Hamish Lean

These are the long-awaited rules applying to a secure agricultural tenant’s right to relinquish their interest in the tenancy in return for compensation.

A secure tenant will have the right to serve a notice on the landlord giving the landlord an option to acquire the tenancy subject to payment of compensation and if the landlord does not wish to exercise that option the tenant will be able to sell the tenancy, as a secure tenancy, to a new entrant or a progressing farmer.

Many secure agricultural tenants have delayed decisions about retirement until these new provisions were introduced and as a result, we are likely to see a number of such notices being served next year.

The procedure involves the tenant serving a formal notice with prescribed information about the tenancy on the landlord offering to relinquish the tenancy.

At the same time, the tenant must send a copy of the notice to the Tenant Farming Commissioner, who must then appoint a valuer to calculate the amount to be payable by the landlord to the tenant as compensation for the tenant quitting the tenancy.

The valuer assesses the value of the land if sold with vacant possession and if sold with the tenant still in occupation. They also calculate the compensation that the tenant would be entitled to be paid for tenant’s improvements.

The valuer disregards any right the tenant might have to transfer the tenancy after death or during life, and the value of the farm due to any added value because of the tenant’s improvements.

The compensation figure that the landlord must pay to the tenant is one half of the difference between the open market value and the sitting tenant value plus the value of compensation for the improvements.

If the landlord does not wish to pay that amount then the tenancy becomes available for sale by the tenant on the open market to a new entrant or a progressing farmer.

The regulations define a new entrant as an individual who does not hold or have a controlling interest in an existing agricultural tenancy.

A small land holder, crofter or owner of more than three hectares of agricultural land is also disqualified from being a new entrant.

A progressing farmer is an individual who does not hold two or more agricultural tenancies and is not a small landholder, crofter or owner of more than three hectares of land.

The regulations do not provide any valuation formula in respect of the amount a new entrant or progressing farmer might have to pay to the tenant selling the tenancy and this will be determined by the open market.

The regulations also make provision for limited partnership tenancies.

General partners in such tenancies will also be able to serve a relinquishment notice on their landlord.

However, if the landlord chooses not to exercise the relinquishment opportunity the general partner is not given a right to sell the tenancy to a new entrant or progressing farmer. Accordingly, the regulations don’t give any real opportunity to relinquish for general partners because landlords are unlikely to pay for a general partner to give up the tenancy in circumstances where they are guaranteed to recover vacant possession in any event.

Hamish Lean is a partner at Shepherd and Wedderburn. This article first appeared in The Scotsman.