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

Costs

4.6 Option 1 – Do nothing

Land Management Tenancy

4.6.1 There would be no additional financial costs if a land management tenancy was not brought forward. However, consultation respondents highlighted that the cost of entering into bespoke commercial leases to participate in hybrid land management is a barrier to undertaking activities which advance climate adaptation, biodiversity recovery and nature restoration due to the costs of revising the standard commercial lease templates. Doing nothing would fail to address the barrier to participating in hybrid land management through commercial leases. Scottish Firms Impact Assessment results demonstrated the cost of entering into a commercial lease could be up to £12,000 on the upper end per agreement (respondent 1).

Agricultural holdings

4.6.2 There would be no additional financial costs from retaining the existing legislation. However, where there are proposed changes to the rules of good husbandry and estate management a number of interviewees in the Scottish Firms Impact Assessment Test (respondent 9, 10, 11,13) said that the proposed changes to the rules were important to ensure that tenant farmers could fully access the future agricultural framework. Alongside this, a number of consultees highlighted that, without the changes, tenant farmers would be disadvantaged as they would lack flexibility to fully take advantage of the climate change adaptation and mitigation measures.

Small landholdings

4.6.3 There would be no additional financial costs from retaining the existing legislation. However, based on the pattern of decline, without changing the legislation it is likely this trend could continue.

4.7 Option 2 - Adopt the proposals for land management tenancy, agricultural holdings and small landholdings

4.7.1 The estimated financial costs arising from the provisions in the Bill are outlined in detail in the Financial Memorandum accompanying the Bill. There will be general costs to the Scottish Government associated with developing the Land Management Tenancy template and the regulations associated with agricultural holdings and small landholding proposals. There are also expected to be costs to the Scottish Land Commission as a result of bringing forward the proposals.

Land Management Tenancy

4.7.2 It is estimated that the costs of entering into a land management tenancy will be less than developing and entering into a bespoke commercial lease for hybrid land management as the Scottish Government will develop the template arrangement. If parties wish to enter into land management tenancy they will do so freely and with no element of compulsion. It is estimated that the legal cost to prospective landlords or their tenants would be at the low end of entering into an agreement – if they wished to seek legal advice - perhaps approximately £1,000 (as disclosed by respondent 8). The figure is expected to vary depending how closely individuals wish to correlate their final lease with the template. The main costs of this proposal will be for the Scottish Government when they develop the template.

Agricultural Holdings

4.7.3 There is no element of compulsion for either tenant farmers or their landlords to use the agricultural holdings provisions so costs to individuals will vary depending on their choices and the circumstances of their leases. The proposals enable rather than compel so costs will be particular to individual parties.

Small Landholdings

4.7.4 There is no element of compulsion associated with the small landholding provisions so costs to individuals will vary depending on their choices and the circumstances of their leases. The proposals enable rather than compel so costs will be particular to individual parties.

4.8 Scottish Firms Impact Assessment

4.8.1 In setting the impact of the proposals on Scottish Businesses a questionnaire was created and issued to 17 businesses, who were interviewed individually between October 2023 and December 2023. The questionnaire is contained in Annex A. This was carried out in addition to the consultation activity above. Of the 17 businesses interviewed: 8 were landlords/ landowners, 6 were agricultural tenants, and 3 were small landholders.

4.8.2 Interviews were conducted over video calls with the exemption of two which were face to face. Due to the private nature of landlord and tenant relationships each of these were recorded and anonymised.

4.8.3 A coding of identifiable costs and statements from these interviews are shown in Annex B. The information summarises the identifiable costs of the proposals:

Land Management Tenancy

4.8.4 In response to the Land Management Tenancy questions a number of responses identified costs associated with entering into a new tenancy agreement. The majority of those interviewed said that they would seek legal advice. Respondent 8 said that they would expect to pay around £450 - £650 an hour for a partner’s time, due to the complexity and high-risk nature of the work. Although the cost of entering into one of these agreement would vary, interviewees estimated that these costs tend to be quite high (Respondent 2).

4.8.5 Respondent 3 felt that it would reduce costs.

4.8.6 A number of respondents gave varying cost estimates starting from £1,000 (respondent 8) at the lower end to end to approximately £5,000 (respondent 2) at the higher end. However, respondent 9 said that you could expect to pay £7,000 to leave one agreement and enter into a new agreement. Respondent 1 said that a recent example of entering into a bespoke commercial lease cost £12,000 plus legal costs.

4.8.7 Almost all interviewees said that guidance on entering into a land management tenancy agreement would save costs and that they would take up the option of any mediation prior to litigation.

Agricultural Holdings Proposals

Diversification

4.8.8 A number of tenant farming interviewees had previously undertaken diversifications on their holdings. Those that did highlighted that the cost of serving notice of diversification could differ between £100 (respondent 11) on the lower end to £1,800 (respondent 12) on the upper end. If the tenant opted to involve a consultant in creating the proposals, then this would cost approximately £650 for half a day’s work (respondent 11). Diversified purposes also varied from those seeking carbon money (respondent 2), conservation activities (respondent 3), renewable energy (respondent 10, 11), tourism (respondent 11), wool processing (respondent 11), farm shops and coffee shops (respondent 12).

4.8.9 However, as highlighted by respondent 13, every farm is different and every diversification is different, with much depending on the location. Generally, these diversifications are income generating. Respondent 12 pointed out that if a diversified proposal was likely to be detrimental then it would be unlikely that a landlord would give permission. Respondent 8 identified that there could be a tax risk to the landowner depending on the scale of diversification.

4.8.10 In terms of income generation, respondent 11 made approximately £12,000 to £13,000 from a wind turbine. While respondent 12 had received an income stream of approximately £10,000 per annum from their diversification. Respondent 14 identified that they made approximately £2,000- £3000 per week from holiday accommodation (3 glamping pods) but they also had outgoings e.g. cleaning costs.

Agricultural Improvements (Schedule 5 amendments)

4.8.11 The majority of agricultural tenants considered that the proposal would help their holding to become more profitable and encourage tenants to undertake these improvements. However, there was disagreement about whether sustainable and regenerative activities could be profitable. Respondent 2 did not believe they would while respondent 9 said that they would. Respondent 12 said that that it is difficult to say if sustainable and regenerative farming would add value and respondent 11 mentioned that there is not enough common knowledge about the economic benefits.

4.8.12 However, many respondents said that that these activities would benefit the holding respondent 2 mentioned the benefits of minimal till, organics (respondent 13), species rich grassland (respondent 12), and silvo-pastural (respondent 14). . Respondent 13 said that Schedule 5 needs to take account of modern farming practices so amending the legislation needs to happen. Respondent 14 said that recognising sustainable and regenerative farming activities as agricultural was very beneficial as they had doubled their profit as a result of regenerative farming and reduced their feed costs by 60-70% by undertaking sustainable and regenerative agricultural practices.

Good Husbandry and Estate Management Rules

4.8.13 A number of interviewees mentioned they had not experienced a certificate of bad husbandry (respondent 8, respondent 12, and respondent 14). However, one identified that the proposal to insert “sustainable and regenerative” could be subjective (respondent 9).

4.8.14 Several interviewees (respondent 9, 10, 11,13) said that this proposal was important in ensuring that they could access the future agricultural framework. While respondent 14 said that this was very beneficial as they had doubled their profit as a result of regenerative farming and reduced their feed costs by 60-70% by undertaking sustainable and regenerative agricultural practices.

Waygo

4.8.15 The majority of interviewees said that this proposal would have cost savings for time and money. Respondent 2 said that previous waygos had cost £2,000 in legal fees in 2010; while respondent 9 said that they had paid £3,000 to £4,000 in legal fees. A number of respondents said they would continue to appoint their own valuer (respondent 8, 11, 14) however, several said that they would go with the decision of a neutral valuer and not apply to the Lands Tribunal.

4.8.16 In terms of time, there was broad agreement that the proposal for a timeframe would resolve waygo claims quicker. Respondents 10 and 13 identified that waygo should not hold up retirement and a tenant farmer needed to know what they were entitled to prior to leaving the tenancy. Respondent 11 said that their mortgage was retracted because they did not have waygo so had to rent a house. Respondent 13 had heard of someone had only received compensation after 2 years. Respondent 9 said that the proposal would improve wellbeing and save stress associated with the current waygo process (along with respondents 12 and 14).

Rent Review

4.8.17 Several respondents said that the TFC guidance was helpful and a Code of Practice on rent would be helpful. Respondent 2 favoured the proposals as it is framed in a way on the elements a tenant farmer should consider rather than the way you should calculate it. A number of respondents said that the current system focusing on open market rent was not workable (respondents 10, 11, 13) and that unsuitable open market rental comparables were being used (respondents 9, 10, 11, and 13).

Resumption

4.8.18 Almost all tenants had experienced resumptions. A number of tenants said that they believed they would receive more compensation as a result of the proposals (respondents 9 and 14). A number of tenants gave examples of their resumptions:

• Respondent 9 said that they received £1250 for 14.14 acres and woodland strips. The landlord allowed them to occupy the land for another year so they weren’t entitled to disturbance costs.
• Respondent 10 had a field resumed for housing. They received £500 for 3 acres of the tenancy. Rent was approximately £40 per acre.
• Respondent 11 had approximately 600 square metres resumed for a wind farm which took 5 years of negotiation with a £4,000 bill. They received a £50-60 rent adjustment as a result of this resumption.
• Respondent 13 had 3 acres resumed and received £500 of compensation.
• Respondent 14 had experienced several resumptions. One was for less than a hectare and they received a rent reduction of £250, for another they received £5,000.

Compensation for Game Damage

4.8.19 The majority of tenants had experienced varying levels of game damage – respondent 9 and 10 had not experienced game damage. All tenant farmers believed this proposal would be beneficial. Some believed that guidance on calculating and quantifying damage would be helpful (respondents 10, 11, 13, and 14). Respondent 12 would like training opportunities to learn how to quantify damage. A number of tenants gave examples of the game damage that they had experienced:

• Respondent 11 said that there is quite a lot of displaced red deer approximately between 300 and 400 and they were approximately 25% short in terms of yield over a 5 year period.
• Respondent 12 gave a number of examples
  • they used to grow high value seed potatoes that used to produce £350 pt when lifted. This resulted in a damage claim of around £10k.
  • they had 9 acres destroyed/ flattened that was not combinable due to game bird damage then they submitted a claim for damage to barley. It was between 15-20% loss on the barley left standing and the area of flattened as well so they had compensation for both elements of this.
  • In 2015 they lost 16 calves out of 68 cows. Approximately 60-70% of cows were affect by cryptospurdium. A PHD student undertook research confirmed that this was caused by game birds around the steading.
  • They also have had avian flu so their chickens get closed in and they were concerned about game birds being imported from the EU and transferred around the UK (there are 14,000 pheasants and 8,000 partridge on just under 700 acres).
• Respondent 14 believed they lost somewhere between £2,000 - £5,000 per acre due to deer.

Small Landholdings

Right to Buy

4.8.20 All respondents were positive about having a pre-emptive right to buy. Respondent 15 said they were unlikely to be able to afford the right to buy but it would encourage them to invest in their holding. Respondent 17 echoed this position saying they would definitely invest more and do a lot more on the holding. Respondent 17 however highlighted that the landlord was unlikely to sell the holding. Respondent 15 and 17 said that there were no issues with their boundaries of the holdings. Respondent 17 says this proposal could be a benefit to the community – it could mean that the next generation could keep farming and would also help in people remaining on the island. Respondent 15 and 17 saw the Land Court as the last resort.

Diversification

4.8.21 Respondent 15 was not in an immediate position to diversify but felt the proposal would help if they decided to do so in the future to provide additional income.

4.8.22 Respondent 17 would be interested in diversifying and would encourage their children if they wanted to do something with the holding. Respondent 17 would speak to a consultant on diversification but was not aware of the costs for it (weighting up the cost against benefit). Respondent 17 thought the negotiation period would be beneficial to help sort out any difficulties and would prefer the opportunity to negotiate, which could have a cost saving benefit. Respondent 17 said that due to the geography, they are limited in what they can do possibly, could do something like deer farming.

Succession and Assignation

4.8.23 Respondent 15 had no children and was relatively new small landholder so had not really thought about succession or assigning the holding. Respondent 17 thought this was a great idea for small landholders as it could help young people stay on the island and would encourage people to further invest in their holding knowing that someone would come behind you and continue with the holding. Respondent 17 when asked whether this would benefit the 59 small landholders, said it was more important to have residents on the island and hoped it would encourage people to invest in their holding.

Umbrella body

4.8.24 Respondent 15 felt that any guidance on responsibilities would be helpful and asked for it to include improvements and whether there was any difference in terms of how they would be treated between secure 1991 Act tenancies and small landholdings. Respondent 17 thought the TFC would be up to date with legislation and would be able to give advice on rights and responsibilities which could make life a bit easier.

4.9 Regulatory and EU Alignment Impacts

4.9.1 The proposals relating to land management tenancy, agricultural holdings, and small landholdings are not likely to impact on intra-UK trade, international trade and investment, or affect the commitment to maintain EU alignment as far as possible.

4.10 Competition Assessment

4.10.1 Agricultural holdings and small landholdings are private arrangements between landlords and tenants. Landlord and tenant must enter into these agreements voluntarily. The provisions in the Bill will not directly or indirectly limit the ability or incentive of suppliers to compete vigorously and will not limit choices or information available to consumers.

4.10.2 The land management tenancy, agricultural holding, and small landholding provisions are designed to increase vibrancy within the agricultural industry for Scottish land tenure and should increase competition.

4.10.3 The proposals will not: limit the number or range of suppliers, either directly or indirectly; limit the ability of suppliers to compete; reduce suppliers' incentives to compete vigorously; or limit the choices and information available to consumers. A competition assessment is therefore not required.

4.11 Consumer assessment

4.11.1 Agricultural holdings and small landholdings are private arrangements between landlords and their tenants. Landlords and tenant farmers/small landholders must enter into their agreement voluntarily. As such, it will not have any impact on consumers. It will not affect the quality, availability or price of any goods or services in a market; affect the essential services market; involve storage or increased use of consumer data; increase opportunities for unscrupulous suppliers to target consumers; impact the information available to consumers on either goods or services, or their rights in relation to these; affect routes for consumers to seek advice or raise complaints on consumer issues.

4.12 Test run of business forms

4.12.1 No new forms will be required as a result of primary legislation. The Bill includes regulation making powers that may result in forms being prescribed. Any new forms will be tested with stakeholder and end users before they are introduced.

4.13 Digital Impact Test

4.13.1 The proposals for land management tenancy, agricultural holdings, and small landholdings will not have a digital impact. These amendments and proposals do not impose, require, or rely on any new technologies.

4.14 Legal Aid Impact Test

4.14.1 The proposed changes to the legislation are not expected to have a significant effect on the number of people applying for legal aid. Scottish Legal Aid Board (SLAB) commented that the Bill seeks to introduce some new or improved Land Court and Lands Tribunal procedures. Civil legal aid is available for procedures in both. SLAB had a small handful of applications relating to these institutions over the last year (one for the Land Court which was rejected and two or three for the Lands Tribunal). SLAB agreed with the Scottish Government’s assessment that that these changes are unlikely to have much of an impact on the Fund. SLAB noted that parties are to be encouraged to use the Tenant Farming Commissioner mediation services to resolve various disputes. They noted they were able to pay for mediation as an outlay under Advice and Assistance but as the civil applications relating to Land Court/Tribunal are so few we are of the view that we cannot see there being much of an impact in relation to Advice and Assistance either.

4.15 Enforcement, sanctions and monitoring

4.15.1 The Bill proposals are concerned with private land tenure leasing arrangements. These arrangements are contractually enforceable between the parties concerned. The Tenant Farming Commissioner can provide advice on the resolution of any issues and parties have recourse to the Scottish Land Court in event of dispute on a point of law or Scottish Lands Tribunal on points of valuation.

4.16 Implementation and delivery plan

4.16.1 The provisions will be laid in Parliament as part of the Land Reform (Scotland) Bill 2024. Where the provisions in the Bill do not require regulations to be made it is the intention to commence the provisions in the first commencement order or before in the case of the Land Management Tenancy. Provisions that require regulations to made to become fully effective will not come into effect until after the regulations are made.

4.17 Post-implementation review

4.17.1 It is anticipated that the recommendations of the Environmental Reports, which were developed as part of the SEA will be adopted, and the impact of the proposals will be monitored on a rolling annual basis, to ensure they remain in line with modern farming practice. The Scottish Government will continue to engage with agricultural industry bodies, legal advisors and land agents through TFAF to ensure their suitability on at least an annual basis. Additional surveys will be undertaken intermittently.

4.18 Summary and recommendation

4.18.1 It is recommended that Option 2 is pursued. These changes have been co-developed in detail with the industry. These proposals will encourage hybrid land management while ensuring agricultural tenants and small landholders have opportunities through a just transition and can participate in sustainable and regenerative agricultural practices which hold the potential to benefit the wider rural economy.

4.19 Declaration and publication

4.19.1 Sign-off for Final BRIAs: I have read the Business and Regulatory Impact Assessment and I am satisfied that (a) it represents a fair and reasonable view of the expected costs, benefits and impact of the policy, and (b) that the benefits justify the costs. I am satisfied that business impact has been assessed with the support of businesses in Scotland.

Signed: Mairi Gougeon MSP, Cabinet Secretary for Rural Affairs, Land Reform, and Islands

Date: 11 March 2024

Scottish Government Contact Point:

TEL: 07776 490502