The Clock is Ticking on the Amnesty on Tenant’s Improvements!
Calling all agricultural tenants! The tenant’s amnesty period, which gives you an opportunity to agree now with your landlord which of the improvements that you have carried out to your farm are eligible to receive compensation at the end of your tenancy, is due to come to a close on 12 June 2020. The Scottish Government’s advice is that the exercise can take roughly six months to complete, so time is running out if you want to take advantage of this one-off opportunity.
The amnesty period of three years was introduced by Chapter 8 of the Land Reform (Scotland) Act 2016 with effect from 13 June 2017 in recognition of the fact that often records of improvements carried out by tenants are unclear/ lacking, resulting in difficulties and disputes at waygo (i.e. the end of the tenancy – howsoever this occurs). Compensation is payable by the landlord to the tenant in acknowledgement of the value which has been added to the farm by the outgoing tenant that the landlord/ their incoming tenant can benefit from.
Chapter 8 of the 2016 Act sets out in detail the legal process. In summary:-
- The provisions apply to tenants with secure tenancies, limited-duration tenancies, short limited-duration tenancies and modern limited duration tenancies;
- The amnesty only applies to improvements which were eligible to receive compensation in accordance with the agricultural holdings legislation in place at the time these were carried out;
- The improvements must have been completed prior to the beginning of the amnesty period (i.e. prior to 13 June 2017); and
- There are two different routes set down in the legislation:-
- The landlord and the tenant can enter into an “amnesty agreement” which sets out the improvements that will qualify for compensation at the end of the tenancy; or
- The tenant can serve an “amnesty notice” on the landlord which specifies the improvements and the tenant’s reasons why it is fair and equitable for compensation to be paid to them at the end of the tenancy in respect of these improvements. If the landlord does not agree with the tenant’s notice, they have two months to object to this by serving a rejection notice on the tenant. On receiving the landlord’s rejection notice, the tenant has a further two months to refer the matter to the Land Court for determination.
The Tenant Farming Commissioner’s Recommended Process
Notwithstanding the above statutory provisions, the Tenant Farming Commissioner, Bob McIntosh, has issued a Code of Practice and Supplementary Guidance which sets out his recommended process. That is, ideally, the parties should reach agreement rather than going down the “amnesty notice” route described above. Essentially, the following is described as the ideal process:-
- The tenant provides the landlord with a list of improvements which they consider to be eligible, along with further evidence which will substantiate their claim. For example, the Scottish Government website suggests that such evidence could include builders’, drainage contractors’ and equipment suppliers’ (e.g. slurry store) invoices, as well as, photographs taken before or after the improvement (e.g. sheds, slurry stores, fencing).
- The landlord and the tenant (or their agents/ valuers) then meet on the farm to discuss the above.
- Once a final list of improvements has been agreed, the landlord and tenant enter into an amnesty agreement. A model form of amnesty agreement has been prepared for this purpose by the Central Association of Agricultural Valuers and the Scottish Agricultural Arbiters & Valuers Association.
The form of amnesty agreement and the Code of Practice and Supplementary Guidance can be found on the Scottish Land Commission’s website.
It should be noted that the Code of Practice is not legislation. However, if a landlord or a tenant feels that there has been a breach of the Code, they are entitled to apply to the Tenant Farming Commissioner to enquire into the alleged breach. The Tenant Farming Commissioner will then investigate and publish a decision as to whether the Code has been breached. His decision will include recommendations for actions required to remedy the breach. A copy of the application form can be found here. https://landcommission.gov.scot/tenant-farming/inquiry/
Advantages of taking part
There are a number of reasons why tenants (and indeed landlords) should consider taking this opportunity before June next year. Some of the benefits are as follows:-
- Agreeing a list of tenant’s improvements will prevent lengthy discussions whenever the tenancy is relinquished (i.e. whether expiry is expected or not);
- The agreed list will also be beneficial during the rent review process as rent is calculated on the basis of the land and fixed equipment provided by the landlord; and
- It is also an opportunity for tenants in some circumstances to claim for certain improvements for which the correct landlord notification procedure was not followed at the time. Please note that improvements which the landlord objected to, do not qualify.
It would be prudent for tenants to take advantage of the amnesty period before it is too late. It goes without saying that if certainty can be achieved now, avoiding disputes and delay further down the line, this is also in the interest of landlords.
Davidson Chalmers Stewart has considerable experience in all aspects of Rural Business. Please get in touch with Louise Jones if you require advice on any aspect of the above.