Relinquishment and Assignation in Agricultural Tenancies

Relinquishment and Assignation (R and A) was introduced by the Land Reform (Scotland) Act 2016 (the Act). Now effective, this means that secure agricultural tenants who want to leave farming or retire have the option to offer to relinquish their tenancy to their landlord in exchange for a compensatory payment made by the landlord in accordance with the procedures laid down in the Act.

R and A was introduced to give tenants financial security for the future. The compensatory payment is based on half the difference between the vacant possession value of the holding and the tenanted value of the holding. In addition account is taken of any compensation payable to the tenant for improvements and compensation payable to the landlord in respect of dilapidations. The Tenant Farming Commissioner has a role in this process in that he has to appoint the Valuer to calculate the amount payable by the landlord.

If the landlord declines the tenant’s offer, to relinquish the tenancy, the tenant can assign his secure tenancy on the open market to a person who qualifies as a “new entrant” or a “person progressing in farming”. The price in the situation where the landlord does not want to buy back the relinquished tenancy will be a matter of negotiation between parties and the incoming tenant will then take on the tenancy under the existing terms of the tenancy and at the same rent. The enabling Regulations under the Act set out the procedure to be adopted when relinquishing or assigning a tenancy.

Parties eligible to take on the tenancy – New Entrants

The Regulations set out in the Act exclude anyone from being a “new entrant” if they hold any one of the interests below (or have held any one of the interests below within the preceding 5 years):

• A secure tenancy, a limited duration tenancy, a modern limited duration tenancy or a short limited duration tenancy of three years or more;
• A small landholding of more than three hectares;
• A croft of more than three hectares; or
• Ownership of more than three hectares of agricultural land in aggregate.

In addition a person cannot be a “new entrant” if they have control of a legal entity which holds any one of the interests above.

Person Progressing in Farming

The Regulations exclude anyone from being a “person progressing in farming” if they hold two or more of the interests below:

• A tenancy of more than three hectares of land under a secure tenancy, a limited duration tenancy, a modern limited duration tenancy or a short limited duration tenancy which is not due to expire in less than 1 year from the proposed assignation date;
• A small landholding of more than three hectares;
• A croft of more than three hectares; or
• Ownership of more than three hectares of agricultural land on a single title.

A person will be considered to hold an interest if they have control of a legal entity which holds an interest such as a Company or Partnership.

It follows that a person currently farming as an owner occupier, crofter, small landholder or tenant under any kind of agricultural lease can qualify as a “person progressing in farming”. They can retain their existing interest and take  on a secure tenancy under the new provisions. However, they will not qualify if they hold more than two or more of the aforementioned interests.

The Act allows a landlord to withhold consent to a proposed assignation on the grounds that the proposed assignee does not meet either of those definitions. The landlord can also object on reasonable grounds such as e.g. the inability of the potential assignee to pay the rent and/ or maintain the land effectively.

For detailed information please contact Linsey Barclay-Smith, Partner, Rural Land and Business Team.

Legal disclaimer