and ask the right questions whenutilising theironeopportunity to ask for information!) and tenantsshould take care to ensurethat their proposals comply with the rules.
If you have any queries about diversification please contact Lorna McKay or your usual Brodies contact.
