Termination under the new Modern Limited Duration Tenancy
Agricultural tenancies can be something of a procedural minefield. As an agricultural tenant, you have the benefit of a number of rights and protections, and the nature of these can depend on the type of tenancy you have. As an agricultural landlord, you also have certain rights and duties. From 30 November 2017, a new type of tenancy will be available for leases of farms and agricultural land.
The Modern Limited Duration Tenancy (MLDT), introduced by the Land Reform (Scotland) Act 2016 will replace the former Limited Duration Tenancy (LDT) and from 30 November, it will no longer be possible to create a new LDT. While MLDTs are very similar to LDTs, due to the introduction of new provisions concerning break clauses, there will now be four main ways to terminate an agricultural lease of 10 years or longer.
Termination by agreement
Under the new legislation it remains possible to terminate an MLDT by way of agreement between the landlord and tenant. This agreement must be in writing and can only be entered into after commencement of the tenancy. The agreement must also make provision for compensation.
Termination on expiry of the term
On expiry of the term stipulated in the lease, either the landlord or tenant can choose to terminate the MLDT. Should the tenant wish to terminate the MLDT, they must provide notice in writing a minimum of one year and a maximum of two years before the expiry date. They are not required to provide any reason for the termination.
The requirements for a landlord to terminate on the expiry of the term are a little more stringent. Firstly, the landlord must give written intimation of his intention to terminate not less than two years and not more than three years before the date of expiry. The landlord must then provide written notice stating that the tenant must quit the land on the date of expiry of the term of tenancy. This must be provided a minimum of one year and a maximum of two years before the expiry date, but not less than 90 days after the initial written intimation has been given to the tenant. If neither party serves notice, the tenancy is automatically continued for a further seven years. The same notices will be required to bring the continued tenancy to an end in due course. It can also be brought to an end by agreement between the parties.
Termination by irritancy
Landlords are still able to terminate an MLDT on the basis of irritancy where a tenant is in breach of an obligation under the lease. The grounds for irritancy must be set out in the lease. Should the landlord wish to irritate the lease, he must give written notice specifying the breach which forms the grounds for irritancy. The tenant must then be given the opportunity of not less than twelve months to remedy the breach. This period can be extended by way of agreement between the landlord and the tenant or, alternatively, should agreement not be reached, by way of application to the Land Court. Ultimately, the termination cannot be enforced unless the 12 month period has expired without the breach being remedied, and the landlord has given a further written notice to enforce not less than two months before the removal date.
Termination by break clause
A significant new provision provides the opportunity to include a break clause in the MLDT where the tenant is a “new entrant”. The Scottish Ministers have introduced separate regulations defining a “new entrant”.
Where used, break clauses are only exercisable after five years. The tenant can choose to terminate the tenancy by serving notice on the landlord, provided that the notice is served a minimum of one year and a maximum of two years before the break date. The tenant does not need to provide any reason for the termination. Conversely, should a landlord wish to terminate, he must serve notice in the same way but also state one of the following two reasons as justification: that the tenant is failing to comply with the terms of the lease, or is not using the land in accordance with the rules of good husbandry.
Other key features of the new MLDT will be addressed in a forthcoming article.
If you have any queries or concerns ahead of the MLDT coming in in November please contact Hamish Lean or Stuart Greenwood in our Rural Property and Business team.