Testing the rent review system: report

Chapter 1: Introduction

1.1 The Project

1.1.1 The Scottish Government's recently published economic strategy reaffirms its commitment to delivering increased sustainable economic growth with opportunities for all to flourish. The creation of an agricultural rents system which is fair to both tenant and landlord is an important part of this agenda.

1.1.2 To this end, the Government has appointed Savills in conjunction with Hamish Lean (Shepherd & Wedderburn) and Watson Bell (Watson Bell Consultants Ltd) to test, analyse and make recommendations on the functionality and application of the new rent review system introduced under Part 10, Chapter 5 of the Land Reform (Scotland) Act 2016.

1.1.3 The aim of this project is to help to shape the secondary legislation needed to bring the reforms to fruition. In summary, the requirements of the project are as follows:

• Interpreting schedule 1A of the 2016 Act and identifying further information that may be needed to ensure the new system operates according to definitive rules.;

• carrying out a sample of ten rent reviews to analyse both 'fair rent' as defined by the new system and (wherever possible) the 'market rent' under section 13 of the Agricultural Holdings (Scotland) Act 1991. The purpose will be to fully test the new arrangements, ensuring they are fair to both Landlords and Tenants. In each review, productive capacity (as defined by Scottish Government in Annex A of the ITT), should be assessed alongside the assumed terms of the tenancy agreement and a budget prepared. Based on an agricultural holding farmed by a hypothetical tenant farmer, the fair rent should be calculated with reference to a divisible surplus.;

• making a separate adjustment for open market rent of any surplus residential accommodation and fixed equipment provided by the landlord and used by the tenant farmer for non-agricultural purposes.;

• assessing alternative methods of calculating the productive capacity, consistent with the 2016 Act.;

• summarising the findings of the reviews and the issues raised in an interim report, highlighting areas that require further analysis and debate.;

• producing a further report which appraises the practicability of implementing the new rent review system; thereby identifying options which will enable the Scottish Government to achieve its objectives in this field.;

• delivering two presentations on this later report, enabling the Scottish Government and the Tenant Farming Sector sector Main main Stakeholder stakeholder Organisations organisations to scrutinise the findings and debate the conclusions.

1.2 The Team

1.2.1 The model below outlines how the Team have has worked together to achieve this aim. The team Team conducted the main research and pulled knowledge and direction from Gordon McConnachie for farm consultancy and budgets, Hamish Lean for legal opinion and Watson Bell for cross checking rationale, farm budget models and rent analysis:

1.2.2 The team Team pulls from experience in working for both Landlords and Tenants to ensure a completely robust and objective approach to the research. Through the structured inclusion of meetings and the complete transparency of the research at each stage of the process between Team members, all methodology has been robustly debated and agreed to ensure a joint sign off from all members was achieved.

1.3 Core Team

Jonathan Dymock MRICS

Lead Director

As team leader Jonathan has overall responsibility for delivering the project and for co-ordinating resources. In conjunction with Hannah Guild, he will carrycarried out the sample rent reviews. He has been the principal point of contact for the Scottish Government, attending all meetings, delivering the reports and presenting the results.

Jonathan heads Savills' landlord and tenant service line and is used as a source of authoritative advice on agricultural rent reviews by other members of the firm. He regularly carries out agricultural rent reviews across central and north east Scotland acting for both Landlords and Tenants.

Through his involvement in contract-farming 4,000 acres of arable land, Jonathan is well versed in the day-to-day realities of running agricultural businesses and has a close understanding of the issues facing tenants. He has also prepared expert witness reports on agricultural rents, addressing issues such as diversification and sub-letting income.

Hannah Guild MRICS FAAV

Land Agent

Hannah has worked closely with Jonathan in conducting the rent assessments and delivering the research. She has assisted him in collating evidence, producing the reports and co-ordinating the other members of the team.

Hannah joined Savills in June 2016 after four years at Dunecht Estates, where she was the lead rural surveyor. Her responsibilities there included managing commercial properties, let farms and seasonal grazings. Her involvement with tenants included preparing new tenancy documentation, rent reviews, liaising on liabilities for repairs and minimising arrears. Previously Hannah was employed by Buchan Agricultural Consultants where she worked for both landowners and tenant farmers in submitting subsidy claims and land management grant applications.

She has experience in managing mineral interests, residential lets and sporting interests, and has worked on property sales, valuations and the promotion of development opportunities. Her role has included liaising closely with management staff including accountants, solicitors, forestry managers and agricultural consultants.

Currently Hannah is involved in the management of estates and completing rent reviews for a range of other clients. Through her experience in dealing with residential tenants, she has an extensive knowledge of open market rent for residential properties, compliance issues and the costs involved in bringing properties up to standard. She applied this expertise in assessing the surplus residential units.

1.4 Specialists

Gordon McConachie

Food & Farming Consultant

Gordon has been responsible for cross-checking the budgets drawn up for each farm.

Gordon has spent his lifetime working in agriculture, including with the Scottish Government's various agricultural offices. As an accredited adviser to LANTRA (leading training body for land-based and environmental industries), he has produced many government funded whole farm reviews. These involve analysis of farm and enterprise accounts in the light of market trends and advice on budgeting and profitability. Part of the remit is to produce workable alternatives to current farming enterprises and cost them accordingly. At the Scottish Government Rural Payments and Inspections Directorate, he was involved in all aspects of subsidy entitlements and analysing business applications for funding.

As a whole farm review consultant, Gordon has a detailed knowledge of the farm business environment, market trends and farming best practice – essential requirements in being able to prepare effective budgets for the productive capacity assessments.

In his spare time he helps run the family tenant farm just outside Grantown-on-Spey, breeding pedigree Highland and Aberdeen Angus cattle along with running 600 Blackface sheep.

Watson Bell

Independent Farm Consultant

Watson has worked with Jonathan and Hannah to critically assess their findings and provide input on issues emerging from the research, including potential alternative approaches and solutions.

The Senior Partner of Watson Bell Consultants, Watson is an authority on agricultural issues with 40 years' experience as a consultant in the industry. As a trained mediator he has helped to resolve complex and long-term disputes between Landlords and Tenants. He is on the approved panel of advisers for members of the Scottish Tenant Farmers' Association and represents tenants in a wide range of negotiations including rent reviews, wayleaves, tenant's improvements, termination of tenancies and establishment of SLDT and LDT agreements. Having represented landlords as well as tenants, Watson understands the issues from both perspectives.

Watson has also appeared before the Land Court as an expert witness in cases involving penalties for breach of agricultural subsidy rules (SGRPID vs. A & F Grant) and rent determination (Kildrumy Estate vs. Forbes). For 14 years he was the principal lecturer at the University of Aberdeen post graduate land economy course ( MLE) specialising in business management agricultural law and rural valuation.

Hamish Lean

Independent Solicitor

Hamish has worked with Jonathan and Hannah to ensure the rent review programme faithfully reflects the requirements and objectives of the 2016 Act, assisting with interpretation where required. He has ensured findings, conclusions and proposed solutions are legally robust and capable of withstanding challenge.

Hamish now heads up the rural team in the Shepherd & Wedderburn Aberdeen Office and is one of Scotland's leading agricultural lawyers. The Chambers 2017 directory places him in Band 1, describing him as one of Scotland's foremost agricultural law experts with a "massive reputation" in the agriculture sector. He is cited in the Legal 500 as a leading figure in the sector and is described as ' an all-round professional'.

He is a frequent practitioner in the Scottish Land Court and writes and speaks regularly on agricultural law topics. He has particular expertise in agricultural tenancies and provides a legal helpline for the Scottish Tenant Farmers' Association. He was appointed by Scottish Government as a member of the Agricultural Holdings Legislation Review Group in 2013. Many of the recommendations made by the Team have been enacted in Part 10 of the Land Reform (Scotland) Act 2016.

He is a member of the Agricultural Law Association and the Scottish Agricultural Arbiters' and Valuers' Association. He sits on the Law Society of Scotland's Rural Affairs Committee and the NFUS Legal and Technical Committee. He is also a Trustee of RSABI, Scotland's leading agricultural and rural charity. He lives and practices in Aberdeen.

1.5 Summary

1.5.1 The Team is able to bring:

• in depth experience in carrying out agricultural rent reviews under the current legislation;
• a detailed understanding of the 2016 Act and its full implications for the transition from a market rent to fair rent system;
• an approach to the review programme which is transparent and fully represents the interest of both landowners and tenants;
• continuity in approach with the core team having undertaken all farm inspections with a handful also being attended by Watson Bell and the Scottish Government. The specialists have been consulted throughout the work to date via regular meetings, emails and telephone calls; and
• with nine offices and around 120 staff in Scotland, Savills as a company have an ever growing research department which has been fully utilized in order to cross check and further develop models and concepts.