Part 10 of the Land Reform (Scotland) Act 2016 ("the Act") contains provisions affecting agricultural holdings. The provisions are not yet in force and the timeframe for commencement is not known. The detail of a number of the measures will be contained in secondary legislation which the Scottish Government will be consulting on in due course. The main provisions are summarised below.
Modern Limited Duration Tenancies
The Act creates a new letting vehicle known as the "modern limited duration tenancy" (MLDT). MLDTs will replace Limited Duration Tenancies (LDTs) in the future but the Act preserves any LDTs which already exist.
The main features of an MLDT are:
- Minimum duration of 10 years. Any lease seeking to run for more than five years but less than 10 years will convert to an MLDT.
- If an MLDT is not terminated by the correct notice procedure at expiry of the initial term, it will continue for a further seven years.
- There is an opportunity for a break clause after five years if the tenant is a new entrant, which can be exercised by the tenant and the landlord (the right to break can only be exercised by the landlord where the tenant is failing to farm in accordance with the rules of good husbandry or is in breach of the lease).
- The landlord is responsible for renewing and replacing fixed equipment necessitated through natural decay or fair wear and tear and the tenant is responsible for maintenance. However, the parties can agree otherwise in the lease.
The Act creates the "repairing tenancy". A repairing tenancy will have a minimum term of 35 years with a minimum five year initial "repairing period". During the "repairing period", the tenant is responsible for the provision, maintenance, renewal and replacement of fixed equipment unless the lease provides otherwise. The policy behind repairing tenancies is to give a future to holdings which are currently in a poor state of repair.
Tenant's Right to Buy
Under current law, a 1991 Act tenant is required to register their interest in purchasing the agricultural holding in the Register of Community Interests in Land. The Act removes the requirement to register the interest. This means that all 1991 Act tenants will automatically have a pre-emptive right to buy.
Sale where landlord is in breach
The Act allows a 1991 Act tenant to apply for an order of sale of the agricultural holding where an order of the Land Court (or an arbiter's award) to remedy a material breach of the landlord's obligations under the lease has been made and has not been complied with.
The Act will move rent reviews away from "open market rent" to a "fair rent" which will take account of the productive capacity of the holding. "Productive capacity" will be defined by regulations. The new rent review formula will apply for 1991 Act tenancies, LDTs, MLDTs and repairing tenancies.
Assignation and Succession
The Act widens the category of persons who are eligible to be assignees and successors for 1991 Act tenancies and restricts the grounds on which a landlord can object to a transfer. The Act also restricts the landlord's grounds for objecting to (a) the assignation of an LDT and (b) the transfer of LDTs and SLDTs following the death of the tenant.
Relinquishment and Assignation
The Act introduces a new process that allows 1991 Act tenants to offer to relinquish their tenancy to the landlord in exchange for statutory compensation (based on half of the difference between the value of the holding with a sitting tenant and the value with vacant possession). If the landlord does not buy out the tenancy, the tenant can assign it to an individual who is a new entrant to, or wishing to progress in, farming. The terms "new entrant" and "individual wishing to progress in farming" will be defined by regulations.
Compensation for Tenant's Improvements
The Act provides for a three-year amnesty period during which a tenant of a 1991 Act tenant, SLDT, LDT or MLDT may serve notice on the landlord of the intention to treat a specific item, not previously eligible for compensation, as a tenant's improvement at waygo. The commencement date for the amnesty period is not yet known.
Improvements by the Landlord
The Act requires a landlord of a 1991 Act tenancy, SLDT, LDT, MLDT and repairing tenancy, who is proposing to carry out an improvement, to give written notice to the tenant before carrying out such an improvement. The tenant is able to object to the new improvement if it is not necessary to enable the tenant to fulfil their responsibility to farm in accordance with the rules of good husbandry.
The Act obliges the Scottish Ministers to review legislation governing small landholdings and lay a report before parliament no later than 31 March 2017.