Land reform in a Net Zero Nation: consultation paper

Part 7: Regulating the market in large-scale land transfers: a new Public Interest Test, and a requirement to notify an intention to sell

i. Provision for a Public Interest Test

The proposals set out above in parts 5 and 6 will provide greater transparency and accountability in relation to the plans and activities of large-scale landowners. They will drive up standards of community engagement and sustainable land management to the levels already seen on some estates. We are also committed to making reforms that will contribute to the diversification of ownership of land in Scotland. The Bute House Agreement set out our aim to ensure that the public interest is considered on transfers of particularly large-scale landholdings, and our aim to introduce a pre-emption in favour of community buy-out where the public interest test applies, and where it is appropriate to do so.

We have been clear that new proposals must be compatible with the existing suite of statutory right to buy mechanisms available to communities, not least the seminal pre-emptive right to buy introduced by the Scottish Executive in 2003 (known as "part 2 registration").

In the discussion paper published in February 2021,'Legislative proposals to address the impact of Scotland's concentration of landownership', the Scottish Land Commission (SLC) recommended that the forthcoming Bill should include "a public interest test for significant land acquisition, at the point of transfer, to test whether there is a risk arising from the creation or continuation of a situation in which excessive power acts against the public interest."

What we propose: (1) – a Public Interest Test for large-scale land transfers

We propose to take forward the recommendation of the Scottish Land Commission for a Public Interest Test (PIT). In doing so there will be a number of complex issues to resolve. In particular, as with previous land reform legislation, it is imperative that any proposals are fully compliant with the European Convention on Human Rights (ECHR). The ECHR requires a strong justification for interference in the rights it accords to property owners.

We have set out initial proposals below, which will be developed further following the response to this consultation.

What would be the purpose of the Public Interest Test?

The purpose of the test would be to assess whether, at the point of transfer of a large-scale landholding, a risk would arise from the creation or continuation of a situation in which excessive power acts against the public interest.

What types of land holding would be in scope for a public interest test?

We propose that the Test would be applicable to large-scale landholdings or where a large scale land holding would be created. As noted above, however, there are numerous ways in which landholdings could be classified as 'large-scale'. The criteria we propose to use to determine whether or not a transaction could be subject to a Test are set out in Part 4 above. A 'large-scale' landholding may be one that is about to be sold, but it could also be brought about as a result of acquisition of land e.g. by neighbouring owners. These land transactions could create new issues associated with scale of landownership and concentration of power, while others may have no such issues. We agree with the Scottish Land Commission that rurality, as well as scale, can be a risk factor in terms of adverse consequences of a concentration of ownership. We remain open to considering whether other criteria can be developed to define 'concentration' around communities. It is, however, essential that the criteria are clear, transparent and able to be applied consistently.

Process, and the types of transfer or transaction that would be within scope

The SLC proposed to apply the public interest test to the prospective buyer of the land, on the basis that the purchase could exacerbate scale and concentration of landownership if the buyer already held land in the area. We consider that in many situations applying the test to the seller may be more beneficial in meeting our land reform aims. We therefore propose a dual approach.

We propose that the seller would need to demonstrate that they were able to proceed with selling the land. This could potentially be managed as part of the conveyancing process, with information about whether or not the property fell within the scope of the test.

In order to avoid creating new issues of concentration, a test would also need to be applied to the buyer, who may already have other land holdings.

Our aim is to ensure that all types of transactions involving large-scale landholdings are brought in scope of the public interest test, but this is challenging. A test that constituted part of the formal conveyancing process, or was a requirement for Land Registration in Scotland will not capture transfers that are not subject to formal conveyancing such as a the sale of shares in a company. We cannot, within the current devolved settlement, make legislative changes that would require modifications to companies law. We will therefore seek to engage with the UK Government to ensure that all transactions involving large-scale land transfers – including those involving company shares – fall within scope of the public interest test.

In developing the process for the public interest test, we will give due regard to any potential avenue that may lead to avoidance of the test. Furthermore, we will also seek to ensure that large-scale landholdings held by way of trusts are brought within the scope of the public interest test.

Outcomes

The Scottish Government considers that in order to meet our key policy objectives for the Bill, which include increasing diversity of landownership, and improving opportunities for community groups, there are three potential outcomes of the test if it were to be conducted on the seller before sale. These are:

• There is insufficient public interest to warrant interference in the sale, and the land in question could be sold as the seller wishes; or
• There is sufficiently strong public interest in reducing scale/concentration that the sale can only proceed subject to specific conditions (which would reflect the reason that the sale was not considered to be in the public interest). Conditions could include:

i. that the land in question should be split into lots and could not be sold to (or acquired by) one party as a whole unit; and/or

ii. the land, in whole, or in part, should be offered to constituted community bodies in the area, and the sale can only proceed if the bodies consulted, after a period of time, indicate that they do not wish to proceed with the sale.

We intend that the Public Interest Test should take into account any steps taken in the past (over a defined period – proposed to be 5 years) by a seller to diversify ownership, and/or who has used their Management Plans to engage with community bodies over opportunities to lease or acquire land.

A test could have an outcome that placed specific conditions on the buyer, such as a requirement to include in their Management Plan provisions to restore degraded peatland or to make part of their holding available to local compliant community bodies.

The issue of whether an acquirer should be subject to a PIT, and decisions on whether they could proceed and if so with what conditions, could also take account of the outcome of any Land Rights and Responsibilities review that had previously been carried out in relation to land already held by the acquirer.

Questions

Q14. We propose that a public interest test should be applied to transactions of large-scale landholdings. Do you agree or disagree with this proposal?

Agree / Disagree / Don't know

Please give some reasons for your answer:

Q15. What do you think would be the advantages and/or disadvantages of applying a public interest test to transactions of large-scale landholdings?

Q16. Do you think the public interest test should be applied to:

The seller only / The buyer only / The seller and buyer / Don't know

Please give some reasons for your answer:

Q17. If the public interest test was applied to the seller, do you think the test should be considered as part of the conveyancing process?

Yes / No / Don't know

Please give some reasons for your answer:

Q18. Do you think that all types of large-scale landholding transactions (including transfers of shares and transfers within or between trusts) should be in scope for a public interest test?

Yes / No / Don't know

Please give some reasons for your answer:

Q19. We have proposed that if a public interest test applied to the seller concluded there was a strong public interest in reducing scale/concentration, then the conditions placed on the sale of the land could include:

i. The land in question should be split into lots and could not be sold to (or acquired by) one party as a whole unit

ii. The land, in whole, or in part, should be offered to constituted community bodies in the area, and the sale can only proceed if the bodies consulted, after a period of time, indicate that they do not wish to proceed with the sale

Do you agree or disagree with these conditions?

• Condition i. Agree / Disagree / Don't know
• Condition ii. Agree / Disagree / Don't know

Please give some reasons for your answer and suggest any additional conditions:

Q20. Do you think that a breach of the Lands Right and Responsibilities Statement should be taken into account when determining the outcome of a public interest test?

Yes / No / Don't know

Please give some reasons for your answer:

Q21. Do you think that a public interest test should take into account steps taken in the past by a seller to:

a) Diversify ownership Yes / No / Don't know

b) Use their Management Plan to engage with community bodies over opportunities to lease or acquire land Yes / No / Don't know

Please give some reasons for your answers:

c) What time period do you think this should cover?

Q22. Do you think the responsibility for administering the public interest test should sit with:

• the Scottish Government Yes / No / Don't know
• a public body (such as the Scottish Land Commission)

Yes / No / Don't know

Please provide some reasons for your answers and any additional suggestions:

Q23. Do you think the proposal that a public interest test should be applied to transactions of large-scale landholdings would benefit the local community?

Yes / No / Don't know

Please give some reasons for your answer:

Q24. Do you have any other comments on the proposal that a public interest test should be applied to transactions of large-scale landholdings?

What we propose – (2) - prior notification of intention to sell

We recognise that there will be a wide divergence of views on the proposal above and we are keen to explore and obtain views on an additional mechanism which could bring about greater diversity of ownership (where scale and concentration is identified as having potentially adverse effects).

Existing Community Right to Buy legislation enables a community body (whose constitution must be approved to ensure it complies with specified requirements) to apply to register a pre-emptive right of purchase over land that they have a particular interest in. If Scottish Ministers approve the application, when the land is put up for sale the community body must be notified.

If the right to buy is activated and the community body decides to proceed, the Scottish Government's Community Right to Buy team will take the group through the right to buy process. As part of this, Ministers will appoint and pay for an independent valuer to determine the market value of the land, and an independent ballotter to conduct a ballot of the defined community, to ensure that a majority of local people favour the proposed acquisition. The results of this form part of the right to buy application, along with any evidence provided to support the proposals, such as a business plan or feasibility study, with details of any funding secured. Should Ministers give consent to proceed, the community body has eight months from the date they confirmed they wished to proceed (or longer if agreed between both parties) to conclude the transfer of the land.

Our proposals in this consultation build on those existing rights and suggest further ways in which communities can engage with the land on which they live.

Whether through the existing legislation, or negotiation, the best and most sustainable outcomes are achieved when community groups and landowners work together to engage on potential sales as early as possible. Early engagement greatly improves the Community Body's chances of ensuring that they have funding and that they can meet the landowner's deadlines. There are a number of examples of where this has happened in Scotland. To build on this approach, we consider that the proposals for land management plans set out in Part 5 could include the following additional requirements:

• information about areas of land for which landowners would consider negotiating either a transfer or ownership or leasing to a community group;
• information about future ownership intentions; and
• to give prior notice to surrounding community bodies about intended sales.

In order that this "prior notice" proposal delivers the policy objective of ensuring that communities have a pre-emptive right, complements the existing community right to buy, and respects the rights of the landowner to be able to freely dispose of their land holding, it is imperative that we strike a balance with the time period that we require the "prior notice" to be given.

Currently, where there is a part 2 pre-emptive right to buy in place, the Community Body has 8 months from the point that they confirm that they wish to proceed with the right to buy to exercise their right, secure funding and take ownership. The landowner will be aware of this, as they will have been consulted as part of the registration process and will be in receipt of a Decision Notice when the community body's right is registered. If the Community body determine that they will not proceed with the acquisition, the landowner is free to sell the land in question on the open market. The Scottish Government remains committed to part 2, and we are considering ways of promoting part 2 registrations as part of the commitment to double the Scottish Land Fund by the end of this Parliament.

Where there is not a part 2 registration in place, we propose that landowners should be under a duty to give notice to community bodies in the surrounding area which are compliant with Community Right to Buy requirements, and/or such other community bodies whose aims are social/community benefit (such as Registered Social Landlords), that they intend to sell when the public interest test criteria are met. We propose that there should be 30 days for the community body or bodies to inform the landowner whether they are interested in proceeding with the sale.

This would require the establishment of a register of bodies to whom the obligation for the owner to give notice would apply. At this stage, we consider that the community body should be able to register their interest with Scottish Ministers under a new statutory mechanism, and that there should be a further six month period for the community body and the landowner to negotiate the terms of the purchase and for the community body to secure funding.

We appreciate that there will be circumstances when a "prior notice" would not be possible, for instance in the event of sudden death or insolvency situations, for which exemptions to the duty will be required. Nevertheless, even if not comprehensive, we consider that this proposal could be developed to expand the available options for communities beyond the existing right to buy framework.

Why we are proposing this

This proposal responds to concerns that a combination of rapidly rising land values, and a rise in off-market transactions, is in effect excluding communities from access to ownership of large-scale landholdings. We recognise that not all communities wish to acquire and manage large estates: some will decide that their needs are best met by smaller parcels of land, for example, for housing, or community projects. We would like to offer communities more time and opportunity to put in hand the planning and fundraising needed to do this. This is because we recognise that it can be difficult for local people to invest time and energy in planning the acquisition of land, when there is no certainty about whether, or when, it will be put on the market.

The Scottish Government also recognises that in some situations, there can be benefits associated with large scale landownership. In many instances, such landowners deliver public benefits including jobs, opportunities for communities, and their land holdings often help mitigate climate change. The Scottish Government also recognises that private investment in our natural capital is necessary to meet our climate change targets and that some of this investment will involve acquisitions of large-scale land holdings.

As we have set out in our Interim Principles for Responsible Investment in Natural Capital that we are committed to ensuring that such investment and decision making is conducted in a responsible manner, benefitting our local communities and wider society. Nevertheless, we consider that it would be beneficial to place community bodies in a better position to take advantage of opportunities to acquire more land, particularly where such groups can demonstrate a track record of successful ownership of land and land assets in the local area.

Questions

Q25. We propose that landowners selling large-scale landholdings should give notice to community bodies (and others listed on a register compiled for the purpose) that they intend to sell.

a) Do you agree or disagree with the proposal above?

Agree / Disagree / Don't know

Please give some reasons for your answer:

b) Do you agree or disagree that there should be a notice period of 30 days for the community body or bodies to inform the landowner whether they are interested in purchasing the land?

Agree / Disagree / Don't know

Please give some reasons for your answer:

c) If the community body or bodies notifies the landowner that they wish to purchase the land during the notice period, then the community body or bodies should have 6 months to negotiate the terms of the purchase and secure funding. Do you agree or disagree with this proposal?

Agree / Disagree / Don't know

Please give some reasons for your answer:

Q26. Do you have any other comments on the proposal that landowners selling large-scale landholdings should give notice to community bodies that they intend to sell?