Diversification and Agricultural Tenancies – proposals for change make environmental impact a factor to be considered

Opening their gates to the public for fruit picking or, more commonly at this time of year, pumpkin picking has become a popular choice of diversification activity for many farmers.

Diversification is the use of land and fixed equipment from an agricultural holding for non-agricultural purposes. The benefits include allowing farmers to top up their income e.g., by running a farm shop or a glamping site and carrying out activities which are not associated with traditional farming and help the environment, such as tree planting, habitat or peatland restoration or renewable energy projects.

But how do tenant farmers go about diversifying their leased farm?

Currently, the landlord’s consent must be obtained before an agricultural tenant can undertake any diversification activity. Any attempt to diversify land let under an agricultural lease without the consent of the landlord will be a breach of the lease terms.

Sections 39-42 of the Agricultural Holdings (Scotland) Act 2003 (the “2003 Act”) introduced the current process which tenants and landlords have to follow when a tenant requests diversification consent. A tenant under a secure 1991 Act tenancy or any of the fixed term 2003 Act tenancies (except for Short Limited Duration tenancies) has the right to make a request. Under the current process there are strict notice requirements and time limits which need to be adhered to by both tenants and landlords.

A tenant starts the process of by sending a “notice of diversification” to their landlord.

On receipt of a notice of diversification a landlord has the option to:

1. Consent or do nothing further;
2. Request further information;
3. Consent, but impose reasonable conditions; or
4. Object

Consent will be deemed to be given if the landlord does nothing further in relation to the notice or if the landlord fails to meet time limits for consenting with conditions or for objecting. The exception to this rule is where the proposed activity is the planting of trees. In this case, if the landlord does not actively consent, the tenant would need to apply to the Land Court for consent.

The landlord’s objection to the proposed diversification activity must be based on one or more of the grounds set out in the 2003 Act. Such as, the activity will substantially prejudice using the land for agricultural purposes in the future or it will result in the Landlord suffering undue hardship.

If a tenant doesn’t agree with a landlord’s objection or any condition imposed by a landlord then the Land Court can be asked to determine whether the objection or the condition is reasonable.

The Scottish Government wants to enable tenant farmers to contribute towards achieving its goal of making Scotland a “global leader in sustainable and regenerative agriculture”. It has been considering a variety of ways to modernise the agricultural tenancies legislation, including the rules on diversification. A new consultation paper, “Strategic Environment Assessment of Agricultural Tenancies, Small Landholdings and Land Use Tenancy Proposals: Consultation“, provides the most up-to-date detail on the government’s proposals which are likely to be included in a new Land Reform Bill and invites public feedback on them. The new consultation closes for responses on 7 December 2023.

The proposed changes to the diversification process seek to encourage tenants to carry out non-agricultural activities which will help to tackle the effects of climate change and biodiversity loss. They include:

• Requiring tenants to highlight the environmental benefits their diversification activity might have when submitting their request for landlord consent.
• Requiring landlords to consider such environmental benefits and to provide greater detail regarding their reasons for objecting to a tenant’s request.
• Allowing the strict timescales which drive the current request for consent process to be paused for 30 days by a tenant issuing a “suspension notice” – giving the parties a chance to agree on a modified diversification activity.
• When the Land Court is consulted on the reasonableness of a landlord’s objection, it will be permitted to factor in any environmental benefits of the diversification activity when reaching its decision.

While the new consultation provides more detail on the proposals, there are still questions regarding how they will work in practice. For instance, how much weight should landlords give to the environmental benefits of the diversification activity when deciding whether to grant their consent? It is hoped that these questions will be answered within the content of the new Land Reform Bill (which is expected to be published by the end of this year) and/or any follow-on guidance issued by the Tenant Farming Commissioner.

If you have any queries on agricultural tenancies, please contact Jennifer Thom or your regular Anderson Strathern contact.

You may also be interested in the following articles:

• The importance of having a farming partnership agreement
• Option for Lease Agreements – our top tips for landowners
• Wills for Crofters – our six top tips

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