Tenants’ Amnesty – Last Opportunity Beckons

The clock is ticking on the tenants’ improvements amnesty in his latest blog, Tenant Farming Commissioner Bob McIntosh highlights the importance of starting the process now. Bob - portrait NEW

Time is fast running out for those who wish to make use of the amnesty on tenants’ improvements by registering as eligible for compensation at waygo, improvements which may have been carried out without the correct procedures having been followed. Given that the amnesty period expires next June, and that it can take up to nine months to agree a claim, tenants who have not yet begun the process are urged to do so as soon as possible. This is a one-off opportunity to claim eligible improvements where the tenant may not have followed the correct procedure, such as notifying the landlord. The background to the amnesty and the procedures to be followed are set out in the Tenant Farming Commissioner’s Code of Practice.

As well as enabling tenants to maximise their waygo entitlements, agreeing a list of tenants’ improvements now will mean that you are well prepared for the introduction next year of the new rent system. Like the previous system, it is built on the basis that a landlord can only charge rent on fixed equipment provided by him/her so establishing the split of ownership of fixed equipment will be a necessary first step in the new rent system.

The Code of Practice emphasises the importance of a site meeting. Once tenant and landlord have assembled, and shared, information pertaining to the origin and eligibility of claimed improvements, experience has shown that a site meeting is the best way to see and discuss any disputed items and to reach agreement without the need for endless back and forward correspondence. Improvements which were implemented at shared cost can be difficult to resolve if poor records exist as to the relative contributions of landlord and tenant and sensible, pragmatic solutions such as agreeing on a 50:50 split are to be encouraged. It is desirable that all disputed items are resolved but it remains an option, as a last resort, to record the item as a tenant’s improvement but defer the issue of apportionment of ‘ownership’ until waygo takes place.

If you haven’t started the process, please do so as soon as possible or you may lose the valuable opportunity this amnesty provides.

For more information click here.

New land matching service to help new entrants into farming

In this blog, Tenant Farming Commissioner Bob McIntosh looks at the newly-introduced Land Matching Service. 

There are matchmakers for love and for business so why not for land and farming?

But how best to bring together those with land who no longer want to farm with those who want to farm but have no land?Bob - portrait NEW

For a long time, the problem has seemed intractable, though the need is clearly there.

New secure tenancies are few and far between because they are seen as low return and high risk by landowners. Meanwhile, fixed duration tenancies have encouraged landowners to let land, but generally on a relatively short-term basis, without the security of tenure which many tenants seek.

There is increased interest in exploring how other joint ventures such as contract farming, share farming and business partnerships can provide opportunities in all sectors of the industry. These joint venture opportunities also apply to people who are thinking about retirement and succession planning.

What seems clear is that we need to provide opportunities to bring landowners, farmers and new entrants together, with a central point of contact for initial guidance and impartial advice.

The Scottish Land Commission has been working alongside National Farmers Union Scotland (NFUS), Scottish Land & Estates and the Scottish Association of Young Farmers Clubs as part of the Scottish Government’s Farming Opportunities for New Entrants (FONE) group to create a new, dedicated land-matching service.

NFUS will host the service, as an expansion of their current Joint Venture Hub. The FONE group will provide guidance and the service will be supported by funding from the Scottish Land Commission.

The service will provide farmers and new entrants with a one stop shop for advice and guidance and to help initiate discussions between potential new entrants, land owners and farmers. The aim is to bring potential ‘matches’ together, working with them to select an agreement which best suits their needs. It will also appeal to landowners looking to set up a joint business venture with a new entrant.

This is a potentially very helpful initiative which the Land Commission is pleased to have supported and which will enable those seeking a tenancy to be linked up with those thinking of offering a tenancy. It will be important that the service is proactive, as well as reactive, by actively working with landlords and those wishing to farm to encourage and assist them in developing ways of working together to create opportunities that will benefit both parties and by publicising good examples as they occur.

Conventional tenancies is one route to bringing the parties together but a variety of other models such as joint ventures and business partnerships provide other opportunities which are worth exploring. While the focus may often be on identifying new opportunities for new entrants, there is potential to benefit existing secure tenants wishing to retire and who have no eligible successors. Agreements which enable them to bring another person into the business can be a good way of allowing the existing tenant to exit the business gradually and pass it on to the next generation.

The Commission is delighted to be involved in this new service helping to unlock land, increase productivity of farming, introduce new people to the industry and promote innovation, proving a win-win for farmers looking to retire or scale down and those looking to set up in farming.

Keep an eye on the Scottish Land Commission’s website to find out more.

TFC blog: Succession Planning

Succession planning is important in any business and no less so for farming businesses, especially where a tenant wishes to pass on the tenancy to another person, normally someone in the tenant’s extended family. Bob - portrait NEW

Careful thought needs to be given to when and how to make the transfer.

And tenants must follow the correct procedures as failure to do so may, in some cases, lead to the tenancy being terminated.

I have published a guide that outlines the ways in which an agricultural tenancy can be passed on to another person. It includes information on whether and how a tenancy might be assigned during a tenant’s lifetime; bequeathing a tenancy and transfer of a tenancy when someone fails to leave a Will.

The guide summarises some of the legal basics, but I strongly recommend that you should always obtain independent legal advice that’s relevant to your particular circumstances,  and seek advice in good time as some parts of the process have to be completed within a certain time.

Here are some of the basic rules for assignation and succession:

A tenant can only transfer a tenancy to another individual. Tenancies cannot be transferred to a company, firm or club, or to two or more people, unless the landlord agrees.

You can’t normally pass the tenancy to just anybody, unless you have agreement with the landlord. Preferential consideration is usually given to ‘near relatives’ of the tenant (a full list of these potential transferees is in the appendix of the Guide).

There are three main ways to pass on a tenancy: as a lifetime assignation; as a testate transfer when someone dies, they may be entitled to bequeath their tenancy in their Will, and an intestate transfer (where someone dies without making a Will) where the tenant’s executors may still be able to transfer the tenancy to another person.

In each of these situations the landlord has certain rights to object; these are described briefly in our new guide.

Which route is chosen will depend on individual circumstances but, generally speaking, making an  assignation to a ‘near relative’ during the tenant’s lifetime is likely to be the most straightforward.

It is important for tenants to have a plan in place for assignation or succession to ensure that when the time comes, they can make way for the next generation.

TFC Blog: Less than one year left under amnesty for agricultural tenants

Tenant farmers across Scotland have less than a year left to consider if they have improvements to notify their landlord about, under the waygo amnesty. Bob - portrait NEW

The amnesty, introduced by the Land Reform Act (Scotland) 2016 runs until June 2020 and

  • allows tenants to rectify any outstanding issues around past improvements that should qualify for waygo, despite missing notices or consents
  • does not apply where the landlord objected to the original improvement notice or the improvement is significantly different from the original notice
  • may be essential when it comes to rent reviews and relinquishment of 1991 Act tenancies

The definition of an improvement is broad and includes any buildings including houses and cottages. It also includes improvements to land such as ditches, drainage, removal of stones; field boundaries and access improvements

With only one year remaining of the amnesty, I urge all tenants to decide promptly whether to use it – or not.

It can take a bit of time to pull together all the evidence you may need to submit through an amnesty notice, so it’s best not to leave it too late.

The amnesty is a one-off opportunity for tenants to ensure that past improvements are eligible for compensation at waygo. In a nutshell, tenants must

  1. submit a list of claimed improvements which are within the scope of the eligibility rules
  2. meet with your landlord on the farm to review the list
  3. assemble as much evidence as you can to resolve any disputed items
  4. record your agreement to the final list

A leaflet that explains the process with useful case studies can be found on our website at www.landcommission.gov.scot/tenant-farming where you’ll also find the Code of Practice,  guidance and templates.

TFC blog: Regulations on private water – queries tackled

Private water regulations now apply to a far wider range of properties than previously: all farms with residential property subject to agricultural tenancies and all directly let residential properties, are now covered.Bob - portrait NEW

Introduced in 2017, the Regulations set out the duty of local authorities to protect public health and to take samples of water from both tenanted and tied properties.
Consequently, local authorities are contacting many more agricultural landlords and tenants, who have been asking us to help them.

I thought it would be helpful to cover some of the questions we’re being asked most often, to help clarify things.

Firstly, the new regulations apply only to the old ‘Type A supplies’, which are now referred to as ‘Regulated Supplies’ and do not impact on exempt supplies, known as ‘Type B supplies’ in earlier legislation.

Exempt supplies are those which supply less than 10m3 of water per day (2200 gallons) or serve fewer than 50 people.

It’s difficult to imagine many farms using 2200 gallons of water a day, when the average domestic consumption is about 80 gallons a day.

So for most simple cases where the water supply serves a single farm and perhaps a couple of cottages, the only action required as a result of the new Regulation is to make sure that anyone using an exempt supply, is informed about this and also about how they can protect their health from any potential contamination of the supply.

However, if the water is supplied to any premise used for a commercial or public activity, such as holiday lets, the exemption does not apply and a Relevant Person must be identified.

In most agricultural situations there will be more than one Relevant Person and the guidance recommends they get together to agree on what action might be needed and how any costs should be shared. If the parties cannot agree on who the Relevant Person is, the Local Authority will decide.
The following examples might help to illustrate:

• A landowner on whose land the water source is situated, supplies water to two let and two owner-occupied cottages. The landowner is the Relevant Person for the let cottages, but the owners of the other cottages are also Relevant Persons.

• A tenanted farm has a private supply, the source of which is located on land within the tenancy but the supply infrastructure is part of the fixed equipment supplied by the landlord. Both the landlord and tenant are Relevant Persons. The tenant bears the primary responsibility for maintaining the quality of the water because they control the land around the water source.

• A tenanted farm has a private supply, the source of which is located on land owned by the landlord. Both landlord and tenant would be designated as Relevant Persons but as the landlord controls the land around the water source the primary responsibility for maintaining the quality of the water might rest with the landlord.

While there will be complex cases, the principle is that anyone who owns, controls or manages any part of the water supply infrastructure or the land from which the water comes, is likely to be a Relevant Person so a shared responsibility is to be the norm.
The Scotland’s Drinking Water Quality Regulator guidance is useful to read.

TFC blog: Discussions and Advice Vital for Diversification

Tenant Farming Commissioner, Bob McIntosh, gives an update on the latest his latest Guide to Tree Planting on Tenanted Agricultural Holdings. Bob - portrait NEW

With the current economic uncertainty surrounding agriculture, and increased pressure on business margins, more farm operations are looking to diversify into a range of different non-agricultural activities for future security.

This, along with a focus by Scottish Government on increasing woodland in Scotland, is causing more farmers and landowners to consider the pros and cons of woodland creation.

This new Guide outlines the rights of both tenants and landlords to plant trees and provides information on applying for permission to plant.

Importantly, a tenant of a secure tenancy or a limited duration tenancy wishing to use the land for a non-agricultural purpose such as tree planting can now do so provided they obtain written consent for diversification activity.

Before 2003 a tenant had no right to plant trees on the holding or, if they did, had no right to harvest them.

The guide also provides information about ‘waygo’ compensation.

This determines whether a tenant or landowner might be entitled to compensation depending on whether the planting has increased or decreased value of the land.

A tenant is entitled to compensation when the value of the trees is more than the loss of rent to the landlord in retaining the trees until their likely date of cropping plus the cost to the landlord of returning the land to agricultural use.

If the assessed value of the trees is less than this, the landlord will be entitled to compensation from the tenant to the value of the difference.

The trees should be valued on the basis of their worth to a willing purchaser for future cropping.

This is an important and potentially decisive issues affecting a tenant’s willingness to plant trees.

If a tenant were to quit the holdings when the trees are still pre-harvesting age, and given that the cost of returning the land to agriculture could be significant, the tenant may find that they have to pay compensation to the landlord so it is important that all aspects and implications are carefully considered at the outset.

As with most forms of diversification, a tenant needs to ensure correct procedures are followed and that any necessary consents are obtained.

Since tree planting is a long-term business that will affect the land use and associated costs and incomes well into the future, tenants are advised to discuss their plans at an early stage with their landlord so that discussions can take place around the best way to achieve the most favourable outcome for both parties.

Similarly, landlords who would like to see more woodland on their land have the opportunity to discuss a variety of business arrangements with the tenant in order to achieve this.

 

TFC blog: Guide Designed to Help Farmers and Landlords

Tenant Farming Commissioner, Bob McIntosh, writes about his work to improve relations with tenants and landlords.Bob - portrait NEW

I’ve recently published a new code of practice, designed to avoid the sort of issues that sometimes hit the headlines when tenant farmers and landlords have different aims and aspirations.

The new code of practice for agreeing and managing agricultural leases is designed to ensure there are robust procedures in place to avoid misunderstandings when a lease is being entered into, disagreements when changes are made during the term of the lease and disappointment when a fixed duration lease is ended.

The code sets out some simple principles that both tenants and landlords can follow.

This includes taking the time to fully understand the lease. An agricultural lease comes with responsibilities and liabilities.

Both parties, but particularly tenants, ought to take time to question and understand the terms of any lease they are signing and seek professional advice if they’re unsure.

Another principle in the new code is to record agreements in writing.

In any tenancy, agreements may be reached which alter the rights and responsibilities of both parties.

It could be a relatively simple matter such as the tenant notifying the landlord of an intention to construct a new shed. Whatever the issue, it is important that neither party relies solely on verbal or unwritten agreements.

Memories are short and personalities change, so to avoid future disagreements and misunderstanding both parties should ensure that agreements that impact on the rights and obligations of either party, are properly recorded in writing with both parties retaining a copy of the record. The new code also suggests holding regular reviews.

I recommend that tenants and landlords periodically review progress to check their initial understanding about the duration of the tenancy and the impact of any subsequent changes.

If either party changes their plans, I recommend that they tell the other party promptly.

Another principle in the code is discussing the end of the lease – in good time.

With tenancies of fixed duration, it’s best if discussions about the aspirations and intentions of both parties at the end of the lease start in good time, to minimise uncertainty and allow both parties to prepare for a change in circumstances.

The full code of practice can be found here.

This is the sixth code of practice I have issued as Tenant Farming Commissioner to help shape positive relationships between landlords and tenants.

 

MLDT’s

Bob - portrait NEWA Guide to the Essential Features of MLDT written by Bob McIntosh

At the end of November 2017, the Scottish Government enacted the legislation which introduces the Modern Limited Duration Tenancy (MLDT). Since it is unlikely that any new 1991 Act tenancies will be created in future, the MLDT will now be the main vehicle for letting agricultural land for a period of 10 years or more. It replaces the Limited Duration Tenancy (LDT) but the Short Limited Duration Tenancy (SLDT) is still available for lets of up to 5 years in duration. There is currently no vehicle for letting land for a period of between 6 and 9 years.

The MLDT retains many of the features found in 91 Act Tenancies and the LDT but there are some important differences. Greater freedom of contract means that landlords and tenants can agree at the start of the lease how they will deal with such issues as rent variation, maintenance and renewal of the fixed equipment provided by the landlord and the grounds on which the lease can be irritated. Special provisions apply to new entrants (Scottish Government has produced a regulation which defines who may be classed as a new entrant) allowing the lease to be terminated by either party after 5 years.

Termination of the lease by the landlord has to be by a two-stage process which will effectively give the tenant at least 2 years notice of the landlord’s intention not to renew the lease. If the lease is not validly terminated at the end of the contractual period it will automatically continue for a further 7 years.

In common with other forms of lease, the categories of people who can acquire a MLDT by assignation or succession is greatly expanded to include a much wider range of relatives and descendants. Potential assignees or legatees are divided into two classes (‘’near relatives’’ and ‘’others’’) with the landlord’s ability to object different for each class.

The MLDT is an attempt to find a better balance between the desires of a tenant for security of tenure and the desires of a landlord more greater flexibility and it is hoped that it will act as an encouragement to landowners to let land.