Among the many changes to the existing legislative framework for land management, ownership and use to be introduced by the Land Reform (Scotland) Bill 2024, one of the most significant measures is the proposed implementation of provisions that prohibit transfers of certain landholdings without a prior ‘lotting decision’ being made by Scottish Ministers.
What is a lotting decision?
Under the proposed legislation there shall be an automatic prohibition on transfers of large landholdings until a decision has been made by Scottish Ministers as to whether the land should instead be transferred in smaller lots. The Scottish Ministers may only make the decision that the land should be sold in lots where it is determined that the use of the holding would better serve communities by increasing engagement and sustainability if split into smaller lots.
The Bill provides that a lotting decision will be triggered when Ministers receive a valid application for a lotting decision, or a previous lotting decision is quashed on appeal. The form or content of a valid application is not set out in the Bill, but we can expect these details to be elaborated upon in subsequent regulations. It is anticipated that most applications will be by owners seeking to sell.
The “large landholdings” affected by these proposals are either a single or composite holdings of land that exceed 1,000 hectares. This includes areas of land that exceed 50 hectares and form part of a larger landholding exceeding 1,000 hectares, where parts of that larger landholding totalling over 1,000 hectares are being transferred.
If a decision is made by the Scottish Minister that the land would better serve the community or be more sustainable being sub-divided into lots, then the landowner can only proceed with the transfer if it complies with the lotting decision.
Connected Purchasers
If a decision to lot is made, then a landowner will be prohibited from transferring the lots to various purchasers who are ultimately connected. For example, if a landholding is split into two lots, the landowner could not sell one lot to a parent company and the other lot to its subsidiary, as the resulting ownership of the whole landholding would still remain within companies in the same group.
For the purposes of the Bill, one person is connected to another if either:
Both companies are in the same group;
One has a controlling interest in the other or;
A person holds a controlling interest in them both.
Whether a person has a controlling interest in another person is to be determined by reference to the Register of Controlling Interests in Land (see here for further information)
Exemptions to Lotting Decisions
The Bill provides that certain transfers will be exempt from lotting decisions, such as transfers of a croft to the crofter tenanting it, transfers between spouses or civil partners during divorce and separation proceedings or transfers to connected parties of the current owner.
Further, the Bill also provides that a decision could be made to specify that the land need not be transferred in lots if the owner requires to transfer the land to alleviate financial hardship or waiting for a lotting decision may cause financial hardship.
Without any such exemptions, however, lotting decisions will be required in any transfer of land to which these provisions relate.
Will there be any compensation for Landowners who lose out because of a Lotting Decision?
The Scottish Government have made provisions for compensation to affected landowners in the Bill, given the additional cost of compliance with the provisions and the fact that large landholdings could be more commercially attractive as a whole, rather than split up into smaller lots.
In particular, affected landowners will be entitled to compensation from the Scottish Ministers for loss or expense that is related to complying with the procedural requirements in connection with the land, the prevention of a transfer as a result and for loss that is attributable to a decision that the land may only be transferred in lots.
The amount of, if any, compensation to be awarded to landowners is to be determined by Scottish Ministers or, on appeal, by the Lands Tribunal for Scotland. Further provisions are to be made as to how compensation claims can be made, and how the amount payable is to be determined.
The Bill also enables Scottish Ministers to offer to buy the land if they are satisfied that it is likely that, as a result of the lotting decision, the land is viewed as less commercially attractive and accordingly has not been transferred since the lotting decision was made. This option will only be available where a review of the lotting decision has been raised by the landowner after one year has passed since the decision, and there is clearly some scope for interpretation/argument as to what constitutes a sufficient threshold to be “less commercially attractive”.
Landowners will also have a right of appeal against a lotting decision where they believe the decision is unreasonable or has been based on an error of fact or law.
These provisions have been included in the Bill with the stated aim of contributing to the Scottish Government’s overarching objectives to increase community engagement and promote sustainability. How these provisions will operate in practice remains to be seen and this is only a brief summary of certain key points. There will be further changes to the draft legislation as it passes through the Scottish Parliament. In any event, these provisions form a key part of the significant measures being introduced by the Bill and large landholders should make themselves aware of these provisions and how they may impact their future land dealings.
If you think you might be affected by these provisions or would like further information on the implications of the Land Reform (Scotland Bill) 2024, our industry leading Rural experts would be happy to answer any questions you may have.
This article was Co-authored by Trainee Madeleine Gill