Agriculture: Allowing tenants to leave for value

In this briefing I discuss the latest amendments to the Agricultural Holdings (Scotland) Act 1991, which concern the ability of tenants to give up their tenancy for value.

The Agricultural Holdings (Relinquishment and Assignation) (Scotland) Regulations 2020 are made under part 3A of the 1991 Act, the new ss 32A-32W inserted by the Land Reform (Scotland) Act 2016, s 110.

From 28 February 2021, a tenant of a 1991 Act tenancy can offer to relinquish their tenancy in exchange for compensation, or under certain conditions, assign the tenancy. These provisions apply to any 1991 Act tenancy created before 27 November 2003, or a tenancy after that date where a lease specifically states it to be a 1991 Act tenancy. Relinquishment (but not the assignation rights) applies to limited partnership tenancies, but given that most, if not all such arrangements will be running from year to year, it is difficult to imagine why a landlord would buy them out.

Relinquishment

A tenant may serve on the landlord a notice of intention to relinquish (NIR) their tenancy. The form and content of the NIR are set out in s 32D and sched 1 to the 2020 Regulations. Some restrictions apply, such as where the tenant has failed to comply with a written demand requiring rent to be paid, or to remedy a breach of lease conditions; or where a landlord has served a notice to quit which has not yet expired or is under consideration by the Land Court. Conversely, s 32F imposes restrictions on notices to quit where a tenant has served a NIR. 

Once the NIR has been served, a valuer is appointed by the Tenant Farming Commissioner (TFC) within 14 days. The land must be valued as if it is (i) sold with vacant possession, and (ii) sold with the tenant still in occupation, taking certain factors listed in s 32J into account, including the likelihood of the landlord otherwise getting the land back in hand. Either party can object to the appointed valuer; this will be dealt with by the Land Court.

The compensation payable by the landlord is calculated following a five step process set out in s 32L, taking into account the value of tenant’s improvements and landlord’s dilapidations claims. Within eight weeks the valuer must serve a “notice of assessment” (NA) on the landlord, detailing the value attributable to the relinquishment, which can be appealed to the Lands Tribunal by either party. If there is no disagreement, payment of the compensation by the landlord (which must be within six months of the date on which the tenant’s right to withdraw the NIR expires) will end the tenancy: s 32T.

Assignation

Sections 32R-32S provide for the landlord declining to accept the tenant’s NIR. The landlord may serve a notice of declinature (ND) to the tenant, TFC and valuer; or may withdraw their acceptance of a valuer’s decision before the expiry of six months from the date on which the tenant could have withdrawn the NIR. Under s 32U, where a landlord ultimately does not accept the NIR, the tenant may within one year assign the lease to an individual who is a “new entrant” (NE) or “person progressing in farming” (PPF). There is no requirement that the voluntarily agreed assignation price be the same as the determined relinquishment compensation value, or that the landlord be notified of the assignation price.

Definitions

Regulations 8-11 set out the definitions for NE and PPF.

A NE is a person who satisfies the following:

• does not hold land/will not have held a relevant interest at any point in the five years prior to the assignation date;
• does not, by virtue of the assignation, become the holder of more than one relevant interest.
• A PPF is a person who satisfies the following:
• does not hold two or more relevant interests; and
• will not, by virtue of the assignation, become the holder of more than two relevant interests.
• A person is deemed to hold (or have held) a “relevant interest” if they (or any legal person of which they have or have had control, but excluding when acting as executor or other person ex officio for a tenant) are or were:
• a tenant under a LDT, MLDT, 1991 Act tenancy or SLDT (of more than three years for a NE or with more than one year still to run at the date of assignation for a PPF), or a small landholder of more than three hectares, or a crofter on a croft of more than three hectares, or the owner of more than three hectares in total (or for a PPF, the owner of more than one individual holding of three hectares) of agricultural land, and
• hold or held a share of 50% or more in that relevant interest.

There are no age restrictions for NEs, nor any restriction on the size or success of an existing holding that would prevent a second relevant interest being taken on by a PPF. 

The Tenant Farming Commissioner has published a guide on the relinquishment and assignation process.