Hamish Lean explains the compensation regime for improvements made during an agricultural tenancy.

The new rules introduced by the Land Reform (Scotland) Act 2016 which govern how an agricultural tenant can obtain compensation for improvements at the end of the tenancy which currently don’t qualify will come into force on June 13 this year.

Tenants will have a three-year window expiring on June 13 2020 – the amnesty period – to make use of them.

Some background first of all. Many tenants have carried out improvements, typically the construction of agricultural buildings, without giving the landlord a formal notice in advance of the work. This means that at the end of the tenancy the building will not qualify for compensation.

The new rules are an attempt to remedy this problem and have as their genesis a proposal made by Scottish Land & Estates.

The tenant initiates the procedure by serving an amnesty notice during the amnesty period on the landlord, giving details of the relevant improvements, the manner in which they were carried out and why the tenant thinks that it is fair and equitable for compensation to be payable.

A landlord can object to the amnesty notice within two months of receiving it. The landlord’s objection can only be on certain grounds: that it is not fair and equitable for compensation to be payable for the relevant improvement; that the landlord carried out the improvement in whole or in part; or that the landlord gave or allowed a benefit to the tenant in consideration of the tenant carrying out the improvement.

Where the landlord does object, the tenant then has two months to make an application to the Land Court for approval of the improvement.

The Land Court can grant approval unconditionally or on such terms as to reduction of compensation as appears to the court to be appropriate, or the court can withhold its approval. The court has to be satisfied that the landlord has benefited or would benefit from the improvement and that in all the circumstances it is just and equitable for compensation to be payable by the landlord.

If the landlord and tenant agree, rather than go to the Land Court they can have the matter referred to arbitration.

There are, however, some important restrictions on the amnesty procedure.

The Agricultural Holdings Acts provide that certain improvements have to have the landlord’s consent in advance before the improvement is carried out. Such improvements include the laying down of permanent pasture and the making of embankments and sluices against floods.

The amnesty procedure cannot be used to qualify for compensation improvements which the landlord didn’t consent to.

Likewise, where an improvement required notice but not consent (for example the construction of a new agricultural building) and notice was given which the landlord objected to, if the tenant carried on with the improvement without first of all obtaining Land Court consent, then the amnesty procedure cannot be used.

Likewise, if the tenant did obtain Land Court consent but carried out the improvement in a substantially different way to that consented to.

In these circumstances, the tenant who put up the building without giving a notice is actually better off than his neighbour who did serve a notice which was objected to but who carried on regardless without seeking Court approval.

The rules allow landlords and tenants to enter into amnesty agreements without following the procedures set out in the Act or in relation to improvements which do not qualify for the amnesty procedure. There is, however, no obligation on either the landlord or tenant to enter into such an amnesty agreement.

Tenants should remember that the amnesty is time limited. Use it or lose it.