With the Scottish Parliamentary elections looming, Fergus Ewing has been sketching out changes that the SNP are considering to agricultural tenancy legislation if they remain in power after May.
One of the measures that might be taken up is to refine the rules about agricultural rent reviews.
At the moment, in relation to a secure traditional agricultural tenancy, the rent review test is a qualified open market test. This takes into account lettings of comparable holdings to establish current market value but leaves out of account the tenant’s own improvements and also any distortion in open market rents caused by a shortage of supply.
The framework of a new rent review test based on the productive capacity of the holding was set out in the Land Reform (Scotland) Act 2016. However, it has proven to be very difficult in practice to define a formula by which the productive capacity of any given holding can be accurately assessed for rental purposes.
Bob Mcintosh, the Tenant Farming Commissioner, supports a new rent review test based not only on the productive capacity of the unit but also taking into account the market value of let farms with each factor playing an equal part, similar to the test that applies in England and Wales. We may well see moves to introduce such a test in Scotland.
Another area which may see legal intervention is in relation to the removal from a let farm of agricultural land for development purposes.
At the moment, so far as a secure tenancy is concerned, if the landlord obtains planning permission for a nonagricultural use over the whole of the let farm, the landlord can serve a notice to quit against which the tenant has no defence.
The tenant is entitled to claim compensation for improvements and waygoing payments, including disturbance and reorganisation payments, usually equal to five times the annual value of the rent, but receives no compensation payment in respect of any uplift in the value of the land from agricultural use to development use. Even where planning permission over the whole of the farm doesn’t exist, there is usually a clause within the lease of a secure agricultural tenancy that allows the landlord to resume areas of ground for non-agricultural purposes.
So long as the removal of the ground will not materially prejudice the viability of the farm such clauses are perfectly enforceable.
A tenant is entitled to claim compensation as above but once again, there is no right to compensation for any uplift in value from agricultural use to development use.
The Scottish Tenant Farming Association has been lobbying on this issue for some time. It may well be the case in the future that secure agricultural tenants will be entitled to share in development uplift if land is withdrawn from their tenancies for development purposes.
The first Act of Parliament regulating agricultural tenancies in the modern age was introduced in 1883. We have seen regular changes in the law ever since and it is unlikely that we will see any let up in the pace of legislation in the future.
In my view, secure agricultural tenancies will become more and more protected to the advantage of the tenant whilst tenants in fixed duration tenancies – short limited duration tenancies and modern limited duration tenancies - will find that there is more and more freedom of contract and a much lighter legislative touch.
For advice on this or another related matter, please contact Hamish Lean, Head of Rural Property and Business, at firstname.lastname@example.org, or your usual Shepherd and Wedderburn contact. This article was first published by The Courier.