Since the introduction of Modern Limited Duration Tenancies on 30 November 2017, we have not heard any news on the next agricultural holdings reform in the Land Reform (Scotland) Act 2016 to be implemented. However, that doesn’t mean that there isn’t any work going on in the background and the recent report published on rent review is a good example of this.

Productive Capacity

The 2016 Act introduces a new rent review methodology for all agricultural tenancies. The rent will be assessed on the basis of what is a “fair rent” taking into account –

  • The productive capacity of the holding;
  • The open market rent of surplus residential accommodation;
  • The open market rent of any fixed equipment provided by the landlord or land on the holding which is not used for an agricultural purpose.

However, the 2016 Act leaves the key definitions to secondary legislation, including what is meant by “productive capacity”.

The Scottish Government prepared draft secondary legislation and appointed a consortium of Savills, Watson Bell and Hamish Lean of Shepherd and Wedderburn to test the draft methodology on 10 farms across Scotland and prepare a report on their findings.

Contents of the Report

The Testing of the Rent Review System Report was published on 26 January 2018. It is a comprehensive (and very technical!) report which identifies a number of areas which will require further work before the methodology can be finalised including –

  • Clarity required to ensure that the “gross output” model can be used to calculate productive capacity;
  • Further research required to ensure a fair means of accounting for “non surplus” accommodation (ie the farmhouse occupied by the tenant);
  • Update required of Standard Labour Requirement data so that surplus residential accommodation can be defined;

The report makes numerous references to guidance and codes of practice which will be required to deal with process related matters such as timings, as well as more general principles of openness and transparency. Emphasis is also placed on the parties agreeing a “statement of facts” regarding the capability of the holding.

Whilst the report does not recommend widescale changes to the 2016 Act, it does recommend the removal of the requirement to state the proposed rent in the rent review notice and this will require an amendment to the legislation.

It is clear that there is a substantial amount of technical work required before the methodology will be finalised and the new provisions brought into force. Whilst the thoroughness of the report is sure to have been welcomed, anyone hoping for an easy answer on the question of rent review may have been disappointed!

If you have any queries in connection with rent review or agricultural holdings in general, please get in touch with your usual contact in the Land and Rural Business Team.