The Land Reform (Scotland) Bill ("the Bill") was introduced on 22nd June 2015 and includes significant proposed changes in the law relating to agricultural tenancies. The Bill, in part, adopts the recommendations of the Agricultural Holdings Legislation Review Group ("the Review Group") which published its final report on 27th January 2015. The Bill is not yet law and will now be subject to the parliamentary process and is therefore subject to potential future change.

The Bill deals with agricultural tenancies as follows:

Tenant Farming Commissioner

There is to be a new office of Tenant Farming Commissioner ("TFC"). The TFC is intended to:

  1. - Prepare codes of practice.
  2. - Inquire into alleged breaches of codes of practice.
  3. - Refer question of law to the Land Court.
  4. - Collaborate with the Land Commissioners (also created by the Bill) in the exercise of their functions insofar as relating to agricultural matters.

Codes of practice are to be prepared by the TFC to provide practical guidance to landlords and tenants of agricultural holdings. The TFC is to promote observance of the codes of practice by educating, advising and working in collaboration with other parties. Nothing is said in the Bill as to how such projects will be funded.

The Bill also provides that the TFC has an"inquiry function" in respect of alleged breaches of codes of practice raised by a potentially affected party (the applicant). The TFC are to make inquiry and to charge a fee, which can be waived if the applicant can demonstrate"undue hardship"."Undue hardship" is not defined.

The TFC has power to impose a"non-compliance penalty" of up to £1,000 for failure to provide information to the TFC for the purpose of an inquiry; failure to provide additional information where the original application in the TFC's opinion provides insufficient information; or failure to provide a response to an application intimated to an interested party by the TFC. Strangely, there is no power to impose penalties or other sanctions if, on conclusion of an inquiry, the TFC finds a party in breach of the codes of practice.

The TFC is required to produce a report on his inquiry and it may be admissible as evidence in the Land Court or other judicial proceedings but will otherwise be confidential. It remains to be seen whether the TFC's very limited powers will be of assistance to landlords and tenants in an industry heavily regulated by statute and where disputes are often legal in nature as a result.

New Modern Limited Duration Tenancies

A new form of Limited Duration Tenancy ("LDT"), to be known as"modern LDTs", is to be created for future agricultural lets of 10 years' duration or longer.

Modern LDTs do not appear to be radically different from current LDTs and the statutory minimum term (10 years) remains unaltered. The landlord will require to give a double notice to terminate a modern LDT as required to terminate an existing LDT. It is disappointing that the Review Group's recommendation to simplify notices to terminate LDTs has not been adopted and the different requirement for landlord and tenant might be taken by some landlords as a disincentive to let, particularly as the Bill provides that modern LDTs will continue on cycles of 10 years where not properly terminated on notice.

It will be possible to grant a modern LDT to a new entrant with a (qualified) break at year five."New entrant" is not defined in the Bill but a definition may be provided outwith the Bill process by the Scottish Ministers. This could cause confusion and delay in the meantime. Only the new entrant tenant is truly able to break the modern LDT at year five on a commercial basis. The landlord's right to do so is so heavily qualified as to be of extremely limited value.

The Bill does not repeal the confusing and potentially punitive terms of the 2003 Act concerning conversions from one form of agricultural let to another. It does helpfully clarify that when a five year Short Limited Duration Tenancy ("SLDT") converts to a 10 year LDT as a result of the continued occupation of the tenant and consent of the landlord, the 10 year term commences from the start date of the SLDT.

The Bill is silent on the creation of full repairing and maintaining LDTs of longer duration as recommended by the Review Group.

The Bill is also entirely silent on grazing lets and SLDTs (the Review Group suggested the abolition of SLDTs) and presumably the 2003 Act is to remain unaltered in these respects.

The requirement to provide a Schedule of Fixed Equipment and to provide and maintain fixed equipment is restated in the Bill with regard to modern LDTs, in a similar manner to the existing law of fixed equipment in relation to existing LDTs.

Grounds of irritancy for modern LDTs are broadly similar to existing LDTs, except that the landlord is required to give the tenant a pre-irritancy warning notice.

1991 Act Tenant's Right to Buy

As recommended by the Review Group the Bill does not introduce an absolute right to buy and the 1991 Act tenant's right to buy remains pre-emptive.

The Bill removes the tenant's requirement to register a right to buy in order to be able to exercise this right on the relevant circumstances arising (e.g. on the landowner taking steps with a view to a sale). A tenant is to have a pre-emptive right to buy simply by virtue of being a 1991 Act Tenant. The fact that the landlord (or even the tenant) may not be aware that there is a 1991 Act tenancy or that the extent of the land comprised in that 1991 Act tenancy is not agreed is not considered. This provision will make it very difficult for landowners to take action with a view to the transfer of land they own without first establishing the nature and extent of any tenancy that may possibly affect the land, matters that can only be resolved by expensive legal processes.

Right to Buy for Tenants Where Landlord in Persistent Breach

In circumstances where: (a) the Land Court issues an Order finding the landlord in material breach of his obligations under a 1991 Act tenancy; and (b) the tenant considers that the landlord has failed"in a material regard" (not defined in the Bill) to comply with the terms of such an Order, the tenant can apply to the Land Court for an"order for sale", defined as a right to buy the land comprised in the lease.

The Land Court may make an order for sale if satisfied that the landlord is in breach"in a material regard", that the failure substantially and adversely affects the tenant's ability to fulfil his responsibilities to farm, that greater hardship would be caused by not making the order than by making it and that in all the circumstances it is appropriate. There are anti avoidance procedures to prevent landlords deliberately entering into arrangements with a view to avoiding being able to sell the land to the tenant (e.g. by having already gifted the land to a spouse).

This provision is potentially helpful in the event of persistent and serious wrongdoing by a landlord affecting a 1991 Act tenant, but is potentially a very time consuming and expensive remedy for the tenant to utilise, with opportunities at various stages in the procedure for the landlord to correct the position and avoid an order for sale.

Rent Review

The Bill sets out a new detailed framework for the review of rent under 1991 Act tenancies. It also expands on the statutory alternative for rent review under LDTs and modern LDTs where there is no rent valid review provision in the lease.

91 Act tenancies

In respect of 1991 Act tenancies the Bill changes the particulars which must be included in a rent review notice. The requirement to give at least 12 months' written notice remains, but rather than being served against the ish it must be given at least 12 months but no more than two years' before Whitsunday or Martinmas. This could be helpful under unwritten tenancies when it can be difficult to ascertain the ish.

The"triennium" remains (i.e. the rent cannot be reviewed less than three years from the commencement of the tenancy, or the date of the last review or determination that the rent should remain unaltered).

The Bill proposes that rent review notices cannot be unilaterally withdrawn and can only be withdrawn with the consent of the recipient. It is difficult to see what advantage this confers on either party.

The Bill provides that either party (i.e. not just the party who gave notice) may apply to the Land Court to determine the rent within 14 days of the date stipulated in the notice. The Land Court is directed under the proposed new legislation to consider the"fair rent" for the holding having regard in particular (presumably not exclusively) to the productive capacity of the holding; the open market rent of any surplus residential accommodation provided by the landlord; the open market rent of any fixed equipment provided by the landlord; and any land forming part of the holding not used for agriculture.

"Productive capacity" is not defined in the Bill. As it is such a critical part of the rent review provision it would be preferable if the definition was included in the Bill.

It is unhelpful to have the new test partly defined by statute and partly undefined and with ambiguous reference to the Court"having regard in particular" to certain aspects, without clarifying what else they might have regard to, or indeed if the Court can have regard to any other factors brought before it which the Court at its discretion considers reasonable. It is difficult to see this provision making the rent review process any less cumbersome than it is at present.

Rent Review in LDTs and Modern LDTs

In terms of the existing legislation, in the event that there is no rent review provision in the lease, or the lease makes provision for an upward only rent review or landlord initiated rent review, the contractual rent review provision is disregarded and a statutory alternative applies.

The Bill expands upon the terms of the statutory alternative, in the event that it is required. This is potentially helpful for such circumstances as the existing statutory default is so cumbersome as to be almost unusable. Its provisions are much the same as those for 1991 Act tenancies. Prudent landlords will ensure they have a workable and enforceable rent review provision in their written LDTs/modern LDTs and try to guard against the creation of unwritten leases.

Assignation and Succession Rights for Tenants

The Bill proposes a strengthening of the rights of 1991 Act tenants, existing tenants under LDTs and future tenants under modern LDTs in respect of both lifetime assignation and succession to agricultural leases following the death of the tenant. The Bill considerably widens the category of potential acquirer/assignee under all three forms of tenancy and narrows the grounds of objection which may be raised by the landlord to a"near relative successor" in each case.

Assignation

proposes that the 1991 Act tenant has a choice of assignee (i.e. without following any particular order) within a much broader class of potential assignee, as remote as the descendant of a stepbrother or stepsister of the assignor. This will be helpful for 1991 Act tenants and increases their options for the future of their tenancy.

The Bill provides that the landlord has only three very limited grounds of objection to a proposed assignee who is a"near relative": (1) that the successor is"not of good character"; (2) that the successor has insufficient resources to farm with reasonable efficiency; and/or (3) that the successor has insufficient training or experience (which does not apply where the proposed assignee can demonstrate he will be undertaking training)."Not of good character" is not defined in the Bill. It is important to note that the class of"near relative" although considerably widened compared with the existing legislation, is not as wide as the class of proposed assignees.

With regard to existing LDTs, the Bill does not adjust the current statutory right of a landlord to"step in" as assignee provided he can demonstrate that he can offer terms no less favourable than those proposed by the assignee. This provision will not apply to modern LDTs.

Succession

The categories of those to whom a tenant under an 1991 Act Tenancy, LDT, or modern LDT can bequeath his tenancy is expanded in the same way as the list of proposed assignees (e.g. as far as a descendant of a stepbrother or stepsister). Again the definition of"near relative" successor is expanded, but not as far as the categories of proposed legatees.

The grounds on which a landlord can object to a"near relative" successor are narrowed to the same three grounds of objection as for a"near relative" assignee.

Importantly, it is proposed that the current statutory provision, which enables landlords in certain restricted circumstances to serve notice to quit on a successor, is repealed.

Conversion of 1991 Act Tenancies into Modern Limited Duration Tenancies

The Review Group had recommended that tenants without a successor should be entitled to convert 1991 Act tenancies to 35 year LDTs and assign them for value. The Bill provides a very unsatisfactory half way house by allowing the conversion of 1991 Act tenancies into modern LDTs on terms to be determined by regulations to be made by the Scottish Ministers.

Qualified Amnesty for Tenant's Improvements

As anticipated, the Bill provides a window of time (two years from the date the new legislation comes into force) during which tenants may give an"amnesty notice" to their landlord. If the notice is accepted, past would-be improvements may be taken into account as part of the tenant's waygoing claim in circumstances where the notice requirements under the relevant legislation have not been complied with.

The amnesty applies to tenants under 1991 Act leases, SLDTs, LDTs and modern LDTs.

Tenants are not permitted to give an"amnesty notice" for past improvements in respect of which the landlord refused consent or objected to the notice, where the tenant carried out the improvement in a manner different to the manner consented to, or in respect of which the Land Court gave consent.

The Bill does not widen the class of what might constitute a tenant's improvement. This will be disappointing for many tenants, particularly when the Review Group recommended a widening of the statutory list.

An"amnesty notice" must be given in writing and contain certain information relating to the holding etc. The landlord may object within two months but only on restricted grounds namely: (a) that it is not fair and equitable for compensation to be paid at waygo; (b) that the landlord carried out the improvement in whole or in part; or (c) that the landlord gave or allowed a benefit to the tenant for carrying out the improvement. Presumably notices will also be objectionable if incompetent (e.g. if the category of improvement is not already covered in the Act)."Fair and equitable" is not defined in the Bill which is unhelpful. There is a right of recourse to the Land Court by the tenant where the landlord gives notice of objection which is likely to be utilised where such a broad and unspecific ground of objection exists in the legislation.

New Requirements for Landlords' Improvements

Landlords will be required to give notice to tenants of proposed improvements setting out certain key information. The tenant has a right of objection within two months of receipt of a landlord improvement notice. The landlord may apply to the Land Court for approval of the improvement which the Land Court may grant or reject, with or without conditions. Before approving an improvement the Land Court must be satisfied that the proposed improvement is necessary to enable the tenant to fulfil his/her responsibilities to farm in accordance with the rules of good husbandry.

A similar process exists for landlord improvement notices in respect of SLDTs, LDTs and modern LDTs.

The process does not apply where an improvement needs to be carried out in an emergency, e.g. to protect the public from hazards which constitute a danger to human health.

Where a landlord erects an improvement without going through the new statutory process, and the improvement is not an emergency improvement, it is disregarded for the purpose of assessing the tenant's responsibilities in respect of farming in accordance with good husbandry and in any subsequent rent review.

Conclusions

In his Ministerial foreword to the Review Group's Final Report, Richard Lochhead made it clear that there was a political desire to reform the tenanted sector in Scotland and to make more agricultural land available for letting and said:"We need to ensure we address the issues facing existing tenants and, at the same time, ensure a supply of tenanted land that supports new entrants and new investment into agriculture".

The Bill, as introduced, misses the opportunity to meet these policy objectives in so far as they relate to the supply of tenanted land and contains nothing that would encourage a would-be landlord to let. This can only be expected to lead to further reductions in the acreage available for let, which is a great pity. It remains to be seen how the Bill will develop as it makes its way through the parliamentary process.