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Agricultural Holdings Interim Report published

Agricultural Holdings Interim Report published

The Agricultural Holdings Review Group Interim Report shows its direction of travel after 6 months.
The Review was established by the Cabinet Secretary for Rural Affairs and the Environment in 2012, following an announcement by him in June 2013 that the question of Absolute Right to Buy for 1991 Act secure agricultural tenants was back on the table. This followed the work of the Rent Review Working Group which had reported on the working of section 13 of the Agricultural Holdings (Scotland) Act 1991 after the "Moonzie" judgement which clearly set out the procedures for carrying out rent reviews under the existing legislation. That Group did not recommend far reaching changes to the principles behind section 13, but there has been continuing pressure from sectors of the industry to change the basis on which rents are reviewed, particularly to reflect the productive capacity of the holding.

The Review Group, chaired by the Cabinet Secretary, has spent the first 6 months touring the country and taking evidence from stakeholders, landowners and tenants and members of the public. It is to be commended on the transparent and open nature of its work to date.

The Group's Interim Report was published on 20 June 2014 and can be accessed at:

The Executive Summary as set out on the Scottish Government website states:

"The Scottish Government's vision is for a Scottish tenant farming sector that is dynamic, getting the best from the land and people farming it and provides opportunities for new entrants, forming part of a sustainable future for Scottish farming.

The Interim Report details the Review Group's work to date, including their research and wide-ranging discussions with stakeholders across Scotland. The Interim Report goes on to identify those issues that are currently a barrier to a vibrant tenanted sector in Scotland and to detail the work the Review Group will undertake over the next 6 months to develop recommendations to help overcome those barriers.

A number of research reports have been commissioned to support the Review Group's work, some will also be published shortly and others are still on-going."

The Interim Report clearly sets out the revised objectives of the Group, summarises concerns of key stakeholders, and asks some questions about the best way forward for the sector. It is also clear that the Group is looking for a balanced consultation process which will help inform recommendations for legislative and policy change in its full report which is expected in December 2014. The Group has clearly recognised that there are many good and successful relationships between landlord and tenant within the industry and it has not, as yet, concluded that the system is broken.

One of the difficulties for the Group will be reaching fully considered conclusions on a complex and varied subject within such constrained time scales.

The stated aims of the Review Group are to:

Provide opportunities for more flexible farming arrangements to enable farming businesses to develop and move through the tenant farming sector
Provide the ability for tenant farmers and their landlords to develop their business relationships to optimise benefits and agree a fair and reasonable rent
Modernise tenant farming legislation so that it is flexible enough to meet the changing needs of the agricultural industry and economy
Identify appropriate interventions and actions including broader policy which can overcome barriers, weakness or omissions in the current tenant farming sector
In setting out these aims, the Group stated that "The task will not be without its challenges. There are no silver bullets. However, clear logical action, co-operation and patience will allow us to achieve our aims over the long-term. The Group's job is to help put solid foundation stones in place to begin our work." (page 7-Summary)
Many concerns are shared across the industry; these include shortage of let farmland, suppressed investment by both landowners and tenant farmers, and ongoing, protracted landlord and tenant disputes particularly in relation to rent review and lease obligations which may result in lengthy and expensive cases in the Land Court and, potentially, in the appeal courts.

The report acknowledges that many of the problems stem from uncertainty. One clear example is the threat of the Absolute Right to Buy (ARTB) which has undermined confidence to let land for long periods. The language in the Report makes it pretty clear that we can expect the final recommendations to "represent a coherent, if radical, package of policy proposals that "hang together" and bring stability to the sector for an extended period of time." (para 33). The Report clearly identifies certain priorities and has posed a number of questions which it must address in order to reach a conclusion. It appears that there is a perceived need to "fix" the 1991 Act to ensure that there is

a safe and effective framework for secure 1991 Act tenancies. Issues to be considered include Rent and Reviews; Investment; Improvements and Compensation; Retirement of tenants and allowing "churn" of tenancies; Succession; Assignation; Right to Buy; Fulfilling landlord and tenant obligations.
a new and flexible framework to stimulate diverse other future arrangements to allow the industry to flourish and release land for New Entrants
a supportive, wider, crosscutting context which will include reviewing taxation and CAP issues
The Review Group has clearly stated that it will continue to welcome comments from stakeholders and other interested parties leading up to its final report in December 2014.

It is impossible to predict what form the final recommendations will take and the position is complicated by the Report from the Land Reform Review Group which looks at issues which affect agricultural tenancies such as Right to Buy, Capital and Land Value Taxation and Succession. That having been said, we might perhaps expect a clear signal that there should be significant legislative change in the short term. Changes might include:

Changes to the procedures for pre-emptive right to buy
Some form of wider right to buy
A review of the Small Landholders legislation
Rights to assign
Rights of succession
Changes to rent reviews of 1991 Act tenancies
Codes of Practice
Encouragement of investment in holdings
Clarity and improvement in the legislation around improvements and compensation.
What is clear is that neither landowners nor tenants can be certain what the future holds. In making decisions as to the use of land which is not required for in-hand farming, landowners must bear in mind that there will be changes within the short to medium term to the legislation surrounding existing and future tenancies. There may also be changes to taxation which may affect strategic planning decisions. Until the way forward is clear, it is likely that the industry will continue to see short term letting vehicles (Short Limited Duration Tenancies or Grazing Leases) or contract farming as the safest choice.

Contact a member of the Land & Rural Business Team for more information.

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