The Land Reform Bill requires a major rethink
This article appeared originally in The Press and Journal on Saturday 18 January 2025 with some minor edits. The original article as supplied is reproduced below.
It is almost a decade since the Scottish Government unveiled an interim report of a group it had set up to review agricultural holdings legislation.
In publishing the report at the Royal Highland Show, then Cabinet Secretary for Rural Affairs and the Environment, Richard Lochhead, said that “a vibrant tenant farming sector is the foundation of a sustainable future for Scottish agriculture”. The Scottish Government later said it wanted legislation that would enable tenants to retire with dignity whilst encouraging new entrants to get a foothold in the sector. That interim report was one of the steps towards the subsequent Land Reform Act of 2016.
Now, fast forward 10 years from that interim report, the sector now finds itself in the midst of another land reform bill process, with extensive provisions that will affect tenanted farms contained in part two of the proposed legislation.
Given its inclination to move the legislative goalposts for the sector on a fairly regular basis – and frequently introduce retrospective changes that substantially alter tenancies already in place - the question is whether the government’s lawmaking has helped or hindered that vision of a vibrant tenanted sector become reality? We would argue the latter.
Yet, it would seem with its new Bill, the Scottish Government has learned little from its past mistakes.
Without a system that provides a fair balance of rights to both tenants and landlords, the sector will not function as well as it can. Successive governments have been keen to concede more and more rights to tenants but this tips the balance away from the optimum situation where tenancies are available to give access to land for farmers at a reasonable rent - without the need for capital investment - and landowners are content to have a fair return from their land which is less risky than farming it themselves.
In the new Land Reform Bill, one of the major stumbling blocks is the approach for calculating compensation owed to tenants when a landlord wants to partially resume land from a lease. The proposal introduces an additional payment for the tenant, calculated based on the land's capital value. In very simple terms, this involves taking half the difference between the open market value of the land and the value with a tenant in place. However, this proposal has not been subject to full public consultation.
Whilst a relatively technical issue, it is another example of legislation being put in place which makes long-term letting of land less attractive.
At present, compensation for tenants on resumption is usually negotiated but there is a statutory protection providing for a multiple of rent, plus payments to cover other costs, to ensure the tenant is not left out of pocket for the reorganisation and disturbance of their business as a result of a portion of ground being taken out of the lease.
Partial resumption is not taking the whole farm back, only a small proportion. Landlords tend only to resume a chunk of land from tenants if they it for another purpose, such as access to a renewables development, woodland creation, or a substation needed as a result of a development. By making a payment to a tenant which represents a percentage of the capital value of the land, it is not compensation – it is a windfall capital payment which tips the balance between tenant and landlord interests.
When drafting legislation, the Scottish Government is required to try to achieve its policy objective in a proportionate way, and if there is a less detrimental way to achieve the same policy objective, then that’s what the government should do. By failing to even properly consult upon alternatives, I struggle to see how the government can claim they have fully considered this matter and have made competent law.
As an organisation, we would call on the government to park these provisions and launch a consultation into what fair compensation for partial resumption should look like. There is no reason why this could not run concurrently with the Bill’s parliamentary process and if necessary, changes introduced at Stage 2 or Stage 3 as the Bill moves towards becoming law.
What the government is doing at present is damaging the confidence to let land in future. There is evidence that in England and Wales the reletting of land is at approximately 95% but in Scotland it is down to 60%. This must be a direct result of the legislative regime in Scotland, given that both systems work under the same taxation laws.
The Net Zero Committee of the Scottish Parliament will soon publish its report on the general principles of the Bill and the Rural Affairs secretary Mairi Gougeon then has an opportunity to rethink these proposals. We would urge her to grasp this opportunity and in doing so, kickstart some real positive change for agricultural land tenure in Scotland.
The change to inheritance tax from Westminster has been a real blow for family farms and the Scottish Government now has the ideal chance to offer some glimmer of hope which could help reverse decline in this sector.
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