The Scottish Government recently announced that the provisions of the Land Reform (Scotland) Act 2016 relating to the relinquishment of secure agricultural tenancies will finally come into force on 28th February this year.
What is relinquishment and which leases does it apply to?
The relinquishment rules apply only to secure agricultural tenancies. These are either:
– Leases entered into prior to 27 November 2003 or
– Leases entered into in writing on or after 27 November 2003 and commencing after that date that specifically state that the provisions of the Agricultural Holdings (Scotland) Act 1991 are to apply.
The relinquishment rules in the 2016 Act will allow tenants under these secure tenancies to offer to relinquish, or give up, their tenancy to the landlord, in exchange for a compensation payment. If the landlord does not agree, the tenant will be free to sell their secure tenancy for value on the open market to a new entrant or progressing farmer.
What benefits will it bring to tenant farmers and landowners?
At present, many secure tenants are reluctant to retire or to leave their holding because they are only entitled to limited statutory compensation if the lease is terminated, which is often not enough for them to retire on or to set up a new farming enterprise somewhere else. The aim of the legislation is to allow secure tenant farmers to move on with the benefit of an increased financial payment that more fairly reflects the value to the landlord of regaining vacant possession of their land. Landowners in return may benefit from the opportunity to have their land back in hand much sooner than they might have otherwise.
What is the relinquishment process?
The tenant must serve a Notice on the landlord confirming that they want to relinquish their tenancy. A copy of the Notice must also be sent to the Tenant Farming Commissioner (TFC). The TFC then appoints a valuer to calculate the compensation that will be payable by the landlord if the relinquishment goes ahead. The tenant must may the valuer’s costs.
The legislation sets out certain circumstances where the tenant will not be entitled to serve a Notice of Intention to Relinquish on the landlord, such as where a Notice to Quit has already been served by either the landlord or the tenant.
Once the valuation has been completed, the tenant has a period of 35 days to withdraw their Notice if they decide not to proceed with the relinquishment. Either party may also appeal to the Lands Tribunal if they are unhappy with the valuation. If the tenant does not withdraw their Notice, the landlord then has a further period of 28 days to serve a Notice of Acceptance on the tenant. Again, a copy must be sent to the TFC. The landlord must then pay the agreed sum to the tenant within 6 months and the tenancy will formally come to an end at the expiry of that 6 month period, or earlier if both parties agree.
How will the tenancy be valued?
The matters that must be taken into account in calculating the compensation payment are set out in detail in the 2016 Act. Essentially, the valuer must value the land with vacant possession (that is, as if the tenancy did not exist) and must also value the land with the secure tenancy in place. The amount that would be payable to the tenant at the end of the lease for tenant’s improvements must also be calculated. Certain matters must also be disregarded, such as whether or not there is anyone to whom the tenant might be entitled to assign the lease or leave it to in their will.
The payment to be made by the landlord will be one half of the difference between the vacant possession value of the land and the value with the tenancy in place, plus the compensation for tenant’s improvements.
What happens if the landlord does not agree?
If the landlord does not agree to pay the determined sum to the tenant then the relinquishment cannot go ahead. In that case, the landlord serves a Notice of Declinature on the tenant and again must copy that Notice to the TFC. The tenant will then have a period of 12 months to assign (sell) their tenancy on the open market to a new entrant, or a person who is progressing in farming. The price that would be payable by the new tenant to the outgoing tenant would be a matter for negotiation between the parties.
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