Legislating Scottish land reform requires balancing act

By resolving historical inequities while promoting modern, sustainable practices, Part 2 of the current Land Reform (Scotland) Bill 2024 has potential to improve Scotland's tenanted sector.

The second part of the bill includes further reforms to agricultural tenure, with proposals that aim to resolve several pressing issues in tenancy law by seeking to balance the needs of tenants and landlords while supporting broader national goals for sustainability and climate resilience.

However, as is often the case with complex legislative reform, some provisions are generating significant debate among the agricultural community. Providing stability and continuity for tenants is desirable for their long-term relationship with landlords, for instance, but difficult to achieve.

The legislation also needs to be looked at in the context of a continuing decline in the amount of land available to rent, demand exceeding supply, and the difficulty that new farmers have in accessing land.

The Scottish government is committed to a thriving tenanted sector, but this depends on landlords who still consider it worthwhile to offer tenancies. It's important therefore that any proposed legislation takes account of the implications for existing tenants as well as the potential effect on future tenancies.

In Scotland, the agricultural lease is the primary framework for renting land, though it can also be let for other uses under a commercial lease. To support diversification, therefore, the bill introduces a land-use tenancy that aims to offer an additional option where agricultural use constitutes less than 50% of the area to be leased.

The bill also proposes that model clauses be developed to help define the terms of such leases, though it is uncertain whether such clauses would be mandatory or merely advisory.

A key issue that has emerged in discussions with representatives from various industry bodies and the Scottish government is whether this type of lease will fall within the scope of agricultural holdings legislation or if landlords and tenants will have the flexibility to opt out, where model clauses permit.

Based on these discussions, I believe the intention is for the lease to fall outside the legislation. In my capacity as tenant farming commissioner at Scottish Land Commission, I have therefore suggested that the Scottish government confirm this and clarify whether the model clauses will be mandatory or advisory.

The bill also proposes updating the rules of good husbandry, as set out in schedule 6 of the Agriculture (Scotland) Act 1948, alongside modifications to diversification regulations and compensation for tenants where they have improved the land. These changes aim to remove barriers for tenants pursuing climate action and working towards net zero, and ensure fair treatment when compensation claims arise. For tenants seeking to farm sustainably, these reforms could be pivotal.

The issue arose following a request from tenant farmers to review payments for secure tenants who had been served with incontestable notices to quit, often where landlords had obtained development consent for the entire holding.

Compensation – typically about five times the annual rent – was deemed insufficient for tenants who would lose their home, business and ability to pass on the tenancy. This was seen as failing to account for the significant uplift in land value that landlords benefit from, often due to planning consent for development, infrastructure projects, or changes in land use that increase market demand. Surprisingly, though, the bill does not mention compensation for notices to quit, focusing only on resumption.

The proposed legislation aims to enhance compensation where landlords lawfully resume control of part or all of a leased area. While the circumstances under which resumption is permitted remain unchanged, meaning that tenants can still use fraud on the lease as a defence if it were determined that the scale of the resumption was such that it affected the viability of the holding and was contrary to the good faith of the original agreement made between landlord and tenant, the bill broadly recognises that current compensation arrangements inadequately account for the effect of resumption on tenants' businesses.

The bill introduces compensation for tenants' interest in the resumed land's value. Tenants would receive half the difference between the open-market value of the resumed land and its value with a tenant in place, excluding succession for tenancies under the Agricultural Holdings (Scotland) Act 1991 and reflecting remaining lease terms for limited duration tenancies. This mirrors the valuation method for relinquishment and assignation of 1991 Act tenancies, potentially leading to significantly higher compensation.

It is also unclear whether the valuation methodology is mandatory or parties could instead negotiate agreements, which might allow a more proportionate approach for small, low-value resumed areas, with fall-back mechanisms for unresolved cases.

Finally, the bill misses an opportunity to clarify section 17 of the Land Reform (Scotland) Act 2003. This leaves uncertain whether contractual resumption is permissible under 2003 Act leases – an ambiguity that should be resolved.

This is a fair and reasonable approach, given that many tenants face challenges from intensified rearing and shooting of game birds and increasing deer incursions, which cause both damage and nuisance.

However, it is complex. Under the Deer (Scotland) Act 1996, tenants have the legal authority to manage deer on certain types of land. Specifically, they can cull, sell, or otherwise dispose of deer on arable land, improved permanent pasture (excluding moorland), and regenerated land that significantly contributes to the holding's productivity – provided they have reasonable grounds to believe the deer will damage crops, pasture, or foodstuffs for humans or animals.

Tenants cannot cull deer on land where there is no evidence of meaningful attempts to improve it. Additionally, as tenants' rights under the Deer (Scotland) Act 1996 allow them to manage deer on arable and pasture land, compensation claims are generally precluded. Further complicating the matter, the deer often originate from land beyond the control of either the tenant or the landlord. From my experience, such issues are typically best dealt with by involving the deer officer from NatureScot rather than attempting to resolve them through agricultural holdings legislation.

The valuation of compensation for game damage remains a particularly thorny issue. Assessing game damage to crops often seems more like an art than a science, and it may be best left to an independent valuer to determine a fair figure acceptable to both parties through whatever means they find most appropriate.

Relying solely on comparable rents has long been problematic due to the lack of open-market rents for 1991 Act tenancies, and difficulties in obtaining consent to disclose details of those comparables that are available. This limits transparency and makes it difficult to verify adjustments.

Adding productive capacity as a consideration provides a useful check against comparables, but disagreements over what should be included are likely. While guidance on assessing productive capacity will be necessary, a narrow definition could be too rigid and fail to account for the diversity of farms and tenancies.

A restrictive definition could overlook these differences, making the rent review process more complicated and potentially leading to disputes rather than providing clarity. Many stakeholders believe a more flexible approach is needed to ensure assessments remain fair and reflect individual circumstances. Including open-market rent for land and buildings that are used for non-agricultural purposes ensures the impact of diversification is accounted for.

It is important for landlords and tenants to agree on these financial implications upfront, such as how rental income from diversified activities such as holiday lets, renewable energy projects, or a farm shop, will be factored into the overall rent calculation, but it remains unclear whether such agreements could be overridden by the new provisions in cases before the Land Court.

I regret that ministers are not empowered to review rent dispute resolution processes through secondary legislation. While the Land Court has been beneficial, a simpler, more cost-effective arbitration system without appeal to it would be preferable, although not universally supported.

Finally, the introduction of a new timetable for waygo negotiations is another welcome development. Waygo refers to the compensation a tenant, or landlord, dependent on the case, is entitled to at the end of a lease. This proposal aims to provide certainty to tenants who are leaving a holding by ensuring that financial settlements are finalised promptly at the end of a lease. By setting clear deadlines, the bill seeks to minimise disputes and promote smoother transitions for departing tenants.

As the bill advances through the parliamentary process, the Tenant Farming Advisory Forum continues to engage with the Scottish government to refine its provisions. Key areas such as resumption compensation and diversification rules require consensus to ensure the final legislation fulfils the needs of all parties.

The bill's success will hinge on collaboration, clarity and a shared commitment to the future of rural Scotland. The road ahead may be complex, but with constructive engagement, the final bill can offer meaningful reform for tenants, landlords and the wider rural community.