Tenancies can be passed on without involving landlord

Hamish Lean, Partner and Head of Rural Property, discusses how secure agricultural tenants can sell their interests without involving the landlord. 

27th June 2022

Much has been written about the recent introduction of a right on the part of secure agricultural tenants to sell back their tenancies for value to the landlord. I want to have a look at another means by which some secure tenants can sell on the tenancy without involving the landlord at all.

That the tenant’s interest in a secure traditional agricultural tenancy has a considerable value is now well established and the reasons easy to understand.

The security of tenure conferred upon tenants, the wide-ranging succession and assignation rights and other rights conferred upon the tenant since 2003 – including, for example, the pre-emptive right to buy – all contribute to creating that value.

In respect of most secure tenancies, so long as the tenant isn’t at fault and there is a family member able to take on the tenancy, the landlord might never have the opportunity of obtaining vacant possession.

Accordingly, where landlords are seeking to recover vacant possession of all or a substantial part of the holding subject to a secure tenancy, it is likely to be the case that they will have to negotiate a “deal” with the tenant to be able to do so. The values can be quite high.

However, these deals happen because of the landlord’s desire to secure vacant possession. What’s the position where the tenant wants to come out of the tenancy and realise maximum value where there is no appetite on the part of the landlord to enter into a deal?

The Land Reform (Scotland) Act

The Land Reform (Scotland) Act 2016 introduced a right of relinquishment so that tenants have had the right since February of last year to serve a notice giving the landlord an opportunity to buy the tenancy back from the tenant. If the opportunity isn’t taken up, the tenant is free to sell the tenancy on the open market to a new entrant or progressing farmer.

The act imposes a valuation formula, which involves establishing the open market vacant possession value of the farm and then the value of the farm with the sitting tenant in place, but disregarding any succession or assignation rights. The landlord taking up the relinquishment opportunity is obliged to pay the tenant one-half of the difference between the two figures, plus the value of any compensation that the tenant is entitled to but less the value of any dilapidation for which the tenant is liable.

A valuer appointed by the Tenant Farming Commissioner carries out the valuation independently. If the landlord decides not to acquire the tenancy, the tenant is then able to sell the tenancy to a new entrant or progressing farmer.

There are no statutory limitations in respect of the value to be paid by a new entrant or progressing farmer to the tenant. A secure tenant does have another means of giving up their tenancy for value however.

This is by way of a family assignation for value. Secure tenants have a right to assign, or make a lifetime transfer, of the tenancy to a near relative. The definition of near relative includes parents, children, grandchildren, siblings, nephews and nieces, great nephews and nieces, spouses or civil partners, brothers or sisters of the tenant’s spouse or civil partner and the children and grandchildren of those brothers and sisters.

Where the assignee is a near relative, the landlord’s grounds of objection are limited to good character, lack of financial resources and lack of skills and experience. However, this latter objection can be overcome if the assignee enters into a suitable course in agriculture that will provide the necessary skills and experience within six months of becoming the tenant and which course will be completed within four years.

The assignee also needs to make appropriate arrangements for the farm to be properly managed while they acquire the skills and experience.

An assignation often takes place without anything being paid. However, I have been involved in situations where an assignation has taken place of a secure tenancy to a near relative and where the negotiation has been at arm’s length and for full value.

Accordingly, it is possible for a secure agricultural tenant to “sell” their interest in the tenancy without involving the relinquishment provisions of the 2016 legislation at all.

This article was first published in the Press & Journal.