Publication - Research and analysis

Scottish Agricultural Tenure Evidence Review

Published: 27 Jun 2014
Part of:
Research
ISBN:
9781784126018

A review of tenure arrangements in Scotland and case studies of selected countries

122 page PDF

3.4 MB

122 page PDF

3.4 MB

Contents
Scottish Agricultural Tenure Evidence Review
5 Drivers Of Change

122 page PDF

3.4 MB

5 Drivers Of Change

5.1 Staff within SAC Consulting regional offices and Scottish Government Rural Payments and Inspectorate Division area offices were asked to provide their opinion and thoughts on the drivers for tenancy change within their regions. Their feedback on observed changes to tenure and ownership was helpful in identifying and illustrating drivers of change. It is not meant to be exclusive or representative.

5.2 These drivers of change observed by regional staff were numerous but there was some commonality across the regions. For example, staff reported a tendency for informal arrangements to be used as a more flexible method of renting land than more formalised legal options, despite the landlord potentially being at greater risk through the informal route.

Table 10 Observed drivers of change and issues relating to Scottish agricultural tenure

Topic Trends and issues
1991 Act tenancies
  • Long term decline in amount offered since the introduction of Ltd Partnerships in the 1980s - potentially related to landowners seeking less secure terms
  • Retiring tenants' farms are often taken back in hand, particularly if there is development potential - occasionally re-let through SLDT / LDT but increasingly seasonal lets.
  • Some landowners are actively farming and termination of secure tenancy provides landowner with farming opportunities
  • Some landowners are actively trying to buy out tenants for a variety of reasons (development, inheritance tax, CAP reform, land reform, SRDP grants, renewable projects, etc).
  • Decoupled CAP support has provided landowners with an incentive to hold land in hand and resume tenancies as they dissolve, with some benefiting from CAP support payment or letting of naked acres.
  • There are examples of corporate, foreign and traditional owners liquidating assets for variety of reasons - some selling to tenants meaning fewer tenancies available.
  • Anecdotal examples of positive outcomes from estates (eg. in Angus and Cumbrae) that were sold to tenants in the early 2000s.
  • Many examples of amalgamations with other existing tenancies. For example when a tenant retires or terminates a lease the landlord motivation is to lease to an existing tenant rather than an unknown entity.
Ltd Partnerships
  • These had become the most popular way to let land in the 1990s with flexibility between the parties.
  • Mostly reported to have been terminated with very few left in place.
  • Estimate that 75% of Ltd Partnrships in the south west were not renewed, CAP support was thought to be a key consideration.
LDTs
  • Very few reported as being offered. Initially there was a lack of trust / understanding of these new forms of lease plus there were issues with the fixed equipment requirements - many acted on legal advice not to offer LDTs.
  • Very few appear on open market - when they appear they tend to be offered to established farmers expanding capacity. When they do come on the market there is generally considerable interest.
SLDTs
  • Some examples of landowners letting on 5 year SLDTs and then rotating tenants. Example given of SLDT being used for allotments.
  • Belief that there would be high demand if availability was known - particularly for farmers looking to expand.
  • Anecdotal evidence that SLDTs became popular in the North East after their introduction due to the flexibility they offered landlords. However, they are now less popular as many landlords want to 'actively farm' and access CAP payments which is possible through contract farming.
  • Some evidence that SLDTs have been provided to facilitate entry into SRDP Rural Development Contracts instead of the usual seasonal lets - alternatively sometimes a seasonal let is needed to break SLDT and allow farmer to remain in agri-environment scheme.
  • Evidence that some farmers are not having SLDTs and LDTs renewed although they are offered seasonal lets as landlords look to capitalise on CAP reform / inheritance tax.
Seasonal Lets
  • CAP reform delays may have adverse impact on 2014 grazing lets as landlords keep land back to claim on own IACS.
  • Potato and vegetable lets appear to be informal and therefore will not get picked up by official statistics.
  • Reported that a significant proportion of grassland based businesses take seasonal lets - farmers hauling forage crops from further and further afield as machinery size and capability have improved - farmers taking on cereal land, and land from potatoes and peas.
  • Perception that inheritance tax benefits from moving from formal long term leases to seasonal lets.
  • Seen as low cost expansion for farmer through spreading of fixed costs.
  • Many farmers have taken naked acres to cover purchased entitlements or ineligible features.
  • Seasonal lets give retiring / retired farmers the option to maintain farm ownership without actively farming.
Ownership
  • Some discussion that long term structural changes tend to occur due to financial crisis of landlords (e.g. poor business performance, inheritance tax, etc).
  • Sale of large land parcels can be a catalyst for change for a region.
  • Some landlords have sold to tenants due to concerns over absolute right to buy or to get rid of tenancy burden.
  • Regionally specific - many report no or very few tenants have recently had opportunities to purchase farms.
  • Reported that crofting tenants continue to purchase crofts to allow development, gain security and leverage finance.
  • Some reporting of Forestry Commission purchase of farmland for planting with some retained for starter units.
  • Examples of development land close to towns being bought and leased through a variety of means.
Contract farming
  • Contract farming has become more favoured and popular (more use than SLDTs) and it is reported that right to buy, taxation, CAP reform, etc means it is a more secure option for landowner.
  • In arable areas it is reported that solicitors and accountants often advise landowners to use contract farming arrangements.
  • Undoubtedly this is a growth area and is likely to increase further with CAP reform.
  • Opportunity from developers (e.g. windfarms), offering in-bye to new business on contract farming basis.
Land reform
  • More tenants have become interested in registering interest in their land.
  • Landowners are increasingly concerned about the right to buy - some tried to terminate leases after the introduction of the 2003 Act and this has now raised itself as an issue once more.
  • Landlord nervousness of long term leasing deals has grown significantly since the early 2000s due to concerns over land reform - not just rights to buy but also issues relating to taxation of land, etc.

5.3 It certainly appears that the limited uptake of SLDTs and LDTs relates to control of the land, inheritance taxation considerations and importantly the ability of landlords to access (or potentially access) decoupled CAP support payments when leasing through contract farming arrangements or seasonal lets. It is notable that similar tendencies exist in other EU countries, as revealed by the case studies and the literature - notably Swinnen et al. (2013).

5.4 It was predicted by many working with farmers and landowners that contract farming will continue to blossom in the near future as landlords seek to maximise returns from their land through CAP support payments, whilst minimising longer term risks relating to land reform. It also appears that those land owners that continue to lease land through secure 1991 Act tenancies have a nervousness over land reform, particularly the uncertainty it brings to the sector.


Contact

Email: Angela Morgan