The Public Services Reform (Agricultural Holdings) (Scotland) Order 2011 (“the 2011 Order”) finally came into effect on 22 March 2011 and made a number of important changes to the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) and the Agricultural Holdings (Scotland) Act 2003 (“the 2003 Act”).

Regarding the 1991 Act the main substantive changes are:-

  1. In Schedule 2 to the 1991 Act the new term “viable unit” is substituted for the term “two man unit”. In terms of the 1991 Act a landlord could, in certain circumstances, bring a secure agricultural tenancy acquired on succession to an end if the holding was not a “two man unit” - an agricultural unit which is capable of providing full time employment for an individual occupying it and at least one other man. Due to changes in farming practice it was felt that a significant number of farms would not fall within this definition, hence the introduction of the “viable unit” - an agricultural unit which is capable of providing an individual occupying it with full time employment and the means to pay the rent and for adequate maintenance of the unit;
  2. In terms of the 1991 Act it was possible for the landlord and tenant to contract out of the landlord’s responsibility for providing fixed equipment by entering into a post lease agreement, i.e. an agreement entered into after the lease. The 2003 Act introduced a provision entitling a tenant to nullify such a post lease agreement in certain circumstances following a rent review. However, as the terms of the post lease agreement would have already been taken into account when reviewing the rent, it was felt to be unfair to the landlord if the benefit of the post lease agreement was subsequently removed. The 2011 Order now provides that if the tenant wishes to nullify any such post lease agreement, he must do so in advance of any review by giving the landlord at least six months’ notice so that this fact can be taken into account in the subsequent rent review;
  3. Due to poor drafting in the 2003 Act, it was unclear as to whether it was necessary for a written notice to be served in order to start the rent review process. The 2011 Order amends s. 13(1) of the 1991 Act by making it clear that written notice is required.

Regarding the 2003 Act the main substantive changes are:-

  1. The 2003 Act introduced two new types of agricultural tenancy, the short limited duration tenancy (“SLDT”) (in respect of a period up to five years in duration), and the limited duration tenancy (“LDT”) (in respect of a period of not less than fifteen years). It was not possible to create an agricultural tenancy for a period of between five and fifteen years in duration. The 2011 Order reduces the minimum length of the LDT to ten years. Furthermore, the Order provides that where a SLDT continues beyond the initial period, whether by agreement or implication, the tenancy converts/defaults to a ten year LDT which is deemed to have commenced at the start of the earlier SLDT. Previously, the SLDT would have defaulted to a new fifteen year LDT resulting in an arrangement which would have lasted twenty years in total. While this amendment will bring in a much needed degree of flexibility, the fact remains that it is still not possible to create an agricultural tenancy of between five and ten years;
  2. One of the biggest criticisms of the 2003 Act concerned the obligations it imposed on the landlord with regard to the provision of fixed equipment, particularly in relation to SLDTs. The 2011 Order has gone some way to addressing landlords’ main concerns. In particular:-

(a) A landlord now only has to provide such fixed equipment as will enable the tenant to maintain efficient production in respect of the use of the land as specified in the lease; and

(b) The fixed equipment to be provided and the condition into which it is to be put by the landlord are to be specified in a schedule to the lease. This will necessitate a record of the condition of the fixed equipment included in the lease to be prepared and could therefore have significant cost implications for the parties. Therefore, while it will be in both the landlord’s and the tenant’s interests to ensure that this is done, whether this will happen in practice remains to be seen.

The 2011 Order was enacted in terms of Section 17 of the Public Services Reform (Scotland) Act 2010, which enables primary legislation to be amended by secondary legislation in certain circumstances. However, the Scottish Ministers took the view that certain other proposed amendments to the 1991 Act and the 2003 Act could not be introduced in terms of this procedure and new primary legislation would be required. The Agricultural Holdings (Amendment) (Scotland) Bill was one of the last Bills brought forward by the SNP’s minority government prior to the May 2011 election.

As drafted the Bill proposed three main changes:-

  1. To extend the definition of “near relative” for the purposes of succession to a 1991 Act tenancy, (currently a surviving spouse, surviving civil partner, child, or adopted child of a deceased tenant) to include grandchildren;
  2. To prevent (i) upward only or (ii) landlord instigated only, rent reviews in contractual LDT rent review clauses; and
  3. To make it clear that any changes in rent due to changes in the rate of VAT are not to be considered “rent reviews”.

There is a concern that now that the SNP have been returned with a majority, they may take the opportunity of the Bill to introduce more radical reforms to the Agricultural Holdings legislation which they supported in 2003. The Bill is out for consultation until 30 June 2011.