On 28 February 2021, the rules about the relinquishment and assignation of tenancies in Scotland came into effect. Section 110 of the Land Reform (Scotland) Act 2016 inserted Part 3A into the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) to provide a new relinquishment and assignation process for 1991 Act tenants. The tenant can serve notice on the landlord to relinquish the tenancy in exchange for compensation or, if the landlord does not buy the tenant out, can then assign the tenancy to a new entrant or a person progressing in farming for the tenancy’s market value.
Key Aspects: -
- The full process is only available to 1991 Act tenants, often called “Secure Agricultural Tenants”.
- The new process is in addition to the tenant’s rights to assign the tenancy during the tenant’s lifetime. The tenant and landlord should seek a negotiated solution before the Relinquishment and Assignation process is invoked.
- The tenant serves a notice in prescribed form on the landlord and sends a copy to the Tenant Farming Commissioner. The Commissioner appoints a valuer who calculates the compensation which the landlord would pay if the tenant quits the tenancy (in effect, one half of the difference between open market value and value with the secure tenancy in place) and the value to be paid for the tenant’s improvements. Strict time limits apply once the valuer has issued his assessment. The time limits are very important if either landlord or tenant wishes to challenge it, withdraw from the whole process or proceed with the transaction.
- If the landlord does not buy the tenancy, then the tenant may assign the tenancy to a new entrant or a person progressing in farming.
- A new entrant must not within the preceding 5 years have held or have a controlling interest in an existing agricultural tenancy nor be a smallholder, crofter or owner of more than 3 hectares of agricultural land in aggregate.
- A person progressing in farming is an individual who does not hold two or more relevant interests. An existing relevant interest for them is an agricultural tenancy of more than 3 hectares of land (but disregard any lease which has less than 12 months to its expiry), a smallholder or crofter of more than 3 hectares of agricultural land or the owner of more than 3 hectares of agricultural land on a single title.
- Although there are limits on the relevant interests that a person progressing in farming can hold, there is no minimum requirement on them. Someone who might be new to farming but ineligible as a new entrant (perhaps owning more than 3 hectares of agricultural land in total) could immediately consider themselves a person progressing in farming. A person progressing in farming does not even have to be a farmer at this stage in the process, so a landlord should not assume that ‘progressing in farming’ means ‘experienced’.
- The person progressing in farming must not, by virtue of the assignation, become the holder of more than 2 relevant interests. An existing 1991 Act tenant or landowner could qualify but it is essential that their business structure is checked first. They might own or lease land themselves, through a partnership or a limited company which they control. There is no backdating of tests for a person progressing in farming so they could reorganise their affairs before offering to take an assignation of the tenancy.
- The existing tenant and the proposed assignee agree the open market price for the assignation of the tenancy.
- The landlord may withhold consent to the proposed assignation if the proposed assignee is not an individual who is a new entrant to farming or who is progressing in farming on the one hand or there are reasonable grounds for doing so on the other. Reasonable grounds include inability of the potential assignee to pay the rent, maintain the land or of insufficient skills and experience. As with the existing rules on assignation, where the proposed assignee is a new entrant has insufficient experience, the tenancy may be assigned to them if they engage in a course of relevant agricultural training. This is the stage when the landlord can object on the grounds of insufficient skills and experience to a person who up to now has qualified as ‘progressing in farming’.
- The general partners in limited partnership tenancies can serve a notice of relinquishment on their landlord however, if the landlord does not agree to the amount of compensation assessed by the valuer and then purchase the landowner’s interest, the general partner has no right to assign.
What Should You Do Next?
To discuss any aspect of agricultural tenancies, please contact any of the following members of our Land and Rural Business team.