The Public Services Reform (Agricultural Holdings) (Scotland) Order 2011 has now been approved by the Scottish Parliament. The Order, which will come in to effect shortly, once it has been signed by the Cabinet Secretary for Rural Affairs, makes significant changes to the Agricultural Holdings (Scotland) Acts 1991 and 2003. These reforms arose from proposals made by the Tenant Farming Forum following a request by the Cabinet Secretary to identify practical solutions to a number of perceived problem areas in the 1991 and 2003 Acts which were restricting the amount of land coming on to the market for let.

While the Order creates clarity in some areas, new areas of obscurity are created as well.

Briefly the 2011 Order will result in the following amendments to each type of lease:-

Secure Agricultural Tenancies

• The rules of succession to 1991 Act Tenancies will change. It will no longer be possible for a Landlord to take back a farm where the farm is not a two man unit or the succeeding Tenant already occupies another two man unit.
• The two man unit rule is being replaced by the viable unit rule. The assessment is now not whether the unit or other farm occupied by the succeeding Tenant can provide employment for two people, but whether the unit can provide full-time employment for one person and the means to pay for the rent and for adequate maintenance of the holding.
• The procedure for annulling a Post Lease Agreement (PLA) is changing. From now on, written notice requires to be given 6 months before the date on which any variation of rent (whether under the lease or by the Land Court) will take effect stating that the PLA will be nullified on that date. It remains the case, however, that the fixed equipment must be in a reasonable state of repair or at least no worse repair than it was in at the date the PLA was signed before it will be annulled. The new provision will allow the new rent to be fixed on the basis that there will be no PLA, rather than fixing the rent for at least 3 years notwithstanding that the PLA has ceased to apply. Where a rent review is initiated by less than 6 months’ notice, notice of nullification must be given as soon as reasonably practicable.
• The Order makes it clear that written notice requires to be given of a reference to the Land Court to determine rent under section 13 of the 1991 Act.

Limited Duration Tenancies (LDT)

• The minimum period of let under an LDT beginning after the draft Order comes in to force will be reduced to 10 years.

Short Limited Duration Tenancies (SLDT)

• If a Tenant under a SLDT stays on a holding with the Landlord’s consent beyond the maximum 5 year period for a SLDT it will, as before, default into a LDT. However instead of the LDT being for 15 years beginning at the end of the 5 year SLDT it will be a 10 year LDT the commencement of which is backdated to the start of the original SLDT. This means that the land will be available to be taken back in hand 10 years from the date of the initial lease, rather than 20 years as now.

Fixed Equipment for LDTs and SLDTs

Section 16 of the 2003 Act on provision of fixed equipment by Landlords is substantially rewritten. New SLDT and LDT beginning after the Order come into force:-

• The Landlord and Tenant are required to agree a Schedule of Fixed Equipment listing the fixed equipment to be provided (see below) and its condition. That Schedule will form part of the lease. If the fixed equipment is varied during the lease there is no requirement to vary the Schedule (but we recommend this is done as a matter of course). It seems strange that the parties are not required to amend the schedule of fixed equipment is varied as the starting point for assessing the parties responsibilities for fixed equipment if it is varied, but the schedule is not, a fictitious situation will arise.
• The Landlord has 6 months from the commencement of the lease to provide the fixed equipment and to put it into the state specified in the Schedule of Fixed Equipment unless some other enactment (e.g. planning legislation) means that the 6 month time limit cannot be met. Delays for any other reason outwith the Landlord’s control, such as due to lack of materials, adverse weather or strike action are not accepted as legitimate reasons for failure to meet the 6 months time limit. This appears to mean that the obligation on the Landlord in relation to the provision of fixed equipment flies off after six months but it might have been better if the provision had stated that the tenant will not be able, at a later date, to demand fixed equipment beyond that specified in the schedule. Also, there is no statutory measure of the condition in which the Landlord is to provide the fixed equipment, which must, therefore, be a matter for agreement.
• The Fixed Equipment to be provided by the Landlord need be sufficient only to enable the Tenant to maintain efficient production as respects the use of the land specified in the lease. Thus it will be possible to create a bare land lease requiring minimal, or no, fixed equipment.
• During the lease the Landlord must effect renewal or replacement of any fixed equipment rendered necessary by natural decay or fair wear and tear.
• The Tenant is obliged to maintain the Fixed Equipment in as good a state of repair (natural decay and fair wear and tear excepted) as it was in immediately after it was put into the state of repair given in the Schedule of Fixed Equipment or if equipment is improved, renewed or replaced or additional equipment provided then to the condition as improved, repaired, replaced or provided.

Further information

For further information on the issues raised in this ezine, please contact John Mitchell, Jim Drysdale or Douglas Reid or your usual contact at Anderson Strathern LLP.

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.