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Review of Agricultural Holdings Legislation Final Report

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Section 8 - Recommendations on the Role of a Right to Buy

8.1 Relevance to tenancy

183. Calls for a right to buy from secure 1991 Act tenants wishing to exit the sector were a dominant early feature of the Review. For the most part they appear to represent a cry of desperation from people who have lost confidence in the system, but they also came from tenants who (often over several generations) have invested so heavily in their farm as to feel that they have a moral right to formalise the sense of "ownership" that they already experience.

184. Some of those promoting the idea are not tenant farmers, but are people concerned about the power that a single large landowner can exert over a community. Others are concerned with issues relating to social cohesion and community self-confidence. For the Review, the focus has been on the potential significance of a right to buy for the future of tenant farming, building on the analysis already set out in the Interim Report.

8.2 Pre-emptive Right to Buy

185. The Scottish Parliament has already decided that secure 1991 Act tenants should have a pre-emptive right to buy in circumstances where the landlord chooses to sell the farm. At present that requires the tenant to register an interest in advance, and a number of submissions to the Review argued that this runs the risk of souring the landlord/tenant relationship unnecessarily. The Review Group also noted questions as to the definition of when a sale can be said to have formally commenced, and what should happen when the landlord is a limited company and only some of the shares are sold.

186. The Review Group has considered these points, and in particular the practical effects that any impact on good landlord/tenant relationships may have. In so far as tenants have been afraid to register an interest, the intentions of the Scottish Parliament have not been fulfilled. In circumstances where an interest has been registered and has damaged a landlord/tenant relationship, then this is likely to have wider negative repercussions. For these reasons, the Review Group has concluded that the intention behind the existing pre-emptive right would be better served by making it automatic.

187. It is suggested that relevant industry bodies should publish guidance for their members advising tenants and landlords to mutually confirm the status and accuracy of their 1991 Act leases.

Recommendation 17 - Existing provisions on the pre-emptive right to buy for 1991 Act tenants should be amended to remove the need to register a notice of interest so that all 1991 Act tenants have an automatic statutory pre-emptive right to buy their agricultural holding, should it come up for sale.

Recommendation 18 - Further consideration should be given to when the pre-emptive right to buy the agricultural holding should be triggered, for example when the land is advertised or otherwise exposed for sale, or (if not previously advertised or otherwise exposed) when negotiations are successfully concluded with another person with a view to the transfer of the land.

8.3 Sale of shares in a landowning company

188. The Review Group has taken note of a small number of cases where the owner of a tenanted farm is a limited company, so that a question may arise as to when a sale of that landowner's interest is being advertised or has taken place.

189. It is suggested that any open market sale of any proportion of the company's shares for value should in principle trigger the tenant's right to buy the holding but not where shares are transferred for nil value, such as between relatives or through other arrangements relating to inheritance. How this can be achieved in legislation needs to be looked at in further detail.

Recommendation 19 - Further consideration should be given to ways to ensure the effectiveness of a 1991 Act tenant's pre-emptive right to buy in circumstances where a company owns a farm tenanted on a secure 1991 Act tenancy, and a transfer of the interest in a holding can be effected through the transfer of some or all of the shares in the company rather than the sale of the land.

8.4 Interposed leases

190. It is competent for a landowner who is the landlord of a number of agricultural holdings to grant an interposed lease of his estate, making his head tenant of the estate the landlord of the agricultural holdings so that the tenants of the agricultural holdings then become sub-tenants. In these circumstances it is unclear whether or not the 1991 Act tenant, as a sub-tenant, still has a right to buy.

191. Provision is made in section 16(5) of the Crofters (Scotland) Act 1993 for such a situation in relation to a crofter's right to buy his croft, and the Review Group has concluded that similar arrangements should be made in relation to the pre-emptive right of secure 1991 Act tenants.

Recommendation 20 - Further consideration should be given to the potential need to introduce an amendment to Part 2 of the 2003 Act to make clear that where there is an interposed lease and the landowner takes steps to transfer the land, the pre-emptive right to buy for any 1991 Act tenant sitting under the interposed lease is still triggered.

8.5 Conditional right to enforce sale

192. Under current legislation a landlord, having served a demand to remedy a breach of a term of the lease that has not been complied with, may serve an incontestable notice to quit on the tenant. No such reciprocal provision exists that would enable a tenant to 'dispossess' a landlord. A number of submissions to the Review alleged that failures by landlords to fulfil lease obligations are relatively common. Particular reference was made to renewal and replacement obligations relating to fixed equipment, and to inappropriate game management that conflicts unreasonably with the purpose of the lease.

193. The Review Group has considered this matter carefully, and the lack of a fair balance in the landlord/tenant relationship that it implies. They have concluded that provision in legislation is needed to discourage any such failure to fulfil lease obligations and to provide equivalent recourse for the tenant. The expectation of the Review Group is that, as with the landlord's right mentioned above, the circumstances where a tenant might reasonably seek to 'dispossess' a landlord will be rare. The Review Group recognises, however, that where there is genuine and persistent failure by a landlord the tenant must have access to effective and speedy remedy including ultimately enforcing the sale of the holding.

194. Further consideration should be made to providing a tenant the right to serve notice on their landlord for any material breach of contract regarding the landlord's obligations under the tenancy and the required timescale for remedy. The process should as far as is practicable mirror the rights available to a landlord where a tenant fails to fulfil their obligations under the tenancy.

195. If the landlord disputes the matter it could then be referred to the Scottish Land Court who should issue directions as to what is to be done and by when. The potential for such a direction to be recorded in the Land Register as a charge on the property should be considered further.

196. If the work is not undertaken as ordered then the tenant should be able to apply to the Scottish Land Court to order the holding to be sold. This would then trigger the tenant's pre-emptive right to buy.

197. If the tenant did not wish to buy, the holding should be sold on the open market (if necessary under the authority of the Scottish Land Court) with the value reflecting the fact there is a sitting tenant and the need to remedy the outstanding breaches.

198. The process should be designed so that, while the rights of both parties are properly protected, the risk of prevarication and delays that might be damaging to the tenant's business should be minimised.

Recommendation 21 - Provision should be made to enable a 1991 Act tenant to request the Scottish Land Court to order the sale of a holding where the landlord has persistently failed to fulfil their obligations under the tenancy, triggering the tenant's right to buy. The Scottish Land Court will have discretion to order the sale, taking into consideration the respective rights and interests of both parties.

8.6 General or absolute right to buy

199. A significant number of submissions to the Review argued for a general or absolute right to buy for secure 1991 Act tenants. These came from all over the country, and for the most part reflected circumstances where relationships between a landlord and one or more tenants had seriously broken down. The arguments presented related to issues concerning agricultural productivity, diversity of ownership in the rural economy, and the need to address seemingly intractable issues around particular landlord/tenant relationships.

200. The case for an absolute right to buy in order to benefit agricultural productivity is predicated primarily on the view that an owner occupier, as a result of a greater freedom and ability to invest in the holding, is likely to be more productive than an equivalent tenant. It assumes that other sources of capital (retained profits, banks, external equity investors) would make up the shortfall withdrawn by landlords, and it assumes that by virtue of there being fewer tenanted farms, average productivity would therefore increase. The Review Group has seen no clear evidence to support the contention that this would necessarily be the outcome.

201. The case for an absolute right to buy to achieve more diverse land ownership sees greater diversity as an end in itself, as well as a means of stimulating more non-agricultural diversification through taking away the power of landlords to discourage social and economic development for reasons relating to their own amenity or sporting interests. The Review Group considers that this would also most probably lead to a decline in the amount of tenanted land and a smaller tenanted sector, and that there are more effective ways to facilitate diversification on tenanted holdings, see Section 5.3 of this Report.

202. The case for an absolute right to buy to address intractable landlord/tenant relationship issues assumes that owner occupation would free tenants to make the most of their farming and business abilities, including in relation to non-agricultural diversification, unencumbered by an uncooperative landlord. It assumes that the purchasing tenant would be able to access investment capital on terms to fit with his proposed business model. The Review Group considers that this would also, over time, result in a decline in tenanted land other than short term leases. The Review Group has seen no evidence to suggest that owner occupiers are likely to release land on to the long-term letting market rather than sell to another owner occupier.

203. Alongside submissions in support of an absolute right to buy were many that opposed it. These came from landlords unhappy about an infringement of their property rights, and from tenants and owner occupiers concerned about the impact on the supply of long term tenancies. 29% of tenants surveyed were opposed to an absolute right to buy, as against 46% who were in favour. More or less all of those opposed, claimed that the threat of a right to buy had already discouraged long-term letting of land, and that the Review needed to address this issue definitively so as to provide certainty for future potential investors.

204. The case against an absolute right to buy in relation to a landlord's property rights is a simple one. Such a right would involve compulsory purchase of the landlord's property interest in the land and the tenancy. As such, and even if a public interest justification for this were to exist, consideration would have to be given to whether compensation would be payable to landlord for any reduction in the value of their property rights that might result, and who would be required to pay this. None of the submissions received suggested how this might be funded.

205. The case against an absolute right to buy on the grounds of a negative impact on long-term letting is difficult to prove, even if intuitively plausible. Several landlords have told the Review Group that they are already trying to reduce their exposure to long-term tenancies as a result of this threat, and some told the Review Group that they would cease letting altogether if an absolute right to buy were introduced. Long-term letting of land has declined in Scotland over many years and for a variety of reasons, and it is difficult to separate the effect of a possible right to buy from that of other causes.

206. The Review Group has considered the issue with a great deal of care, and fully recognises the benefit to individual tenants that such a right might convey. The wider arguments relating to the unequal balance of power in some areas of the countryside dominated by large agricultural estates are also noted, as is the contention that a poor landlord/tenant relationship can act to inhibit development of the holding. But the Review Group has not been persuaded of an overwhelming public interest argument that would justify an intervention of this nature in property rights, and it has heard some very persuasive arguments calling for the idea to be set firmly aside in order to help bring confidence back into the market.

207. Against this background, the Review Group has sought to carefully assess the factors that have caused such an upsurge in demand for an absolute right to buy, and to address those concerns effectively in order to put the matter to rest. This Report includes several recommendations that are designed to ensure that there is no disincentive to investment in a tenanted holding over an owner occupied one, or any unreasonable obstacle to diversification. It also carefully considers issues relating to compensation, way-go, succession and assignation, and it does so against a background of recommending the creation of a statutory Tenant Farming Commissioner to deal with circumstances where behaviours fall short of good practice.

208. The aspiration of many tenant farmers to be owner occupiers is one that is fully understood. That should be encouraged through the normal route of raising investment capital and purchasing a farm that is for sale, including use of the pre-emptive right to buy when the opportunity arises. But the concept of an absolute right to buy, through its potential impact on the supply of tenanted land and on the wider confidence of investors in rural Scotland, is one that the Review Group believes is not and would not be helpful in seeking to further the Scottish Government's vision for tenant farming.

8.7 Right for Ministers to intervene

209. While the majority of landlords work well with their tenants and take careful account of the impact of their decisions on local people, the Review Group has been dismayed at evidence submitted indicating that a number of circumstances exist where this may be far from the case. Such examples are not only damaging and highly regrettable in their own right, but they also impact on all tenants and landlords in Scotland through their detrimental effect on wider relations and confidence within the sector.

210. Many of the recommendations in the Review are intended to address this kind of failing and reduce the likelihood of them being possible. This includes the conditional right to enforce sale, see Section 8.5 above, which the Review Group believes will act as a powerful disincentive to landlords who might otherwise be minded to shirk their responsibilities.

211. But the Review Group has also taken note of a number of submissions, which suggest that, in certain localised regional circumstances, the actions and attitudes of a landlord can have a serious detrimental impact on the tenant farming community as a whole, leading to significant social and economic harm.

212. The Review Group has taken note of the Scottish Government's current consultation, The Consultation on the Future of Land Reform in Scotland, to introduce new powers for Scottish Ministers to intervene where the scale of land ownership and land management decisions are a barrier to local sustainable development.

213. These proposals could potentially offer a way of addressing isolated situations where the way land is being managed is impacting negatively on tenant farming and the wider local community.

214. In developing such proposals, the Review Group would suggest that Scottish Ministers consider how any powers might usefully be extended to take account of situations where the interests of agriculture and of the tenant farming community are suffering detrimental impact. The Review Group has in particular taken note of powers included in Part 2 of the Agriculture (Scotland) Act 1948 (now largely repealed), and which it considers may have still some relevance today.

Recommendation 22 - The potential for proposals in the current consultation on Land Reform to address situations where the way land is being managed is impacting upon tenant farming communities and agricultural productivity, creating a barrier to local sustainable development, should be considered further.

8.8 Special circumstances of Small Landholdings

215. Land tenanted under the various Small Landholders Acts 1886 to 1931 offers similar long-term security of tenure to that provided to secure 1991 Act tenants. In the light of this, the Review received a number of submissions suggesting that, in the same way as was being suggested for secure 1991 Act tenancies, a right to buy should also be made available to small landholders.

216. The Review Group has considered this, and has taken note of the conclusion of the Land Reform Review Group to the effect that small landholders should be given a general or absolute right to buy.

217. At present there are issues with identifying the extent of small landholdings throughout Scotland, with many tenants and landlords not knowing whether they have a tenancy that falls under the Small Landholders Acts.

218. The Review Group recognises and agrees with the need for change to modernise the legislative framework for small landholders and to look to bring them more in line with 1991 Act tenants. Further work needs to be done with industry bodies to help fully understand the extent of small landholdings across Scotland and the potential impact of any further changes.

219. However, the Review Group feels there is a sufficient understanding of the issues facing the sector that as a first step further consideration should be given to providing small landholders with the same pre-emptive right to buy as 1991 Act tenants. Small landholders in the designated areas should still retain their right to convert to become a croft under relevant legislation.

Recommendation 23 - Further consideration should be given to providing small landholders with an automatic pre-emptive right to buy their holdings, should they come up for sale.