Relinquishment and Assignation
The Relinquishment and Assignation provisions of the Land Reform (Scotland) Act 2016 are to be brought into force on 28th February 2021 by a series of statutory instruments. The provisions allow Tenants of 1991 Act tenancies to offer to relinquish their tenancy in exchange for payment or, should the Landlord decline to pay, to assign (i.e. transfer) the 1991 Act tenancy to a limited body of potential assignees.
Notice of Intention to Relinquish
To take advantage of the right, the Tenant is to serve notice in writing on the Landlord in a statutory form. The Notice, which is to be copied to the Tenant Farming Commissioner (TFC), is to include details of the tenancy, a copy of any written Lease together with any variations and a plan sufficient to enable the valuer to identify the full extent of the holding.
A Tenant may not serve a Notice of Intention to Relinquish if, at the date of service, the Tenant has served a Notice of Intention to Quit, the Landlord has served a Written Demand on the Tenant requiring the remedy of any relevant breach or if the Landlord has served one of certain Notices to Quit. Once the Notice of Intention to Relinquish has been served the Landlord’s ability to serve a Notice to Quit is restricted for the period of 1 year.
It should be noted that the right to relinquish applies to the Tenant whether the Tenant is an individual, joint tenants, a partnership or other legal entity.
Appointment of Valuer
Within 14 days of the date of service of the Notice of Intention to Relinquish the TFC is to appoint a valuer whose appointment can be challenged on limited grounds by either Landlord or Tenant. The TFC has announced that a Panel of Valuers is to be set up and that Landlord and Tenant will be invited to nominate their preferred valuer but, failing agreement, the TFC will nominate the valuer from the Panel. The Tenant is responsible for meeting the valuer’s expenses.
Assessment of Value
The valuer is to assess (1) the value of the holding if sold (a) with vacant possession; and (b) with the Tenant still in occupation and (2) the amount of compensation which the Landlord and Tenant would be entitled to on termination of the Lease including compensation for improvements, high farming or deterioration. In valuing the land, the valuer is to have regard to the value that would be agreed between a willing buyer and willing seller and to take into account when it is likely vacant possession of the land would, in the normal course of events, have been recovered by the Landlord. There is a lengthier list of disregards. The valuer is to invite the Landlord and Tenant to make written representations regarding value and compensation.
The amount payable by the Landlord to the Tenant is assessed by deducting the tenanted value of the land from the vacant possession value of the land and dividing the resultant figure by 2. Any compensation due to the Tenant is then added and any compensation due to the Landlord is deducted.
Notice of Assessment
The valuer must issue a Notice of Assessment within 10 weeks of the date of service of the Notice of Intention to Relinquish (or within 8 weeks of the Land Court appointing the valuer if the TFC’s appointee has been challenged). Either party may appeal the Notice of Assessment to the Lands Tribunal within 21 days of the date of service of the Notice of Assessment.
The Tenant can withdraw the Notice of Intention to Relinquish at any time before the expiry of 35 days from the date of service of the Notice of Assessment or before the expiry of 14 days of the date of the Lands Tribunal’s decision following any appeal.
Notice of Acceptance
The Landlord has 28 days following the expiry of the period during which the Tenant may withdraw the Notice of Intention to Relinquish to accept the Tenant’s Notice of Intention to Relinquish using a statutory form. The Landlord must pay the amount of the compensation assessed by the valuer to the Tenant within 6 months of the commencement of that 28 day period and on payment being made the tenancy comes to an end on the expiry of such six month period or on such earlier date as may be agreed. Alternatively, the Landlord may, within the same period, withdraw the Notice of Acceptance by serving a Notice of Withdrawal.
Notice of Declinature
The Landlord may serve a Notice of Declinature at any time (even before the appointment of the valuer) within 28 days following the expiry of the period during which the Tenant may withdraw the Notice of Intention to Relinquish.
The Tenant has one year from the date the right to relinquish ends to assign (i.e. transfer) the Lease to an individual “who is a new entrant to, or who is progressing in, farming” by serving a Notice of Assignation on the Landlord.
Objection to Assignation
The Landlord has the right to object to the proposed assignee by intimation to the Tenant within 30 days of the giving of the Notice of Assignation. The Landlord may only object if the proposed assignee is not an individual who is a new entrant to farming or an individual who is progressing in farming or there are reasonable grounds for doing so. The reasonable grounds include (but are not limited to) the ability of the proposed assignee to pay the rent due under the Lease, to provide for adequate maintenance of the land or a lack of the skills or experience that would be required properly to manage and maintain the land in accordance with the rules of good husbandry. The latter ground of objection does not apply where the proposed assignee is a new entrant to farming and is engaged in or will, before the expiry of 6 months from the date of the Notice of Assignation, commence a course of relevant training in agriculture and has made arrangements to secure that the holding is farmed with reasonable efficiency until the proposed assignee completes that course.
An individual is a new entrant to farming where the relevant individual or any legal person they control does not hold, and will not immediately before the assignation date have at any point in the preceding 5 years have held, as Tenant an LDT, MLDT, a 1991 Act tenancy or an SLDT, have been a small landholder, crofter or have been the owner of more than 3 hectares of agricultural land in aggregate, wherever such land is located.
The proposed assignee holding the interest as Executor or Trustee does not prevent the individual being a new entrant unless the proposed assignee is also a beneficiary in respect of the same interest under the will or trust.
Person Progressing in farming
A person is progressing in farming if they or any legal person they control do not hold 2 or more, and will not by virtue of the assignation become the holder of more than 2, interests as a tenant of more than 3 hectares under an LDT, an MLDT, a 1991 Act tenancy or an SLDT, as a small landholder or a crofter with a smallholding or croft of more than 3 hectares or as the owner of more than 3 hectares of agricultural land on a single title. An LDT, MLDT, 1991 Act Tenancy or an SLDT is not taken into account if the term of the tenancy will, at the assignation date, expire in less than 1 year.
The proposed assignee holding the interest as Executor or Trustee does not prevent the individual being a person progressing in farming unless the proposed assignee is also a beneficiary in respect of the same interest under the will or trust.
This rather surprising definition of “a person progressing in farming” means that the owner of a substantial estate with hundreds of hectares of agricultural land on a single title is a person progressing in farming but a person with two SLDTs of 4 hectares each that will continue for more than a year after the assignation date is not. Note also that the 5 year “look back” that applies to a new entrant does not apply to a person progressing in agriculture so it will be possible to restructure ownerships etc to qualify as a person progressing in farming.
There had been concern expressed by some Landlords with regard to the application of the relinquishment and assignation provisions to leases in favour of limited partnerships. If the general partner had the right to assign the tenancy to a new entrant or to a person who was progressing in farming the effect of the limited partnership could be bypassed with the result that the assignee would become a direct Tenant of the Landlord under a 1991 Act tenancy. The Land Reform (Scotland) Act 2016 provided for the Scottish Ministers being able to modify the relinquishment and assignation provisions so far as they relate to partnerships and the issue of limited partnership tenancies has been dealt with by only the relinquishment right being granted (and not the assignation right) where the Tenant is a relevant limited partnership. The general partner of a limited partnership tenant therefore has the power offer to relinquish the tenancy but should the Landlord decline to pay the general partner/limited partnership has no right to assign the Lease.
These provisions only apply to limited partnerships where the limited partner is the Landlord, an associate of the landlord or a partnership or company in which the Landlord has a relevant interest. It should be borne in mind that both the relinquishment and the assignation right apply to a lease in favour of a general partnership (not a limited partnership) regardless of the constitution of the partnership.
The introduction of the relinquishment and assignation provisions of the 2016 Act have been long awaited by many in the tenant farming community. Whether the right will prove to be the panacea that many have anticipated remains to be seen. Potential European Convention on Human Rights (which is still relevant notwithstanding Brexit) challenges and other difficulties that may have applied were the full relinquishment and assignation rights to have been given to limited partnership tenants have been avoided.
Landlords and Tenants continue to have the right to negotiate relinquishment outwith the statutory process, as many have in the past, and this still remains the most straightforward way of achieving the negotiated surrender of a lease.
This note is intended as a brief summary of the provisions of the Land Reform (Scotland) Act 2016 insofar as it relates to the relinquishment and assignation provisions. No responsibility can be taken for any action taken in reliance on this note and specialist advice should be taken in every case. Turcan Connell would be happy to provide such advice.