FAQS: woodland creation on tenanted farms in Scotland

Scottish Government planting targets, combined with an increasing awareness of the carbon sequestration opportunities of new woodland creation, are causing many land managers and occupiers to consider the long-term use for rural land across Scotland. Land that is currently tenanted will continue to comprise a significant part of land that is being planted, while tenant farmers are increasingly interested in the economic and practical land management potential of small and large scale forestry projects.

How does the woodland creation process work for tenanted farms?

Woodland creation on tenanted farms in Scotland is not a new concept. Tree planting is recognised as permitted diversification in the agricultural tenancy legislation and since 2003 it has not been possible for a landlord to prevent a tenant under a secure agricultural tenancy or limited duration tenancy from diversifying into non-agricultural activity on tenanted land. Recent legislative changes have extended these diversification rights to tenants under modern limited duration tenancies and repairing tenancies. If trees are planted, a tenant is entitled to compensation at lease expiry, equivalent to the value of such trees to an incoming tenant for cropping. The estimated adverse impact on rental value resulting from the loss of land for productive agricultural use, and the cost to the landlord of reinstatement following harvesting are deducted from compensation. If these deductions exceed the tree value to an incoming tenant, the tenant would end up being liable to pay compensation to the landlord.

Why have agricultural tenants not previously pursued productive woodland creation?

There are various practical reasons including:

1. The need for landlord co-operation. Unlike other forms of diversification, tree planting requires specific landlord consent and a failure to respond to a request could not be construed as consent. If planting grants were being obtained, a landlord would need to consent and agree to be responsible for grant obligations after lease termination. So, the woodland creation would have to be compatible with the landlord's own aspirations for land use; and
2. Duration/uncertainty. A tenant's individual and family circumstances will impact on eventual lease duration but few tenants can be confident that their lease will remain in place when the trees reach maturity. This means that their financial return would be in the form of waygo compensation, which is difficult to estimate at the stage of planting.

Consequently, it has usually been the case that planting schemes have been implemented by landowners while tenant farmers have secured a financial return in the form of a premium for surrendering the lease, or relinquishing the land required. Many leases also permit the landlord to resume the land that is required, but there are practical challenges there, particularly for larger schemes that involve a substantial part of the let farm. The landowner-led scheme appears to still be the standard arrangement, but we are increasingly aware of tenant farmers looking to take forward their own woodland creation projects.

Why is there a growing interest in woodland creation now?

Increasing financial and regulatory pressures are causing farmers to reassess the viability of some farming enterprises in their current forms, particularly for future generations. Surrendering leases for woodland creation can achieve a significant capital sum, for use in retirement planning or an alternative business. However depending on circumstances a partial lease surrender/diversified project that provides woodland creation but also results in a smaller more productive agricultural holding can leave the farming business better equipped for the future.

Are there any other drivers?

Carbon sequestration income is increasingly the financial driver for tenant-led schemes. The Woodland Carbon Code permits tenants to register and implement schemes although, as with planting grants, the regulatory authority requires a landlord to guarantee that it will be maintained for the contractual period. The proposals therefore have to correspond with a landowner's own land-use aspirations and we envisage that typically involve a negotiation on sharing of income from carbon units as well as an agreed strategy for sale of those units and maintenance of the planting scheme.

A collegiate landlord tenant relationship and shared vision on how to reconcile the economic and environmental benefits with ongoing food production will be key to the success of new woodland creation on tenanted farms in Scotland.

This article first appeared in the April 2022 issue of Forestry and Timber News.