Agricultural tenancy law and practice is a notoriously tricky area and — over the years — attempts to modernise the system have often resulted in more complexity.
Will the latest proposed bill be different?
Based on what we know at the moment, the Scottish Government’s proposals, which were followed by a consultation process (the responses to which were published earlier this summer), do seem well intentioned and, in many ways, point towards more flexibility for tenants.
That said, there’s a lot of detail we don’t have, so we will have to wait and see how these proposals tie in with existing legislation.
The proposed bill covers a number of different aspects, with Part E dealing with the modernisation of agricultural tenancies focusing on five specific tenancy areas: diversification, waygo, good husbandry, rent reviews and resumption.
Tenants generally need their landlord’s agreement to carry out diversification on the farm holding.
These activities could be anything ranging from – for example – tree planting to setting up an agri-tourism business or farm shop. These developments might not be permitted by the lease already and, at the moment, if the tenant goes ahead without permission, they could be seen to have breached their lease.
The Scottish Government sees this as a risk to tenant farmers being able to put developments in place to not only improve business resilience in the face of economic pressures, but also to reduce their operation’s environmental impact and mitigate the effect of climate change.
In short, the overall intention is that tenant farmers should have the same opportunities to diversify and benefit from those developments as other owner occupier farmers.
For now, we don’t have a proposed permissible diversification list. Indeed, as it stands, the Scottish Government doesn’t have the power to amend this list. The proposal, at this stage, is for that power to be created so it can amend the list in the future.
Interestingly, based on the consultation response, only 50% felt the Scottish Government should have this new power, with the feeling being that the link to climate change may limit what a tenant farmer can do to help with their holding’s commercial viability.
So, following this, we may see more of a push to ensure that diversifications that can financially benefit the farm business are also taken in account, as well as those that are primarily environmentally focussed.
What we can expect are more opportunities for tenants to make changes to the farm holding without consent and, as such, landlords will need to be prepared for that to happen.
When a lease comes to an end, the tenant can make certain waygo compensation claims to their landlord.
The tenant will be entitled to compensation, for example, for improvements they’ve made, as long as they’ve followed the correct procedure.
Enforcing a waygo claim can be complex.
And even if the procedure is followed correctly, it can take a few months before the landlord and tenant agree a final figure. In the meantime, this can mean, unfortunately, a great deal of uncertainty for exiting tenants, in particular for retiring farmers.
The Scottish Government is looking at timeframes for compensation claims, but also the statutory list of improvements, used to ascertain the value of a compensation claim.
Its view seems to be that this list needs to be modernised, while a legally binding timeframe for completion is needed so claims are dealt with quicker and compensation is paid sooner.
The focus here looks to be on recognising improvements that support biodiversity, or help mitigate or adapt to climate change.
Again, we’ll need to watch and see what happens here and indeed see what the draft list of new improvements looks like, along with the proposed timescales. The hope is that this will be an opportunity to make the process smoother when a tenancy comes to an end, for everyone involved.
The intention here is to ensure tenants can undertake certain activities that aren’t necessarily already included in their lease, and still be considered as practising good husbandry. The current definitions are from 1948, and the Scottish Government’s view is that these are no longer sufficient for modern requirements.
Again, the driver here appears to be to allow the tenant to carry out more sustainability-focused activities without those being seen as a breach of their lease.
The proposals set out essentially a hybrid of what we’ve seen before with reviews to potentially consider comparable rents; an assessment of a farm’s earning potential by means of a farm budget; and a suggestion the general economic outlook for the next three years can be taken into account.
The intention it seems, is that this mix will make rent calculation fairer and more flexible.
Resumption is where a landlord seeks to take part of the land back out of the tenancy. Here, the Scottish Government is looking to review how the valuation aspect for resumption is assessed.
At the moment, the tenant would be entitled to compensation for disturbance, as well as a rent abatement.
Currently when an occupation ends for another reason, the valuer looks at more factors. The Scottish Government is considering whether a similar, more comprehensive valuation formula would be more appropriate.
The proposals also suggest introducing scope to take into account the enhanced value the landlord could see from a holding’s intended future use.
Normally we see resumptions where the landlord has obtained planning consent for a change of use, such as housing, so if that future use value can be taken into account then the compensation payment the tenant is due could be much higher.
Generally, the focus seems to be on implementing a fair, flexible approach.
There are pitfalls, of course — often because of the number of different laws spread across numerous pieces of legislation. We’ll be watching with interest to see which of the proposals make it into the forthcoming bill, and how those that do interact with what we have at the moment.
Hopefully this will ultimately be a positive move that creates more opportunities, particularly when it comes to diversification, but I think we need to see more detail from the Scottish Government on the proposals sooner rather than later.