This time its farm tenancies that come under the spotlight, with the secure traditional agricultural tenancies due for reform if the SNP is successful in the upcoming May elections.

There are three main kinds of agricultural tenancy in Scotland: The 1991 Act tenancies, limited duration tenancies and short limited duration tenancies.

The Agricultural Holdings (Scotland) Act 1991 usually governs tenancies which began prior to 2003.  This type of tenancy is one which gives agricultural tenants the most security of tenure and other benefits. If the SNP’s planned reforms are introduced, this security is about to be enhanced.

Agricultural holdings have been regulated since the first Act of Parliament introduced for farm tenancies in 1883.  Since then there have regular reviews and revisions and today this process is likely to continue, with the direction of travel towards more protection for agricultural tenants.

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Major plank

A major plank in this reform proposals is a move to give these farm tenancies a share in any uplift in the value of the whole or part of the land if it is sold off for development. Currently, if some or all of the land is sold for development it’s the landowner who gets the full uplift financial benefit.

Although the tenant gets compensation for the loss of the whole or part of their tenancy, they get no compensation for any uplift in the value of land from agricultural to development use.

Currently, as the law stands, where a landlord successfully obtains planning permission for non-agricultural use across the whole of the farm, the landlord can serve a notice-to-quit on the tenant against which the tenant has no defence.

Although the tenant is then entitled to compensation for any improvements and other disturbance factors, usually equal to five times the annual rent, the tenant cannot share in the benefit the owner receives in the increase in the value gained from the conversion of the farmland from agricultural to development use. This obviously involves, in most cases, a significant increase in value.

It is also the case that where there is a relevant clause in the lease, the landlord can sell off individual packets of land for development, providing the loss of this land to the tenant does not significantly affect the viability of the holding.

The Rent Review Test

Another of the reform measures that could be included in any review of Scottish farm tenancies, if the SNP is successful in the upcoming May elections, is a change in the rules governing rent reviews.

Currently, the secure traditional agricultural tenancy rent review is based on an open market test. This test looks at recent lettings of comparable holdings in order to arrive at a current market value.

But, argue the reformers, this leaves out of the equation the tenant’s own improvements carried out at the farm and also any distortion in open market rents due to shortages of supply.

Writing for The Courier.co.uk Hamish Lean, a partner and head of rural property at Shepherd and Wedderburn, explains how Bob McIntosh, the Scottish Tenant Farming Commissioner, supported by the Scottish Tenant Farming Association, aims to go about reforming these secure farming tenancies.

New framework

The Land Reform (Scotland) Act 2016 had set out a new framework for a rent review test based on the productive capacity of the holding. However, there has been great difficulty in practice in accurately assessing the productive capacity of individual holdings.

Bob McIntosh, the Tenant Farming Commissioner (pictured), is said to support a different type of rent review test based on a mix of factors but primarily on based on an equal balance between the productive capacity of the holding and the market value of comparable farm lettings. This is a similar approach to the method of assessing rent levels in England and Wales.

It is said that such a reform to the agricultural rent review process in Scotland could even survive an SNP election defeat, given that Bob McIntosh’s views command widespread respect within the industry and across the political spectrum.

Hamish Lean expresses the view that secure agricultural tenancies are likely to “become more and more protected to the advantage of the tenant”, whilst tenants with 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.”

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