Grazing leases can be a useful tool for landowners who are not making use of their land, and want to lease it out for a fixed period while avoiding the additional responsibilities involved with alternative forms of leases. This type of lease involves the landowner granting the right of grazing livestock or mowing hay or silage to a tenant for a period of no more than 364 days. Here are some key points to consider when exploring the possibility of granting a grazing lease.
1. Make sure the agreement is in writing. To avoid any uncertainty, it is important that the agreement is in writing, detailing the rights and obligations of each party and including a plan to show the area of ground let.
2. Specify that the land is leased for grazing only. In order for a lease to be treated as a grazing lease the land must be let to be used only for grazing or mowing (as provided for in Section 3 of the Agricultural Holdings (Scotland) Act 2003). If other activities are permitted to take place on the leased land, such as breeding or storage, then it is likely that the lease will become a Short Limited Duration Tenancy (SLDT). This type of lease provides various protections and rights to tenants which are not available under a grazing lease arrangement.
3. Make sure the lease is for a maximum of 364 days. A grazing lease can only last for 364 days. If the tenant does not remove after this period, the lease can convert into a SLDT, as noted above, if the landlord does not take action. Typically, grazing lets are for a particular season i.e. a winter grazing agreement may run from November to March, and a spring grazing agreement from March to November.
It is important, though, that after the expiration of the initial period the land is not let for the same purpose to the same tenant without a break in occupation by that tenant of one clear day. In practice, many tenants remove their livestock for one day each year and then return to commence a new grazing lease for several consecutive years, which is perfectly acceptable.
4. Monitor the tenant’s activity on the land. It is worthwhile for the landlord to regularly check what use the tenant is making of the land leased to them. If the tenant is using the ground for purposes other than grazing and the landlord does not object within a reasonable timeframe, then the tenant could argue that the landlord has consented to the new use of the land. This poses the risk of the lease converting into an SLDT.
If the landlord wishes to retain their Basic Payment Scheme Entitlements over the let land, then they must remain in control of it, and the landlord should also ensure that the tenant is not putting the let land to a use which may put the landlord in breach of the Cross Compliance Rules.
5. Financial benefits (e.g. Basic Payment Scheme). A landowner can retain their BPS Entitlements over land let to a grazing tenant. Advice should be sought before the grazing let is entered into to ensure that the landlord’s BPS Entitlements are protected.
The land will still qualify for agricultural property relief after two years of ownership, rather than the seven years required if there is a tenant deemed to be occupying the land.
In light of recent Land Court decisions concerning the intention and actions of parties when entering into leases, it is imperative that any new lease is drafted and implemented correctly to avoid any future dispute and ambiguity. With correct drafting and implementation, grazing leases are a viable revenue stream for landowners and secure agricultural tenants.