Types of Agricultural Tenancy in Scotland and their Key Features
The lease of agricultural land in Scotland is complex and regulated by a number of different statutes which have been amended on various occasions. It is commonly the case that the statutory provisions are imposed on all affected tenancies irrespective of whether the written tenancy agreement agreed between the parties is either silent in this respect or attempts to contradict the statutory provisions. Essentially, in the majority of cases, the statute takes precedence and cannot be contracted out of.
Therefore, specialist advice should always be sought by both landlord and tenant when putting in place a tenancy, by purchasers buying land affected by a tenancy or by developers dealing in any way with land which is tenanted. Davidson Chalmers Stewart has considerable experience in all aspects of Rural Business. Please get in touch with Andy Drane or Louise Jones if you require any assistance.
However, as a general overview, we have set out below the different types of agricultural tenancy which exist in Scotland and some of their key features as imposed by statute:
“Traditional” agricultural tenancy under the Agricultural Holdings (Scotland) Act 1991 (“1991 Act”) i.e. a secure tenancy
- Tenancies created before 2003 or after 2003 if the tenancy expressly provides that it is regulated by the 1991 Act.
- Duration – no statutory restriction.
- Conversion – can be converted to a MLDT (discussed further below) for a term of not less than 25 years if the parties agree.
- Use – tenants can now use the holding for other purposes (e.g. forestry or tourism) even if the tenancy prohibits this, provided that a notice of diversification is served on the landlord at least 70 days before the change in use is due to commence.
- Assignation – the tenant is permitted to assign (i.e. transfer) their interest in the tenancy to only those narrow class of individuals narrated in the 1991 Act (essentially relations) provided that the landlord is notified in accordance with the statutory procedure and consents to the assignation. However, the landlord can only withhold consent to an assignation to a “near relative” of the tenant on restricted grounds (e.g. the near relative is not of good character or they do not have sufficient resources/ training/ experience to farm the land with “reasonable efficiency”).
- Subletting – only permitted if the tenancy between the parties allows for this. The sub-tenant has certain statutory rights if a notice to quit is served by the landlord.
- Succession – tenancies can be bequeathed in the tenant’s Will or where there is no Will, inherited by the tenant’s successors, provided that the statutory process is followed.
- Fixed Equipment – a record of the condition of the fixed equipment requires to be made when the tenancy is entered into. The landlord requires at the start of the tenancy/ as soon as possible thereafter to put the fixed equipment into a “thorough” state of repair and provide such buildings/ other fixed equipment as required by the tenant to maintain efficient production. The landlord requires to replace/ renew such buildings/ fixed equipment as necessary by natural decay or by fair wear and tear. The tenant must maintain the fixed equipment in as good a state of repair (natural decay and fair wear and tear excepted) as provided/ repaired by the landlord.
- Termination – tenancy will not terminate at the end date specified unless the landlord has served a notice to quit or the tenant has given a notice of intention to quit. Otherwise, the tenancy will continue on a year to year basis until terminated. The 1991 Act sets out the notice to quit process.
- Compensation payable by landlord to tenant at termination – yes. Complex statutory procedure. Compensation can be payable for improvements, disturbance, reorganisation of affairs, vacant possession.
- Right to buy – the tenant has a right to buy the land if the landlord decides to sell, provided that the tenant has registered their interest in buying the land.
THE LIMITED DURATION TENANCIES:
Short Limited Duration Tenancy (“SLDT”)
- Introduced by virtue of the Agricultural Holdings (Scotland) Act 2003 (“2003 Act”).
- Duration – can endure for no longer than five years.
- Conversion – if the landlord permits the tenant to remain on the land for more than five years, the tenancy will be automatically converted to a MLDT (discussed further below).
- Use – land requires to be used for agricultural purposes. No diversification permitted.
- Assignation – not permitted.
- Subletting – not permitted.
- Succession – tenancy can be bequeathed in a Will to any of those relatives set out in the 2003 Act (as amended). If there is no Will, there is a statutory process largely similar to the 1991 Act process.
- Fixed equipment – when the tenancy is entered into, the parties must agree a written schedule of fixed equipment specifying what fixed equipment will be provided by the landlord and the condition of this. The landlord then must provide such fixed equipment within six months of the commencement of the tenancy. The fixed equipment provided must enable the tenant to maintain efficient production. The landlord requires to renew/replace the fixed equipment as may be necessary due to natural decay and 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) per the condition in the schedule/ as renewed/replaced by the landlord.
- Termination – where the tenancy has a duration of less than five years and the tenant remains in occupation upon its expiry with the consent of the landlord, the tenancy continues to have effect as if it were for a term of five years or of such period of less than five years as the parties may agree upon. See above in terms of “conversion” if the landlord permits the tenant to remain on the land for more than five years.
- Compensation payable by landlord to tenant at termination – yes. Complex statutory procedure. Compensation can be payable for improvements.
- Right to buy – no.
Limited Duration Tenancy (“LDT”)
- No new LDTs permitted. Existing LDTs are unaffected. Any new agricultural lettings with durations longer than 10 years or where an SLDT continues beyond five years, will give rise to a MLDT (and not a LDT).
- Duration – minimum term of 10 years.
- Conversion – existing LDTs can be converted to a MLDT if the parties agree.
- Use – diversification permitted provided that the notice of diversification process is followed, per 1991 Act tenancies.
- Assignation – the tenant can assign the tenancy provided that the statutory notice procedure to the landlord is complied with. The landlord can still withhold consent provided that they have reasonable grounds for doing so. Unlike a 1991 Act tenancy, there is no restriction on the range of persons to whom the tenancy may be assigned. The landlord can only withhold consent to an assignation to a “near relative” of the tenant on restricted grounds (e.g. the near relative is not of good character or they do not have sufficient resources/ training/ experience to farm the land with “reasonable efficiency”).
- Subletting – only permitted if the tenancy between the parties allows for this.
- Succession – as above for SLDTs.
- Fixed Equipment – as above for SLDTs.
- Termination – two-staged termination process. If not terminated at expiry of the contractual term, the tenancy will continue for a further period of three years and if still not terminated, it will continue for an additional three years and then 10 years.
- Compensation payable by landlord to tenant at termination – yes. As above for SLDTs.
- Right to buy – no.
Modern Limited Duration Tenancy (“MLDT”)
- Came into effect on 30 November 2017 by virtue of the Land Reform (Scotland) Act 2016 (“2016 Act”).
- Duration – minimum term of 10 years.
- Has many of the same features as a LDT. Notable differences as follows:-
- Break – where the tenant is a “new entrant” for the purposes of the 2016 Act, the tenancy can contain a mutually agreed break clause.
- Fixed Equipment – although the landlord must still provide fixed equipment to the tenant, the landlord can contract out of the obligation to renew or replace fixed equipment.
- Termination – if not terminated before the contractual end date by either party serving a notice to quit, it will continue for another seven years on a continuous cycle.
- Right to buy – no.
- Introduced under the 2016 Act.
- Statutory provisions not entirely in force.
- Duration – minimum term of 35 years.
- Has many of the same features as a MLDT. Notable differences as follows:-
- The tenant requires during the “repairing period” (five years or longer if agreed between the parties/ determined by the Land Court) to improve the land into a state capable of being farmed.
- Break – the tenancy may contain a break clause, but a break clause is valid only during and at the expiry of the “repairing period”.
- Subletting – not permitted without the landlord’s consent during the “repairing period”. Thereafter, subletting can be permitted if expressly provided for in the tenancy.
Grazing or mowing lease (seasonal let)
- Use – let for grazing or mowing only and for a specific period of the year.
- Duration/ Conversion – cannot be for more than 364 days. Failure to ensure that the land is vacated by the tenant at the end of the grazing period means that it automatically becomes an SLDT of five years or any shorter period agreed between the parties.