Testing the rent review system: report

Chapter 5: Form and Content of Rent Review Notice

5.1 Interpretation of the Act

5.1.1 It was confirmed with Hamish Lean that the Act both changes the way the rent is to be assessed and the procedural steps required to initiate a rent review. Section 101 of the Act sets out the procedure which must be followed in relation to reviewing the rent of a 1991 Act tenancy. Sub-section 2 provides that the review notice must be dated and must state the following:

(a) Names names and designations of the landlord and tenant;

(b) The the name, if any, and the address of the holding or such other description of the holding as will identify it;

(c) The the rent currently payable in respect of the holding;

(d) The the rent that the person serving the notice proposes should be payable; and

(e) The the date by which the landlord and tenant must reach agreement as to what the rent payable should be (the "rent agreement date").

5.1.2 The rent review notice must be accompanied by information explaining the basis on which the rent proposed by the person serving the notice has been calculated. The rent agreement date stated in the rent review notice must not fall earlier than 12 months from the date on which the notice is served or later than 2 years from that date. The Scottish Ministers have reserved powers to make regulations which may adjust the form and content of rent review notices and the information that must or may accompany them.

5.1.3 The rent review notice cannot be served if a rent agreement date falls before the end of a period of three years beginning with the latest of the commencement of the tenancy, the date from which the previous variation of rent took effect or the date as from which a previous determination that the rent should continue unchanged took effect. Variations of rent arising out of the operation of Sections 4 & 5 of the 1991 Act which have to do with terms and conditions relating to fixed equipment are ignored, as are variations of rent as a result of the carrying out of certain improvements by the landlord, as is reduction of rent in terms of Section 31 where the tenant has dispossessed the part of the holding or where a variation of rent has arisen because of the exercise of revocation of an option to tax under Schedule 10 of the Value Added Tax 1994 or a change in the rate of Value Added Tax.

5.1.4 A rent review notice once served can only be withdrawn by agreement of the parties and will cease to have effect when the landlord and tenant have reached agreement or where referral is made to the Land Court where agreement has not been reached or where a referral has been made the date on which the Land Court determines the rent to be payable. A referral to the Land Court must be made prior to the expiry of the rent agreement date set out in the notice.

5.2 Issues arising from the Act

5.2.1 The most significant change from the previous procedure is that the rent review notice will require to be frontloaded and the landlord or tenant serving the notice must have a reasoned proposal and be able to set out what those reasons are for fixing a particular rent. Accordingly most of the work required to come up with the rent will have to have been carried out in advance which puts a considerable burden on landlords and tenants, especially those acting without professional advice, and it will be difficult to adequately take into account changing fortunes within agriculture in the lead up to the rent agreement date. Consideration of the practicality of including information on what the rent should be over a year in advance of the effective date is required.

5.2.2 Through consideration of the sensitivity of the productive capacity model for reviewing the rent and how the date of analysis will impact on the result, we believe that it is impractical to set the proposed rent within the rent review notice. The current best practice guidance on timeframes for rent reviews works well with inspections taking place 6 months in advance and written proposals sent to the landlord or tenant 4 months in advance of the rent agreement date. As this is set out in guidance it allows for some flexibility in terms of availability issues due to harvest, lambing, calving or other weather or seasonal activities.

5.2.3 From stakeholder feedback it was clear that the reason for having the notice front-loaded was to allow both parties enough time to agree on the matters required for agreement to be reached. Since this will be most relevant to the first rent review under the new system we recommend this being done through a separate procedure prior to the first rent review being undertaken. A procedure could run alongside the tenant's amnesty procedure which has a three year timescale for completion. This would involve a landlord and tenant agreeing on the main characteristics of the holding which are linked to its productive capacity in terms of a 'statement of facts' (see Appendix 3). Provided a statement of facts is agreed prior to a rent review notice being served, we believe the best practice guidance timeframes are long enough and provide the correct level of flexibility to make the system workable in practice. If a statement of facts cannot be agreed prior to the service of a rent review notice it is unlikely that proposing the rent in the notice will assist negotiation.

5.3 Recommendations

• Removal of Sub-section 2(d) to ensure a rent review notice does not need to include details of the proposed rent. However, we observe that this would appear to fall outwith the scope of Section 2.4 of the Act which allows Scottish Ministers by regulations to make "further" provision about the form and content of rent review notices. We do not believe that removing an existing requirement is making further provision and any such change may require primary legislation.

• Best practice guidance should be updated to dictate:
  • A timeframe for a rent review negotiation procedure similar to that which is currently outlined. It is felt dictating a timeframe within statute is too inflexible to cope with circumstantial delays caused by farming operations or unforeseen events.;
  • completion of the tenant's amnesty should be encouraged in order to improve records for rent review purposes.;
  • completion of a Statement of Facts should be undertaken alongside the tenant's amnesty procedure prior to a rent review notice being served under the new system.