With the drive for development, land diversification and natural capital projects moving apace, the right to resume land from agricultural tenancies is becoming ever more important to many landowners and developers alike.
The ability of a landlord to resume land from their agricultural tenant (ie. to recover possession of leased land) is circumstantial, but it depends predominantly on the type of agricultural tenancy and the precise terms of the lease. The landlord would need to look to the provisions of either:
- Agricultural Holdings (Scotland) Act 2003 – in the case of Short Limited Duration Tenancies, Limited Duration Tenancies, and Modern Limited Duration Tenancies, or
- Agricultural Holdings (Scotland) Act 1991 – in the case of secure tenancies (commonly referred to as “1991 Act tenancies”) and Limited Partnership Tenancies.
Agricultural Holdings (Scotland) Act 1991 (“1991 Act”)
It’s well known that the 1991 Act offers tenants the most secure form of tenancy, with landlords being required to serve statutory notices to quit strictly in accordance with the legislation if they wish to recover possession of the holding. The absence of a statutory right of resumption in the 1991 Act can make it very difficult for a landlord to unilaterally terminate the tenancy or recover possession of the holding.
Instead, the landlord may look to rely upon an exception to the statutory termination provisions which permits the landlord to resume land for non-agricultural purposes by service of “a notice given in pursuance of a stipulation in a lease”. That is to say, it’s possible for a landlord to resume land from a 1991 Act tenancy for non-agricultural purposes, provided that it’s already a condition of the lease.
If the right to resume is not already a condition of the lease (e.g. it’s a separate contract between the parties) then it will not be enforceable if either party fails to act upon their obligations at the agreed time.
Agricultural Holdings (Scotland) Act 2003 (“2003 Act”)
The 2003 Act introduced a statutory right of resumption which landlords can rely upon to resume land from any of the 2003 Act tenancies, provided that:
- the resumption is for a non-agricultural purpose for which planning permission is required and has been obtained;
- the lease does not expressly prohibit resumption for the intended purpose; and
- the landlord serves written notice of the resumption on the tenant not less than one year prior to the date of resumption.
For many landowners and developers this provides a good solution, but most will not want to wait a year or more for the land to be resumed – in that case the incorporation into the lease of a contractual right of resumption with a shorter notice period is usually the solution.
What does this mean for development and diversification?
If the lease doesn’t contain a right of resumption (or the right is insufficient), the landlord will need to agree a lease variation with their tenant to incorporate an enforceable right of resumption.
In most cases, even if the lease does contain a suitable right of resumption (whether under the 1991 Act or the 2003 Act), unless the proposed development or diversification was envisaged when the lease was granted, the rights reserved to the landlord are not sufficient for them to carry out the necessary environmental impact assessments and other site investigations which a landowner or developer would need to undertake to assess the viability of the land for their proposed development or diversification project.
Therefore, landowners will typically need to enter into a lease variation with their agricultural tenant to secure the necessary rights for any future development or diversification project – including the right to resume the necessary land at the relevant time.
Looking ahead – Land Reform (Scotland) Bill 2024 (“2024 Bill”)
The latest land reform bill was published on 13 March 2024, and proposes what could be significant changes to the right of resumption, if enacted as drafted.
The proposed changes include:
- the introduction of a one-year minimum notice period for resumption;
- an obligation to send a copy of the resumption notice to the Tenant Farming Commissioner (“TFC”), and
- a mechanism for land to be returned to the tenancy if it’s returned to agricultural use.
The 2024 Bill also makes proposals for the TFC to appoint an independent valuer to determine the compensation due to a tenant (at the landlord’s cost), and for the tenant under a 1991 Act tenancy to claim compensation for any associated losses or expenses.
If enacted, these changes could be significant to any landowners or developers looking to diversify or develop agricultural land, and they would be well advised to engage with the consultation process when it begins later this year.
There’s definitely more to come on the 2024 Bill. Sign up to receive future updates here. In the meantime, if you have any queries or want to discuss how we can help, please contact our rural business team.
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