Tenant farming: the new guidance

In the June 2016 briefing I reported on the Independent Adviser on Tenant Farming (IATF) and his work with industry bodies (NFU Scotland, Scottish Land & Estates, and the Scottish Tenant Farmers Association) for the production of a series of guidance notes. The IATF may be seen as the forerunner to the Tenant Farming Commissioner (TFC), a post created by provisions in the Land Reform (Scotland) Act 2016 (LR(S)A 2016) which will come into force on 1 April 2017, the same date that the Scottish Land Commission will become fully operational. (A press release regarding appointment of the Land Commissioners and of the TFC is available at news.gov.scot/news/appointments-to-scottish-land-commission). The TFC will be an ombudsman, charged to create formal codes of practice and ensure adherence to them, imposing penalties for non-compliance.

By the time of the June 2016 briefing, six guidance notes had been produced. That number has now increased to 11. The two most recent additions, published on 1 and 15 November 2016 are, respectively, Joint Industry Guidance on Late Payment of Rent, and on Selling a Company Owning Tenanted Land Subject to a Pre-emptive Right to Buy.

Late payment of rent

This guidance applies to secure 1991 Act tenancies, and only where the landlord “decides that a formal notice is to be issued requiring payment of arrears within two months”.

As with previously issued guidance, there is “an assumption of reasonableness among all involved”. This is apparent in four principles stated at the outset, which exhort: (1) the tenant to budget properly; (2) the landlord to issue an invoice for the rent between three months and one month before the rent is due; (3) that late rent payments should be accepted only by written agreement and that the tenant should communicate with the landlord as early as possible when rent will be late; and (4) the landlord to encourage a tenant in rent arrears to be aware of the potential consequences and to seek independent advice and assistance.

There follow four steps for “Addressing Late Payment of Rent”, which begin with initial informal discussions, progress to a formal notice of arrears, then to a final written warning, and end with a notice to quit. When either a formal notice of arrears or a final written warning is issued, it should include the leaflet ‘Late Payment of Rent – Important Advice to Tenants’, which is an appendix to the guidance.

Sale of interest in landlord

The latest guidance applies to 1991 Act tenancies where the tenant has a pre-emptive right to buy, although it is stated that best practice would be to follow it for other types of tenancy also.

A 1991 Act tenant can register a pre-emptive right to buy. (Following commencement, on a date to be appointed, of s 99 of the LR(S)A 2016 no registration will be required.) This right, however, is not triggered by sale of a controlling interest of the landlord where it is a company, which presents an avoidance mechanism. Following the Agricultural Holdings Review Group’s recommendation, the Government is considering this issue further. In the meantime, the guidance provides a framework facilitative of communication between landlord and tenant for arm’s-length transfers, recognising that it may be desirable for the tenant either to purchase or to relinquish all or some of the land.

Two principles are given: “ownership of tenanted land through a limited company should not be used” purely as an avoidance mechanism; and, where land is held by a company for some other reason and a controlling interest is to be transferred at arm’s length, the sellers should consult with the tenants on at least four issues. These are: (1) the possibility of purchase by the tenant; (2) the possibility of relinquishment or restructuring by the tenant; (3) whether each party’s obligations are up to date and how to address any issues; (4) whether all records of improvements are up to date and how to address any issues. A seven-step process is outlined, beginning with notice of intention to sell, and discussions, formal proposals, feedback mechanisms, and mediation (if required), with timescales.

Of course, neither piece of guidance supersedes the law, and this is clearly stated. Rather, the guidance is built around the law. As with previous guidance, a hope is expressed in both of the above publications that the TFC will adopt the guidance or use it as a model for a code of practice, and proforma written records are provided in order that these might be provided as evidence in due course of the effectiveness of the guidance. Both new pieces of guidance are founded on “an assumption of reasonableness among all involved”.

The guidance is available at www.gov.scot/Resource/0050/00509144.pdf and http://bit.ly/2g0IJYd