Not just for the green welly brigade

One of the key recommendations of the report of the Agricultural Holdings Legislation Review Group published in 2015 related to the existing right to buy of some agricultural tenants. The report mentioned the deleterious impact on landlord/tenant relationships resulting from the requirement of qualifying tenants to register a notice confirming their interest in purchasing. It also referred to evidence that some tenants are too afraid to register their interest.

As a result, once the relevant section (s 99) of part 10 of the Land Reform (Scotland) Act 2016 is implemented, the tenant of a 1991 Act tenancy will have an automatic pre-emptive right to buy the land which he or she tenants and no prior registration will be required.

Present right

The right to buy mechanism was introduced in the Agricultural Holdings (Scotland) Act 2003 and allows the tenant of a 1991 Act tenancy to have the right of first refusal if the landlord decides to sell the land which the tenant occupies. The tenant must register their interest by completing a simple form narrating the details of landlord and tenant and extent of the tenanted land, and sending this with £40 for registration. The Register of Community Interests in Land was set up with a division relating to agricultural tenants to record these notices, and there is an easily accessible search facility on its website. Most professional searchers provide an indemnified search of the register, and this can be provided to the purchaser of any land.

A copy of the form must be sent by the tenant to the landlord, and the Keeper is obliged to notify the landlord of registration. If the landlord then “proposes to transfer the land or any part of it to another person [it must]... give notice of that fact to the tenant”. Certain transfers are exempt from the requirement of the landlord to serve notice on the tenant who has registered an interest, and these exempt transfers are listed in the 2003 Act. In effect the legislation seeks to allow the tenant to make an offer to purchase first before the landlord completes a sale for value.

The right to buy is triggered on issue of the landlord’s notice and a tenant has 28 days to inform the landlord, also by notice, as to whether the tenant wishes to exercise this. If the tenant does not so notify the landlord, the right to buy is extinguished. Where the landlord has not served a notice on the tenant advising of the proposal to sell, the right to buy will be triggered if the landlord “takes any action with a view to the transfer of the land”. The 2003 Act provides very limited guidance on what landlord actions are envisaged here, but such examples that are given include advertising the land or entering into negotiations for sale with another party.

In addition, the Act deals with the scenario of a tenant who has registered their interest and the landlord proceeds to sell to another party without first offering the land to the tenant. The tenant can serve a notice on the new owner that he intends to buy the land within three years of the transfer of ownership to that new owner.

Room for dispute

The main effect of the 2016 Act in this area is that the pre-emptive right to buy of a tenant of a 1991 Act tenancy will be automatic and will not require any prior registration. The landlord will still be required to serve a notice on a qualifying tenant that he or she proposes to sell, and the tenant’s right will be triggered either when that notice is served on the tenant but also if no notice is served and the landlord takes action with a view to transferring land.

So far so good. But this is a simple legislative provision with huge consequences.

As any lawyer dealing with agricultural tenancies will testify, trying to establish whether a tenant has a 1991 Act tenancy can be a major source of dispute, and frequently litigation. A 1991 Act tenancy can be established with no written lease, and its creation will depend particularly on its reputed start date and whether there have been any gaps in possession thereafter. It may even be that a written lease suggests one type of agreement or lease but the facts about actual occupation and use indicate another type of situation altogether. A grazing lease which has limited security of tenure can have defaulted into a 1991 Act tenancy if occupation began before November 2013, continued for more than 364 days and/or was cropped by the tenant rather than simply being grazed.

It is difficult to establish who is a 1991 Act tenant upon whom a landlord should be serving notice; it is entirely possible that a landlord and tenant could disagree on this point. The registration of a tenant’s notice can start a discussion between landlord and tenant regarding the status of the tenant. A landlord can contact the Keeper objecting that there is no 1991 Act tenancy in place and the Keeper will request that the tenant responds to the landlord’s contentions. The Keeper will not make a ruling on the type of tenancy in any given situation and intractable disputes will have to be referred to the Land Court. The differing views of landlord and tenant can be aired and, if necessary, adjudicated on independently from the pressures of an impending sale.

The current registration system allows a landlord to establish which person occupying their land believes they have a 1991 Act tenancy. If there is no requirement for a tenant to register, it is entirely feasible that a tenant may be sitting waiting for the landlord to sell without the landlord ever knowing there may be an issue. Remember that the right to buy is triggered not just by the landlord’s notice, but by the landlord’s actions. The landlord may advertise the land for sale and suddenly be faced by a tenant’s purchase notice. In a nightmare scenario, the new owner of land, who was told in good faith that the land was occupied under a grazing let, may receive a tenant’s notice and lose the ground. A landowner must surely ensure his or her land is clear of all occupiers even before he or she takes any steps to sell. Undertaking this process in itself may have the effect of identifying those occupiers who believe they have a 1991 Act tenancy from their response to the relevant notices served.

The right to buy has been controversial since it was first discussed as a possibility before its introduction in 2003. Ever since, there have been various calls from tenants’ organisations to extend the right to other types of tenants, or simply to make the right absolute and therefore not dependent on a sale trigger by the landlord. The issue is also one of constant concern to landowners. The recommendation that has been enacted will have profound effects on conveyancing transactions in rural Scotland until such time as the issue has been recognised and addressed by conveyancing professionals.