Tuesday, 11 August 2015

Land Reform Bill Evidence

The following is my evidence submitted in response to the Scottish Parliament's Rural Affairs, Climate Change and Environment Committee's call for evidence at Stage 1 of the Land Reform (Scotland) Bill. I've added here some additional commentary on the agricultural holdings sections which might be of more interest to lawyers than MSPs. 

Dear Committee Members

Land Reform (Scotland) Bill – call for evidence

Due to what seems like a pretty short consultation period for such a complex bill, I am only able to focus on two areas:-

1   Part 5 – right to buy land to further sustainable development

If local authorities (LAs) have rights of compulsory purchase where necessary to deliver their services, why shouldn’t community bodies (CBs) as they are, to an extent, a more localised tier of service delivery?

Viewed in that light, the tests in Part 5 (clauses 47(2)(c) & (d)) – that the purchase “is the only practicable way of achieving” a benefit to a community and that refusing it “is likely to result in significant harm to that community” – set the bar too high.
Part 5 needs to be aligned more with LAs’ compulsory purchase powers but with safeguards reflecting the fact that community bodies may lack the skills, experience and resources of an LA. And also to curb the historical tendency of “over enthusiasm” on the part of some CBs – aided and abetted by the likes of HIE, Scottish Land Fund and Scottish Government who find it politically difficult to say “no” – to take on projects which are not viable.
Case study – Achilitibuie Smokehouse
This purchase by Coigach Community Development Company under Part 2 of the Land Reform Act 2003 was sanctioned by the SG and funded by the SLF on the basis of the following proposals:-
    lease back to existing operator [unlikely since it was that operator’s decision to relocate which prompted the sale]; establish a “fine foods hub”; community workshop space (micro-brewery, artisanal bakery etc.); laundry; visitor attraction (c.f. distilleries, Baxters of Fochabers); bunk house; use the site for social/rented housing; heritage centre
Two years on from the purchase, the Smokehouse remains empty apart from office space for CCDC (which was not one of the uses invoked to justify the purchase). NONE of the proposals above has been delivered or is even in preparation.
I don’t doubt the good faith and commitment of CCDC but the fact remains the Smokehouse was purchased (and funded) on the basis of aspirations - a “wish-list” - rather than an actual viable plan. Giving communities the chance to “have a go” like this may be OK when it’s a case of pre-empting something a landowner wanted to sell anyway but totally unacceptable for a right of compulsory purchase.
Therefore, the new compulsory right to buy for sustainable development must involve the community body having a definite plan. It must be viable, costed and funded. There should be provision for it to be assessed by an independent body drawn from a panel of people experienced in developing similar enterprises.
In essence, all the ingredients of a viable proposition should be demonstrated to be present with only the necessary land acquisition standing in its way.

Achilitibuie Smokehouse as seen on Google Streetview
2. Part 10 – agricultural holdings
I am particularly disappointed that what is a notoriously complex area of the law is being dealt with by being “tacked on” to the Land Reform Bill. There is a grave risk of agricultural holdings being lost sight of behind “sexier” aspects of (and omissions from) the bill leading to what was mentioned in para. 316 of the Policy Memorandum: “potentially rushing what was likely to be complex legislation, risking insufficient scrutiny and poor legislation." 
I was also disappointed to see Part 10 characaterised in a Youtube video put out by the committee as “new rights for agricultural tenants”. It is not. It is about re-setting agricultural holdings law to make it fit for purpose in the 21st century and reflecting a fundamental aim of the AHLRG report, namely, balance and mutuality between landlord and tenant (final report, para 67).
The following is by no means a comprehensive critique of Part 10 but just the things that have jumped out the page at me in the limited time available. And I’m afraid the following comments are inevitably a bit technical!
2.1   Modern limited duration tenancies – new entrant break clause at year 5 (bill clause 76(2) inserting new s.8D into 2003 Act)
The bill doesn’t implement the AHLRG’s recommendation on this.
This is because it doesn’t give the landlord a break. It gives him an irritancy (forfeiture clause) which is legally much more onerous. Irritancies have always been possible in agricultural leases so the bill adds nothing and does not achieve the policy aim of giving landlords additional confidence to let to new entrants long term.

It also fails to deliver the AHLRG’s aim of balance and mutuality because, while the bill gives the landlord an irritancy (the right to attempt to make a case against the tenant), it gives the tenant a break (the right to walk away, no questions asked). Failure of reciprocity.
[Additional comment: The AHLRG final report recommended (paras. 231-233, recommendation 24) that new 10 year "modern limited duration tenancies" be able to include a break clause at year 5 to give landlords additional confidence to let land on a long term basis to new entrants with no track record. In the property industry, a "break clause" is generally understood to be one allowing a party to lease to terminate it prematurely "with no questions asked", so to speak. 
Why I say that bill clause 76(2) gives the landlord (but not the tenant!) an irritancy rather than a break is that the landlord's "break" (new section 8D(6)) is only exercisable in the event of the tenant being in breach of the lease which may be difficult to prove. 
Having said that, it would appear that this irritancy is enforceable no matter how trivial the breach and the tenant has no right to purge it (keep the tenancy being remedying the breach). Note that bill clause 78 is introducing a statutory right to purge irritancies of MLDTs within a year: see 2.3 below.]      

2.2   Modern limited duration tenancies – fixed equipment obligations (clause 77 inserting new s.16A into 2003 Act)
An error in the drafting of this clause means that, while the landlord is obliged to provide certain fixed equipment (buildings and other farm infrastructure like fences, drains etc.) with a lease, there is nothing to say what condition it should be in.
In order to prevent people being embroiled in expensive Land Court cases, wording needs be added to the effect the fixed equipment provided must be “reasonably fit purpose” (or some other objective criteria).
[Additional comment: Since 1948, landlords have had the statutory obligation when renting agricultural land to provide with it a certain amount of fixed equipment (farm buildings (including farmhouse) and farm infrastructure such as fences, drains, roads etc.) in good condition at the commencement of the lease. That was reasonable so long as the paradigm let was an entire farm but tensions emerged when lets increasingly tended to be of additional land to established farmers: was it necessary for the landlord to provide a full suite of fixed equipment on the land being let (including a house?) when the tenant was likely already to have much what he needed on his own farm nearby?
An attempt was made in 2011 to address this in relation to limited and short limited duration tenancies introduced by the 2003 Act. Article 9 of The Public Services Reform (Agricultural Holdings)(Scotland) Order 2011 (here) amended s.16 of the 2003 Act such that the fixed equipment (FE) to be provided by the landlord of an S/LDT was to be such as to allow the tenant to farm the land efficiently (i.e. meaning in effect that, if the tenant as a matter of fact had his own FE elsewhere, then that wouldn't be needed to be provided again with the lease in question: the previous wording had referred to a hypothetical occupier who might or might not have his own FE). 
In order to prevent disputes breaking out later, the 2011 order also required parties to S/LDTs to agree at the outset what was actually needed by way of FE in the context of any particular lease and what condition the landlord was required to put it in. But of course you can't compel people to agree with other and there has to be a dispute resolution mechanism. In the context of agricultural leases, that is the Land Court but the legislation has to provide the LC with an objective criteria by which to judge the issue. As regards the question of what FE is required, that's provided in s.16(1)(a)(i) of the 2003 Act (as amended by Art. 9 of the 2011 Order) as being such FE "as will enable the tenant to maintain efficient production as respects the use of the land as specified in the lease" (Note in passing a flaw there: what if the lease doesn't specify a use of the land? Perhaps because there is no written lease. That could be got round by rewording it as "use of the land as contemplated by the lease".)
But as regards the condition of the FE to be provided, s.16(1)(a)(ii) of the 2003 Act (as inserted by the 2011 Order) refers to subs. (2) which just talks about the parties' agreement. And that brings us back to what happens if they don't agree: the LC is given no backstop criteria by which to resolve the matter.
The point here is that clause 77 of the Land Reform Bill dealing with MLDTs simply repeats the wording of the 2011 Order for S/LDTs with all the flaws inherent in it as mentioned above.]        

2.3   Modern limited duration tenancies – irritancy clauses (bill clause 78 inserting new s.18A into 2003 Act) 

This clause (18A(6)(b)) gives tenants a 12 month period to remedy any breach of the lease before the landlord can invoke irritancy (forfeiture of the lease). And 18A(7)(b) allows tenants to apply to the Land Court to extend that period.
In the interests of balance and mutuality, landlords should have the equivalent right to apply to shorten it: 12 months is an unusually long period to allow a breach of a lease to continue.
2.4   Conversion of 1991 Act tenancies to modern limited duration tenancies (cl.79) 

Conversion to MLDT gives the tenant much broader rights of assignation (to non-family members) than are available in a 1991 Act tenancy but with the quid pro quo that an MLDT is necessarily of finite duration. The crucial aspect of a “converted MLDT” is therefore its duration. That should be a matter for the full scrutiny of primary legislation rather than left to regulations. This should, therefore, be kept for the second round of primary legislation to implement the remainder of the AHLRG’s recommendations not being taken forward by the present bill as contemplated by the policy memorandum.
2.5   1991 Act tenancies – new rent review criteria (cl.82 inserting new schedule 1A into 1991 Act 

Again, the bill doesn’t implement the AHLRG’s recommendation on this.

This is because the AHLRG recommended (final report, para 114; recommendation 3) that rents be determined on the basis of the productive capacity of the holding. But what the bill says (schedule 1A, paras 7(3) & (4)) is that the rent will be the fair rent having regard to productive capacity.
What that means is that productive capacity is merely a default presumption for the rent subject to appeal to the overarching criteria of fairness. In other words, either party could argue to the Land Court: “The rent on the basis of productive capacity would be £X but in the particular circumstances of my farm that would not be fair because of XYZ so I request you to fix a lower [or higher] rent of £Z which would be fair.” 

That’s fine except it’s not what the AHLRG recommended. And appeal to the nebulous and subjective concept of fairness drives a coach and four horses through the AHLRG’s aim of “full transparency and objectivity” in relation to rent review (final report, para. 115).
Stenness, Orkney - Copyright Murray Foote