The Land Reform Bill ("the Bill") introduced by the Scottish Parliament in March 2024 contains a number of provisions which have the potential to impact on developers seeking to enter into option agreements for housebuilding. In particular, there are two provisions which developers should be aware of at this stage of the Bill process.

Extension of the Community Right to Buy

The first provision which could impact on option agreements is the extension of the existing community right to buy which is contained in the Bill. The Bill extends the opportunity for community bodies to register an interest in land that is, or forms part of, a large landholding which the Bill currently defines as a single or composite holding extending to 1000 hectares or more. The reference to land forming part of a large land holding means that these provisions will still apply even where the area being sold is less than 1000 hectares and there are currently no proposals which define a minimum threshold before the provisions would apply.

The Bill imposes a prohibition on the transfer of, or on taking any action with a view to the transfer of, all or part of a large landholding. A landowner must apply to the Scottish Ministers to lift the prohibition. For the Scottish Ministers to lift the prohibition on transfer they are required to comply with publicity requirements which are set out in more detail in the Bill, but crucially there is a statutory period of 30 days which must be adhered to in order to comply with the publicity requirements. This period can then be extended where a notice of intention to register is received by the Scottish Ministers during the 30 day period to allow an application to be registered.

Developers should note that the prohibition extends to any action with a view to a transfer of the land so parties will require to engage with the Scottish Ministers to take steps to lift the prohibition at an early stage in negotiations.

For existing option agreements where the contract has concluded prior to the passing of the Bill into law but the land transfer has not yet taken place, the existing late application procedure will continue to apply which imposes an obligation on the Scottish Ministers not to consider any right to buy application submitted after missives are concluded or an option to acquire the land is conferred.

Lotting

The second provision of the Bill which could affect option agreements is the intended prohibition on transfers of large landholdings, again defined as a single or composite landholding exceeding 1000 hectares, without first receiving a lotting decision from the Scottish Ministers.

It is unlikely that the sale of land under an option agreement will be sufficient to trigger the requirement to obtain a lotting decision, as the requirement to seek a lotting decision from the Scottish Ministers is only triggered on a transfer of land that exceeds 1000 hectares. Developers should note, however, that a transfer exceeding 50 hectares which would mean that cumulatively more than 1000 hectares of a holding are considered to be on the market would also trigger the requirement to obtain a lotting decision.

It is therefore possible that if a landowner seeks to enter into a transaction or series of transactions that would trigger the requirement for a lotting decision to be made this may impact on the developer's ability to exercise their option.

If the lotting provisions do apply, then the landowner is prohibited from transferring the land until the lotting decision is in effect and the transfer is conducted in accordance with the lotting decision. Landowners and developers may therefore need to consider whether option agreements properly reflect the potential for a lotting decision to impact on a proposed transfer.

If a lotting decision is made it will last for a period of five years and the landowner is prohibited from transferring the property in such a way where the same party or connected parties own more than one lot as specified in the lotting decision. Given the lotting decision does not need to align with the developer's proposal for the property, and a lot may therefore not reflect what land a developer requires to carry out a commercial development, developers will need to consider how to provide for a potential lotting decision in option agreements once the Bill becomes law.

Although aspects of the Bill may change between now and the passing of the Bill into law, it is clear there are a number of provisions which may affect option agreements entered into once the Bill is passed. If you are a developer that may be impacted by these provisions please contact a member of the Rural Business and Natural Capital team or your usual Brodies contact.

Contributors

Simon Boendermaker

Senior Solicitor

Graeme Leith

Partner