Land Reform (Scotland) Bill: business and regulatory impact assessment

Benefits

4.4 Option 1 – Do nothing

Land Management Tenancy

4.4.1 At present a commercial lease could be significantly revised to enable it to provide the range of options that a land management tenancy model template will be able to do. However, the costs of revising a commercial lease would likely outweigh the rental income that would be generated for a number of years. This is why amended versions of commercial leases are not generally used by landowners to deliver a multiple land use lease.

Agricultural holdings

4.4.2 While the current legislation is complex there is general understanding around the main elements. However, the current legislation contains elements created post World War II, and is also outdated compared to modern farming methods. This lack of flexibility currently prevents tenant farmers from fully engaging in the range of agricultural and associated land management activities required for farms to remain resilient and adaptative to climate change and biodiversity challenges.

4.4.3 However, most tenant farmers and their landlords have a good relationship and this would be likely to continue without the proposed reforms. This is evidenced by a review by the Tenant Farming Commissioner on the conduct of agents with tenant farmers and landlords found that 82% of tenant farmers and 88% of landlords would describe their relationship with the other as either very good or good. Only 6% of tenants and 1% of landlords reported that the relationship was poor or very poor. This indicates that, in general, amicable agreements should be able to be reached.^[35]

Small landholdings

4.4.4 The small landholding legislation and statutory system has been in place over 100 years. As a result, elements are outdated and no longer fit for purpose in the 21^st Century. If the legislation is not amended the divide between small landholders and other forms of land tenure will continue to grow.

4.5 Option 2 - Adopt the proposals for Land Management Tenancy, agricultural holdings and small landholdings

Land Management Tenancy

4.5.1 This proposal offers land managers, owners and people wishing to rent land for hybrid uses the option to have a non-commercial lease to rent land out using a standard process. Under this model any agricultural use on the land will be required to be less than 50% of the land use activity. This is different to an agricultural tenancy where the main land use must be agricultural. The proposal enables a template to be produced that can be adjusted and modified without prescriptive legislation. This will enable agreements to be reached providing more diverse land tenure opportunities potentially focusing more environmentally in terms of delivering against net zero emissions and biodiversity targets.

Agricultural holdings

4.5.2 The provisions collectively encourage agricultural tenants to participate in sustainable and regenerative agricultural practices towards delivering the Scottish Government’s Vision for Agriculture. The proposals significantly modernise some of the older legislative provisions which were focused on post war food production, maximising land use at the expense of the environment, to feed the nation. The adoption of the proposals will create opportunities and provide flexibility to tenant farmers. While the, Review of the Conduct of Agents of Agricultural Landlords and Tenants,[36] indicated that amicable agreements could be reached, where the landlord-tenant relationships are difficult, tenant farmers have little incentive to improve or modernise the holding if they do not anticipate having the ability to undertake the activities or receive compensation for their improvement. This could drive inequity across agriculture as tenant farmers are restricted from participating in some activities depending on the landlord.

4.5.3 The Scottish Government Farm Business Income Estimates Report (2020-21)[37] found that more than half of farms have diversified activities which generates additional incomes to their businesses. There was also an income gap between agricultural businesses with diversified activities and those without. On average, farms with no diversified activity £16,100 less in income was generated per annum. Taking this as a general proxy, non -agricultural diversification is likely to help individual agricultural tenancies to increase their income generation and revenue. The intention is to enable the Land Court to be able to consider environmental beneficially diversifications as well as other types of diversification.

4.5.4 The agricultural improvement provisions will give tenant farmers greater flexibility to conduct agricultural improvements and incentivise them to invest in a wider range of activities on their holding. Improvements could include renewable electricity measures for on farm energy needs, leading to efficiencies and reduced costs; or other activities such as the creation of hydroponics or facilities for processing agricultural products produced on the holding; or the creation of silvo-pasture or silvo arable systems. All of which could support a tenant farmer to reduce input costs and increase the carbon benefits of the holding.

4.5.5 Scottish Firms Impact Assessment Test discussions with tenant farmers have highlighted that some tenant farmers have more than doubled their profit by undertaking sustainable and regenerative agricultural practices and reduced their input costs by 60-70%. By taking a flexible approach to agricultural improvements it is expected that more tenant farmers will be able to participate in and undertake more innovative agricultural practices.

4.5.6 In relation to the rules of good husbandry and estate management rules, the Scottish Firms Impact Assessment Test (respondent 9, 10, 11,13) said that the proposed rule changes were important to ensure that they could access the future agricultural funding. It was considered that the proposals will allow tenant farmers to leave uncropped field margins and participate in a wider range of sustainable practices, thereby potentially having an environmental benefit.

4.5.7 The amendments to the waygo process is likely to be beneficial in terms of reducing stress and time for both tenant farmer and their landlord. A number of tenant farmers and landlords described the current waygo process as painful. It is anticipated that proposed changes will allow tenant farmers to retire knowing what compensation they will receive and for landlords to be able to undertake more planning for this. The Scottish Firms Impact Assessment Test discussions highlighted that one tenant (respondent 11) had their mortgage retracted because they did not have their waygo compensation.

4.5.8 The proposed changes to the rent review system will allow tenant farmers and their landlords to negotiate over a wider range of factors rather than overly focusing one factor at the expense of another. It is expected that the amendments will be beneficial as they will not overly rely on productive capacity or open market comparable.

4.5.9 The resumption proposal will enable tenant farmers to receive a greater amount of compensation due to them from their landlord if their landlord decides to resume part of the tenancy and this results in particular defined costs to the tenant . Compensation will be reflective of the value of that part of the lease or verified business costs arising as a direct result of the loss of land. This will be beneficial in terms of allowing tenant farmers to plan by ensuring that the minimum notice period is 12 months.

4.5.10 The game damage compensation proposals will entitle a tenant farmer to be able to make a claim for a wider range of game damage than just crops e.g. This will enable a tenant farmer to claim compensation from the landlord if game, including deer, cause damage to their livestock, fixed equipment or trees.

4.5.11 The proposal to introduce a power to enable improvements to be made to the pre-emptive right to buy process will reduce the burden to the tenant farmer. The change will be made through regulations and will be co-developed to ensure that the benefits to tenant farmers are proportionate to the interests of the landlord.

Small landholdings

4.5.12 The small landholding provisions encourage small landholders to participate in sustainable and regenerative practices which contribute towards delivering the Scottish Government’s Vision for Agriculture. The proposals significantly modernise the legislation, some of which originates from the 1800s and early 1900s, to enable it to be reflective of modern cultivation practices.

4.5.13 The pre-emptive right to buy proposal will be beneficial in encouraging small landholders to invest in their holding. This view was echoed by Scottish Firms Impact Assessment Test respondents 15 and 17. Respondent 17 saw this proposal as being beneficial to the community by enabling the next generation to continue to work the land and would encourage people to remain on the island.

4.5.14 The diversification proposals are expected to enable small landholders to increase their revenue. The intention is to enable small landholders to carry out environmental beneficially diversifications as well as other types of diversification.

4.5.15 The proposals for succession and assignation widen the range of people who can succeed or be assigned a small landholding tenancy. As outlined by respondent 17 in the Scottish Firms Impact Assessment Test, it was considered that this would encourage small landholders to invest in their holding and help young people stay on the island. It would also encourage people to further invest in their holding knowing that someone would come behind you and continue with the holding.

4.5.16 The proposal to require the Tenant Farming Commissioner to provide guidance on small landholdings reflected the views of a number of consultees throughout the consultation process who emphasised that guidance could provide a benefit by ensuring that parties understand their respective responsibilities and obligations.