Small landholdings in Scotland: legislation review

Annex 7: Small Landholders Review: Consultation Analysis

1. Executive Summary

The Consultation Process

During the months of October and November 2016 the Scottish Government consulted on the Review of Legislation Governing Small Landholdings. The consultation process was initiated by the Land Reform (Scotland) Act 2016, which stipulated a review of the legislation governing small landholdings. The consultation asked three open questions which were primarily in relation to current legislative provisions and how they could be improved. The consultation paper was sent to small landholders and landlords. Officials endeavoured to make personal contact with all small landholders and to ensure that landlords had fair representation.

SG Officials also organised workshops attended by small landholders, organised individual meetings with landlords and attended a number of industry events to publicise the review. We estimate that there are 74 small landholdings in Scotland. Twenty two (22) responses to our consultation were received in total, 17 from small landholders and 5 from landlords or their representatives. Twenty three (23) per cent of all small landholders in Scotland responded to the consultation.

Policy Background

The Scottish Government has stated aspirations for a vibrant tenant farming sector which contributes to a prosperous and sustainable rural economy. Reviews undertaken in the tenant farming sector and in land reform in 2014 have considered small landholdings and suggested that modernisation of the legislation may be required.

Under section 124 of the Land Reform (Scotland) Act 2016, Scottish Ministers made a commitment to review the legislation governing small landholdings and lay a report before Parliament by 31 March 2017, consulting with small landholders and other parties as appropriate.

The legislative framework on small landholdings is fragmented and out of date with the last substantive legislation being passed in 1931. Legal provisions for small landholders were originally created under the Crofters Holdings (Scotland) Act 1886. Thereafter key legislation shaping small landholding policy included the Small Landholders (Scotland) Act 1911, the Small Holdings Colonies Acts of 1916 & 1918, Land Settlement (Scotland) Act 1919 and the Small Landholders and Agricultural Holdings (Scotland) Act 1931. After this date changes to small landhold tenure have been carried out under crofting or other statutory provisions.

The legal review has focused on the issues highlighted during the consultation accompanying this review. Key stakeholders from the small landholding and tenant farming sector have also contributed their expertise.

Findings from the Consultation

Views on current legal provisions governing small landholdings

1. All respondents found the legislation governing small landholdings dated and inaccessible.

• Landlords and small landholders alike did not always understand their rights or the statutory processes underpinning them.

2. Some small landholders felt they could benefit from having an organisation with over-arching responsibility for small landholdings ensuring that small landholding legislation is properly adhered to.

3. Some of the processes within the legislation had resolution via the Scottish Land Court. Landlords and small landholders both found the court process costly and onerous.

• Small landholders felt the court process was unnecessarily stressful, indicating it was not the best use of their limited funds.
• Landlords wanted to simplify things and come to agreement with small landholders without the burden of attending court.

4. Small landholders wished to retain legal provisions for security of tenure and succession. They also all raised the issue of a lack of a right to buy. This was aligned with a range of related issues that depended on their ability to invest in the land and infrastructure.

5. Some small landholders found it difficult to develop viable small landholding businesses.

• Both landlords and small landholders wanted to make small landholdings more attractive for new entrants.

6. There were mixed opinions from small landholders regarding the potential to convert to crofting.

• Some small landholders can already convert but felt there were issues with the current legislation that needed to be resolved before this was desirable to them.
• Some small landholders outwith the designated areas wanted to convert to crofting to give them parity with crofters.
• No small landholders were interested in converting to a secure 1991 Act tenancy, however some landlords felt this was a possible option at the end of a tenancy.

Views on groups and individuals disadvantaged by small landholding legislation

7. Some small landholders considered there was a lack of parity between themselves and landlords, and felt subjugated and financially outmatched. Conversely some landlords felt that the legislation was drafted in favour of the small landholder.

8. Some small landholders felt disadvantaged compared to other types of agricultural tenancies as they had no right to buy and found it difficult to secure banking and funding streams. Some small landholders found it difficult to meet the costs of running their farm business and many had other jobs.

9. Some small landholders advised that legal provisions allowing conversion to crofting were unfair to those who could convert and discriminated against those located outwith the designated crofting areas who could not take advantage of the benefits that would be afforded to small landholders within the designated crofting areas.

10. Both landlords and small landholders were frustrated by and called for an overhaul of the provisions for succession, assignation and new entrants under the small landholding regime.

• Small landholders feared that compensation on waygo would not reflect their lifetime investment.
• Landlords disliked the low return on their land by way of rent and the legal requirement to financially compensate the small landholder on waygo. This may contribute to the small landholder staying on the land longer than intended and has implications for new entrants.

Views on what can be done to improve small landholdings

11. Right to Buy was a pivotal issue. Small landholders requested the right to buy land under their buildings as a starting point. Landlords demonstrated an understanding of this issue.

• The right to buy process can be complex with regard to disparity in land valuation. It also raises ECHR issues on the part of the landlord.

12. Small landholders did not wish to negotiate on the issue of security of tenure as they felt this was key to their survival. Conversely, landlords felt that security of tenure was a barrier to progress and new entrants.

13. Both small landholders and landlords wanted to see modernised provisions that benefitted both sides of the small landholding equation and created confidence and certainty.

14. Although it was suggested by some small landholders that landlords could be resistant to diversification, ultimately both tenants and landlords wanted to see small landholdings develop into viable businesses.

• Small landholders called for better access to funding and banking allowing greater investment in their holdings, given that any current borrowing may be reliant on ownership of capital assets such as buildings.

15. Some small landholders felt they might benefit from the establishment of one single organisation with responsibility for regulation of small landholdings. Linked to this they also asked for codes of conduct outlining obligations and rights on a range of prevalent issues that would eradicate non-uniform practices which may have replaced processes set down in statute.

2. Introduction

Consecutive SNP manifestos ^[124] pledged to create a thriving tenant farming sector and prosperous rural communities. In 2014 the Scottish Government published the final report of the Agricultural Holdings Legislation Review Group ( AHLRG). ^[125] This report considered the role of small landholdings as a part of their 2014 review into tenant farming. The review group concluded that the legislative framework governing small landholdings required modernisation to bring them into line with other types of tenancies ^[126] and that further worked was needed to be undertaken with industry bodies in order to achieve that. The need for modernisation of small landholdings was also recorded in the simultaneous review carried out by the Land Reform Review Group. ^[127]

Under the Land Reform (Scotland) Act 2016, ^[128] Scottish Ministers made a commitment to review the legislation governing small landholdings and lay a report of the review before Parliament no later than 31 March 2017, consulting with small landholders and other parties as appropriate.

Review Process

Legal review

The legislative framework on small landholdings is complex and dated. Legal provisions are rooted in the Crofters Holdings (Scotland) Act 1886, amended by Small Landholders (Scotland) Act 1911 and then re-shaped by successive legislation including the Small Holdings Colonies Acts of 1916 & 1918, Land Settlement (Scotland) Act 1919 and the Small Landholders and Agricultural Holdings (Scotland) Act 1931. After 1931 any further changes to small landhold tenure was carried out via crofting or other substantive legislation. ^[129]

This legal review has focused on the issues highlighted via the consultation, and stakeholders from small landholding and the tenant farming sector were invited to comment on and contribute to the report.

Consultation

As part of the review, a short consultation paper was sent to all of 74 current small landholders and via stakeholders to landlords, followed up with telephone calls.

Officials endeavoured to make personal contact with all small landholders and to ensure that landlords had fair representation; this included a number of site visits to small landholdings; open workshops were held with small landholders in Ayr and Arran, where the areas of highest concentrations of small landholdings are located and individuals outwith those areas were invited to attend those events; individual meetings were held with landlords and their representatives.

In addition, officials attended industry events including the Smallholder & Growers Festival, Lanark, September 2016 to share information on the consultation. The consultation analysis represents views from all of these abovementioned activities.

Consultation Responses

The Scottish Government received 22 consultation responses in total to a mailer issued during October 2016; 17 from small landholders and 5 from landlords or their representatives ^[130] . Written responses were submitted either by e-mail or by hand from small landholders or landlords attending our engagement events. Table 01 shows response by category of respondent.

Table 01: Distribution of responses by category of respondent

Category	No. of respondents	% of all respondents
Small landholder	17	77%
Landlord	3	13%
Factor	1	5%
Land Agent	1	5%
TOTAL	22	100

Overall, 77% of responses were submitted by small landholders and 23% from landlords or their representatives. Of those respondents indicating a location, 60% of small landholders and 40% of landlords were from Arran. Although the number of respondents was relatively low, in terms of the total number of small landholders across Scotland, a response rate of 23% was achieved. ^[131]

Analysis of Responses

The consultation contained 3 broad questions in open format. Whilst the analysis addresses each of the questions raised, written responses are presented under topic headings in order of those topics gaining the highest interest from consultees and augmented by feedback on a wider range of topics from landlord meetings and engagement workshops and events.

The report is also illustrated with broad comments provided by consultees, as small landholders were keen not to be identified in any way, and aimed at enhancing understanding of the points being made.

3. Views on current legal provisions governing small landholdings

Background

Legal provisions governing small landholdings are dated. The last substantive legislation on small landholdings was made in 1931. Thereafter legislative provisions for small landholdings have been carried out via crofting, agricultural holdings or other legislation. As a result small landholders may have fallen behind their agricultural tenancy counterparts.

Question 1: What are your views on the current legal provisions governing small landholdings?

Overall, 21 respondents to the written consultation answered this question, offering a wide range of reasons as to why the legislation did not work for them, evidenced below.

Accessibility of the Legislation

All of those small landholders and landlords that attended the Scottish Government organised workshops indicated that the legislation was inaccessible, outdated, time consuming to navigate and by implication, inadequate for a modern farming tenancy. This is borne out by 8 respondents answering this question in the written consultation.

Many small landholders felt that they did not know where to access the legislation, did not understand it if they could access it and did not know where to go to get expert advice on interpreting it. Small landholders advised that the legal profession outside of Edinburgh may have little or no understanding of the legislation and the expertise small landholders could access in Edinburgh came at a premium.

Small landholders asked for information on the legislation governing small landholders to be more freely available and to have a better understanding of their rights. Some small landholders wanted to see change to the current legislative provisions, but were uncertain what this would bring.

Some landlords suggested all land law should be consolidated and simplified, querying the need for differentiation, in current times, between small landholder types. ^[132] Landlords also called for greater understanding of how the different tenancy types, small landholdings, crofts and secure 1991 Act tenancies, compare and inter-relate to each other.

Security of tenure

Many small landholders stated that the upside of the legislation was that it gave them security of tenure and that retention of this condition was paramount and non-negotiable (alongside succession rights). Six small landholders answering this question raised this issue in the written consultation, whereas all of those attending the Arran and Ayr workshops stated this was key. Small landholders did not want their security of tenure eroded by a failure to provide the correct tenancy documentation and did not want it to be affected by the small landholder not taking up a right to buy or land being sold on to a new landlord. Conversely, landlords also felt that whilst security of tenure worked in favour of the small landholder it did not help the landlord where a holding was poorly managed and left to fall into disrepair. One landlord raised the issue of security of tenure.

Accessing Justice

Two small landholders advised that they found the court process intimidating and costly and there was an inequality due to the fact that landlords may be more financially able to access legal advice and to be in a position to take a case to court. In addition, the opportunity cost for them of accessing justice meant that monies that small landholders could have invested in land, buildings and/or livestock is diverted into covering legal fees and expenses. However, landlords advised that they also found the court process costly and they felt, time-consuming. Certain agreements ^[133] should go to the Scottish Land Court for approval and landlords questioned whether the current legal processes were still necessary, if both parties were able to agree to the terms without going to court.

Freedom to contract

It was suggested by landlords that under the current legislation there was an inherent lack of freedom around creating your own contract and that the current method of defining various types of contract through legislation was not necessarily helpful to them.

Chain reaction

It was suggested by landlords that a domino effect or chain reaction was at play: the size of the holding restricted the earning capacity and therefore the small landholders ability to invest and to maintain buildings. This restricted income in turn meant that the small landholder may also struggle to invest in and to maintain the housing and welfare of their livestock. At the end of the tenancy the landlord is still obligated to pay a waygo figure which will reflect the general condition of the buildings and the land but perhaps fails to meet the small landholders expectations for a life's investment. If there is no natural successor to the outgoing small landholder then the landlord is obligated to carry out the repairs.

At this point it was suggested that the small landholder may also seek to use the waygo payment to buy the solum (land under the house) and will find the waygo insufficient. It was suggested that where the small landholder does have extra money to invest or to develop a business then the small landholding may thrive. However, small landholders may be forced to diversify often in ways which are not agriculturally based in order to survive and this can be costly for the incoming small landholder who has to invest so that the buildings can be reverted back to agricultural use.

Right to Buy

A recurrent theme throughout the consultation was the failure of the legislation to allow for small landholders to buy either the land under the houses which they or their predecessors had built or to buy their holding outright. ^[134] Four respondents answering this question raised this issue in the written consultation. Across the whole written consultation 13 respondent raised this matter. All small landholders attending the workshops in Arran and Ayrshire indicated they desired a right to buy.

Many small landholders sought an absolute right to buy the solum, ^[135] buildings and/or steading which they or their predecessors will have built, invested in and maintained over time. Non-ownership of the solum is linked to small landholders' fears of homelessness at the end of their tenancy; they seek to assign or pass the tenancy on to someone else but are reluctant to purchase and move house later in life as they do not think the compensation provisions will meet either their expectations or their costs. Some small landholders thought that if they bought the solum they would have to forgo the whole tenancy in exchange.

Concerns were raised about ownership of the land changing hands without the small landholder knowing or even being offered the right to buy. It was suggested that this could contribute to poor relations between the small landholder and the landlord.

Rent

One landlord raised specific concerns that they felt low rents were subsidising a lifestyle choice; rent for a small landholding is based on the profitability of the holding. As small landholdings are not considered profitable the corresponding rent may be kept artificially low. They suggested that there may be an inconsistency between the bigger sums small landholders are prepared to pay for grazing lets compared to what they pay for their holding.

New Entrants

Two landlords opined that the small landholding regime was not an attractive option for new entrants and that it restricted investment and innovation of both the landlord and the small landholder. Small landholders from Ayr also stated that they could not see why new entrants would want to become small landholders. They felt this type of tenancy was not fit for purpose and that small landholdings were not attractive for new entrants

Funding

Small landholders advised that there was poor access to lending because, although they had erected buildings they did not own the asset of land and therefore they had no security for borrowing. This also created issues around being able to access insurance for some small landholders. Small landholders on Arran raised concerns about the issues with the Scottish Government's single farm payment scheme and few had heard of the Small Farm Grant Scheme. Broader financial issues were also raised such as Britain leaving the EU and the risk of loss of direct payments to small landholders.

Understanding Rights

Because small landholders and landlords often do not understand the legislation, there is a corresponding failure to understand their duties and rights and a very evident gap between the processes set out in the legislation and actual practice. As a result small landholders in particular felt that the legislation was weak and intrinsically unfair. This is evidenced by feedback from consultees on a number of topics covered by the legislation. More on each of these is set out below:

Conduct

Some small landholders indicated that they were on very good terms with their landlords, factors and land agents and did not have any issues. Equally, there were those that did have issues and did not want legislative change to give any more powers to landlords than they already have. Some small landholders felt that landlords and agents focussed on their own interests to the detriment of the wider community.

Planning

Two small landholders indicated that their holding was the subject of potential full farm resumption due to industrial or residential development. They felt that constantly being worried about the enforced loss of a tenancy and therefore livelihood and the impending threat of eviction, was a massive disincentive to invest in buildings or livestock or to focus on things that may make a difference to their small landholding business such as dealing with issues on climate change or biodiversity.

Compensation

Some small landholders suggested that there were poor provisions for compensation for investment where land is resumed or at the end of the tenancy where the compensation may be insufficient to buy a house. It was felt that landlord-imposed valuations may often not fairly reflect the lifetime investment made, enrichment of the land or what the small landholder felt their tenancy was worth. Small landholders considered that inadequate provisions were linked to homelessness at the end of a tenancy, often forcing small landholders to work on well into retirement. There was also some uncertainty on the part of small landholders as to value of investments in infrastructure such as boundaries, fencing drainage etc. Feedback from small landholders on Arran and in Ayrshire mirrored this.

Vacant holdings

Small landholders and landlords were also agreed that the lack of legislation regulating vacant or poorly managed small landholdings was problematic. Both were concerned about the loss of quality of prime agricultural land and the cost associated in getting it back to a good standard.

Landlords raised concerns about the cost of improving vacant landholdings that have fallen into disrepair, acting as a barrier for new entrants. Small landholders raised concerns about vacant holdings being subsumed back into estates without regard for legislative provisions requiring the land to be offered either to other small landholders in the locality or to new entrants. They queried whether it would be possible to trace de-registered land and to examine whether the de-registration had been executed legally and queried whether de-registered land, either illegally handled or otherwise, could be re-registered as a small landholding. They also queried why Scottish Ministers or the Scottish Land Court did not enforce the law as laid out in the legislative provisions and why they did not have a regulatory body, similar to the Crofting Commission or the Scottish Land Commission overseeing small landholdings.

Succession/Assignation & New Entrants

Some small landholders felt that the provisions for succession and assignation were unclear. During the Ayr workshop there was considerable variation in small landholders understanding of e.g. the length of time they had before notifying a landlord of a change of tenant. Some thought it was as little as 2 weeks and some suggested various longer periods of time. There was also uncertainty about the location where small landholders could live and corresponding distance from the small landholding if they were to succeed. Some suggested it had to be within a 2 mile radius and others volunteered that they had been living overseas when the small landholding had transferred to them and that this had not deterred them from succeeding. Small landholders raised concerns about the ever-reducing numbers of small landholders compared to what there used to be.

Housing

Some small landholders advised that not owning the land under the buildings had prevented them from accessing funding from banks who did not recognise the buildings as collateral. Small landholders on Arran told government officials that the ages of the buildings on their various steadings ranged from between 150 - 200 years old and the most recent around 60 years old. In many cases the buildings had been erected by family. Given that a small landholding is a bare land let, the landlord had not contributed to the maintenance of those buildings.

Non Agricultural Diversification

Many small landholders advised that non-agricultural diversification was extremely problematic, with some fearing any sort of diversification would result in the loss of their holding. Many felt they were blocked either by their landlord or by limited access to funding for the greater investment needed for diversification. These opinions were also echoed by small landholders attending both Arran and Ayr workshops.

Conversion

The issue of conversion to another tenancy type was predominantly raised during the Scottish Government-lead workshops. On Arran, which falls into Scotland's designated crofting areas, where conversion to crofting is already possible but no conversions have yet taken place, there were mixed responses as to whether small landholders would prefer to be a croft.

In almost equal numbers Arran small landholders voted 'yes' (5 respondents), 'no'(3 respondents) and 'don't know'(5 respondents) to this question. Of those small landholders stating they would want to convert it was suggested that the right to buy would be an attractive option allowing them greater access to funding. However, that was caveated that they would convert as "a last resort" with some small landholders offering that they had better security under small landholding legislation.

Those stating they did not wish to convert thought that crofting law was overly bureaucratic and a potential 'minefield' with no clarity as to their rights and conditions.

A further group of small landholders were 'uncertain', stating that they saw no clear advantages to conversion to crofting. Some, for instance, thought they would still be tenants and failed to grasp they would have an absolute right to buy. There was no understanding amongst some small landholders that e.g. conversion would bring the right to buy.

Some small landholders felt that those small landholders based outside the crofting counties and designated crofting areas were being discriminated against because they could not convert and take advantage of what conversion might bring. Those small landholders attending the Ayr workshop were clear that they would want to convert to crofting as this would give them added protection.

On the related matter of payment of compensation by the small landholder to the landlord on conversion, small landholders on Arran advised that they considered these legal provisions unfair. They felt that the sale price arrived at did not reflect the fact that the small landholder would have invested heavily in the land over time in a way the landlord had not and suggested that in the light of this, compensation to landlords was unjustified.

A number of small landholders found conversion without compensation an attractive option arguing that those small landholders converting to crofts automatically under the 1955 legislation had not been required to pay compensation. It was suggested that conversion without compensation should be extended to all areas of Scotland. It was pointed out by some small landholders that compensation may have already been paid to landlords in the form of tax breaks or direct payments at the time that the small landholding had been originally formed.

None of the small landholders that gave an opinion on conversion to another tenancy type considered that conversion to a secure 1991 tenancy was an attractive option.

Summary of key points

All respondents considered the legislation governing small landholdings outmoded and inaccessible with landlords and small landholders alike not knowing where to access it or uncertain how to interpret it. Due to this inaccessibility, many failed to understand their obligations and rights and experienced frustrations and difficulties regarding their day to day operations.

Small landholders felt that their situation was made worse due to the fact that there is no single organisation with over-arching responsibility for small landholdings and therefore for ensuring processes set out in statute are properly adhered to.

Landlords and small landholders both found attending court a costly process. Small landholders alluded to associated stress of accessing justice and the opportunity cost of monies allocated to legal disputes as opposed to invested in their businesses, whilst landlords advocated simplification of processes and the freedom to contract.

Small landholders identified that retention of legal provisions for security of tenure and succession were paramount to them. The right to buy was a recurrent theme, along with related issues such as housing, poor access to funding, outmoded legal provisions on succession, assignation and compensation and making small landholdings attractive for new entrants.

There were mixed opinions from small landholders regarding the potential to convert to other types of tenancy. Some small landholders can already convert but have not chosen to do so and felt there were issues with the current legislation that needed to be addressed before this became an attractive option for them.

4. Views on groups and individuals disadvantaged by small landholding legislation

Background

The Scottish Government is keen that all aspects of tenant farming can contribute effectively to a sustainable and vibrant rural economy. This question is the first step in addressing equalities issues for small landholders and their landlords as there is little or no current day equalities data on this group. Feedback identifying those disadvantaged groups and individuals can contribute towards informing future policies on small landholdings.

The second question concerned who or which groups might be suffering as a result of the small landholding legislation.

2. What group(s) if any, do you feel are disproportionately affected by the current provisions?

Eleven respondents or 50% of those responding to the written consultation addressed this question. Of those, the majority of respondents (9 or 81% of respondents) were small landholders and 2 (19%) represented landlords.

Agricultural Lifestyle

Most small landholders found their agricultural lifestyle 'only just sustainable' with all Arran small landholders advising that they had to supplement their income with other work. Some small landholders felt this constant struggle resulted in an inability rather than a failure to invest properly in the land and infrastructure. On the other hand, some landlords considered small landholdings to be a lifestyle choice.

'The inheritors are inheriting still' ^[136]

Small landholders felt they were disadvantaged for a number of reasons:

• Some small landholders suggested that there was no equality or parity between landlords and small landholders and that this was to the detriment of the small landholder.
• That good relationship management was essential in retaining the tenancy and that small landholders were dependent on the good will of their landlords.
• It was felt that the obligations on the small landholder were burdensome
• Not having a right to buy was raised by 5 small landholders who answered this question.
  • the land under houses; houses could not be used for collateral for loans or improvements because the small landholders did not own the solum. It was stated that not being able to benefit or profit from the investment in their own house was not a common sense position for small landholders and that no other section of society was forced to operate in this way.
  • the whole small landholding
• That landlords were incentivised to sell because of the market value of land being bought for developmental purposes. It was suggested that the right to buy or pre-emptive right to buy for small landholders might resolve this.
• Concerns were raised about urban planning schemes encroaching on rural communities and small landholdings. It was suggested that the countryside and the green belt should be seen in a more positive light rather than just an opportunity for developers.
• Other small landholders were concerned that there was poor adherence to the law regarding vacant holdings and that small landholdings were quietly subsumed back into estates or amalgamated into larger farms.
• It was suggested that waygo provisions were inadequate and did not recognise the sheer investment of the small landholder.
• Small landholders also advised that assignation provisions were limited, compared to tenants under the 1991 Act.
• It was also suggested that the legislation allowing small landholders in the designated crofting areas to convert to crofting ^[137] was discriminatory because it did not allow those small landholders outwith these locations to also convert to crofting.
• Conversion to crofting was also ruled out as creating uncertainty regarding the right to buy and being too costly. Conversion to crofting was raised by 3 small landholders answering this question.
• Some small landholders felt it was creating an unnecessary distinction to not just apply crofting law to small landholdings, because they stemmed from the same legislation and some of the legal provisions on crofting still applied to small landholdings.

Only one small landholder felt that the small landholder scheme was detrimental for the landlord. They perceived that succession provisions were problematic for the landlord because they cannot control this process.

'A deadly embrace'

The 2 respondents representing landlords that answered this question felt the legislation was detrimental to both parties.

Describing the small landholding scheme as a 'deadly embrace', one respondent suggested that the landlord was challenged by the outdated legislation, rent review procedures and the difficulty in resuming land and the small landholder by their inability to secure a mortgage or loans for improvements on the property they have built.

Another respondent went further and focussed on the failure of the legislation to provide workable solutions for both parties when it came to in-life planning and questioned whether small landholdings were economically viable.

They suggested that from the landlords perspective there is little or no incentive to address the small landholders desire for retirement as this will involve a high investment in the form of compensation on waygo and then a low return due to the low rent. The small landholder is therefore unable to get a speedy agreement from the landlord, delaying the small landholder from retiring when they want to. In turn the sitting tenants failure to retire can act as a barrier to new entrants.

The incoming tenant or new entrants may be impacted by the significant investment required to get the farm fully operational only to find that there is a very poor return on their investment due to the limited size of the holding restricting their productive capacity. Similarly the landlord receives a poor return on their investment due to low rents. This has been described as an unsustainable position and it has been suggested that merging the land with other larger units may be a preferred course of action, thereby reducing maintenance costs and allowing an existing unit the opportunity to expand and to benefit from lower overheads per acre.

Summary of key points

Small landholders cited the main issue facing them as the lack of parity between themselves and landlords.

Restricted by the productivity of their holding due to size, some small landholders found it difficult to meet the costs of running their farm business, often supplementing their lifestyle with other work. Aligned to this, small landholders had no right to buy compared to other types of agricultural tenancies and struggled to identify supportive banking and funding streams.

Some small landholders felt not only did current legal provisions allowing them to convert to crofting disadvantage them, it also disadvantaged those located outwith the designated crofting who could not convert and therefore take advantage of the benefits that would otherwise be afforded to them.

Poor provisions for in-life planning may work to the detriment of both small landholders and landlords. Small landholders feared that compensation on waygo would not reflect their lifetime investment or meet their need to purchase a house and render them homeless in later in life. Landlords, frustrated by artificially low rents based on the productivity of the small landholding and therefore a correspondingly low return on their land may be reluctant to negotiate with small landholders wishing to retire and to address the legal requirement to compensate the small landholder on waygo. This may contribute to the small landholder staying on the land longer than intended.

If the land has fallen into disrepair in this intervening time, then the incoming tenant may be faced with costs to re-establish the holding to working state.

5. Views on what can be done to improve small landholdings

Background

Having identified potential weaknesses in the small landholding legislation, small landholders and landlords were asked what could be done to improve the lot of small landholdings to bring them up to date, ensure they had parity with other types of agricultural tenure and to allow them to continue to contribute to a vibrant rural and sustainable economy.

How could small landholdings be improved so that they can continue to contribute to a sustainable and prosperous rural economy? Please include legislative and non-legislative options here, indicating who or which organisations need to take action.

All 22 respondents answered this question.

It was suggested by small landholders that the intention of the review under the Land Reform (Scotland) Act 2016 was to ensure that small landholdings could continue to contribute to the rural economy and they felt that serious consideration should be given to how that might work more effectively. Some small landholders felt that small landholdings should have a specific purpose, such as to encourage a greater sense of community or to allow small landholders to act as environmental guardians protecting wildlife and promoting biodiversity. There was a suggestion that those organisations needing to engage to make the changes are the Scottish Government, specifically their Agricultural Division and Scottish Natural Heritage together with access and support from various other governing bodies. Small landholders in Arran and Ayr raised concerns about the general disappearance of this type of land tenure.

Legislation

In providing solutions to the issues with the legislation, both small landholders and landlords were keen to adopt a win/win approach. Landlords also asked for the legislation to be flexible, simplified and easily intelligible. Some landlords called for a review of the terms of contract of this type of tenure, allowing both parties to make a more flexible agreement that would work for them; they suggested that this would help address the issues around neglected or unproductive land.

Some landlords suggested that a new small landholding scheme should be introduced that encouraged innovation and diversification by funding the development of livestock, housing and storage which would counter the small landholders inability to sustain bank borrowing or to build and maintain buildings and align small landholdings more closely with other modern day tenancies. Landlords felt that in doing so, consideration would have to be given to the value of small landholders improvements so that they were balanced with the productive capacity of the land and to how landlord compensation for improvements might work.

Right to Buy

The vast majority of small landholders responding to this consultation and attending the workshops requested a right to buy. Of those responding to this question 9 wanted a general right to buy ( RTB). One respondent wanted an absolute right to buy ( ARTB), 3 asked for a pre-emptive right to buy ( PRTB) and 1 for a community right to buy ( CRTB). Small landholders on Arran suggested both an absolute and pre-emptive right to buy would be appropriate.

Of those small landholders requesting a general right to buy it was suggested by some that this should be offered in preference to those small landholders with long tenure and should also come at an affordable or reasonable price; 15 times the annual rent has historically been considered a fair price or alternatively 50% of the market valuation. Affordability was raised by 3 small landholders responding to this question. Some small landholders felt that this would give them parity with crofters. Other small landholders were concerned that their tenancy might be a risk if they did not take up the right to buy when offered. Two small landholders felt that the right to buy would make small landholdings a more attractive option to new entrants.

Of those small landholders on Arran preferring an ARTB, it was suggested that this would be an appropriate move, where the lease had been held over a long period of time (a suggested timeframe was 100 years). They felt this would give renewed confidence, greater access to finance, better compensation on retirement or re-sale and be a better deal all round for new entrants, if succession remained restricted. Some were more cautious and were only interested if ARTB was offered at what was considered to be the right price e.g. 15 years rent. There were concerns that even after a holding had been bought that landlords would still be able to wield power over them and restrict access or diversification.

A number of small landholders requested the right to buy the land under their houses and steading as a bare minimum, advising that this would create greater security for them and increase access to funding and banking and encourage greater diversification. Seven small landholders responding to this question requested this. The ownership of land under buildings was also a recurrent theme with small landholders on Arran.

A small number had managed to secure ownership of the land under their buildings. It was felt this was a minimum or reasonable starting point for PRTB. This would allow small landholders access to loans and encourage greater capital investment and diversification, greater potential for employment within the community and increasing and maintaining housing opportunities. This is an option small landholders may consider in exchange for compensation for the loss of a tenancy.

Some small landholders from Arran also suggested PRTB should be appropriate on holdings where the lease had been held over a long period of time (100 years was suggested) and that a PRTB be given at a reasonable price of no more than 50% of valuation levels. Arran small landholders rejected the idea of a CRTB, raising concerns about how this might work in practice around varying degrees of commitment and long term planning.

Small landholders attending the Ayr workshop also wished for a RTB and felt that the divergence of value of land sold for agricultural value versus its development value disadvantaged them. They wished to be offered a pre-emptive right to buy if the land was being sold and were generally concerned about their lack of rights. If they had a RTB they would want the right to buy land under their houses, steadings and out-buildings. Some small landholders suggested a minimum area of land if buying the house, garden ground and steading should be 1 acre. Small landholders in Ayr felt that lack of ownership resulted in low investment and contributed to feelings of uncertainty about their security of tenure; Some small landholders also wished to purchase at a discounted rate.

There was a general understanding amongst landlords that the RTB land under houses and buildings was a contentious issue for small landholders. There was also a consensus that this land could in theory be - and in some cases has been - sold to small landholders - but that small landholders wishing to purchase needed to speak with their landlords. Landlords felt that the issue for them was how to make the sale an attractive and fair proposition and considered that if that land under a house is valued as agricultural land then it is undervalued.

Other landlords also felt that the small landholder could possibly be given the RTB the house and garden ground at a suggested 50% of market value, less improvements, on the basis that the lease on the remaining land is converted on sale to an agricultural tenancy. It was suggested that this conversion would allow the small landholder to continue to operate and obtain a mortgage whilst retaining security of tenure.

Landlords suggested it would not be equitable or fair to give small landholders a RTB the whole holding, as this would have a considerable impact on the rural estates they form part of.

Compensation on Waygo

Small landholders called for compensation provisions on waygo to be reviewed and modernised; They felt that property valuations were unfair and they were not fairly compensated for improvements on resumption or retirement. Small landholders wanted to see firm processes regarding the purchase of land under buildings in relation to waygo.

Succession, Assignation & New Entrants

Some small landholders suggested that perhaps the provisions could be widened so that the small landholder can assign to a person of his/her choice. Small landholders on Arran suggested that provisions for both succession and assignation could be improved on. Some small landholders also called for the introduction of a new entrant scheme.

Some landlords proposed new legislation which allows both the small landholder and the landlord to apply to Scottish Ministers in writing at the end of a tenancy to remove the small landholding restriction from the land. This would then allow the landlord vacant possession of the land with no restrictions and the ability to achieve an improved return on the ground following small landholding tenure. This could incentivise the landlord to more readily come to an agreement with the small landholder regarding waygoing compensation and any other payments.

Housing (see Right to Buy)

Conduct

Some small landholders raised the issue of poor conduct of landlords and agents. It was suggested that it may help to introduce a process for dealing with everyday issues, to reduce the incidence of coercion or using the Scottish Land Court as a threat in the absence of compliance of the small landholder. Small landholders advised this type of conduct was stressful and asked for greater protection. On the basis of this request and on the lack of understanding of rights referred to previously, small landholders discussed the introduction of a code of conduct. Some small landholders suggested such a code could cover:

• Fair and transparent process in day to day dealing, with both parties responding within a 'reasonable' timeframe
• Fair and transparent process regarding rent reviews
• Clarity on rights e.g. tenancy type; Right of access - maintenance of access roads owned by the landlord; conversion to crofts; diversification;
• Estate Planning - a transparent policy regarding long term estate planning in collaboration with small landholders and involving e.g. maintenance of agricultural land and buildings for vacant lets as well as a fair process for re-letting; landlord to maintain march ground and ditches etc
• Improved communication on the sale of land and subsequent loss of amenity, the practise of houses being let out and clarity on processes for common grazing, seasonal lets & fallow areas.

Vacant Holdings

Aligned to conduct, small landholders suggested that there should be a review of the de-registration process to ensure fairness and adherence to legislation. Some suggested that given the limited size of holdings there should be no right of resumption and that this was a dubious and dangerous practice for small landholders.

Funding

Some small landholders thought that there should be greater encouragement for small landholders to access funding and grants for capital investment. Some small landholders also requested the reintroduction of loans as per the old Board of Agriculture system which they felt would help any new entrants in particular improve productivity. In addition small landholders wished to be able to gain access to the crofting grant scheme.

They cited their difficulty in securing loans, because they do not own the land under buildings, as the basis for extending the crofting grant scheme to them. Small landholders advised it would encourage greater diversification and offer greater opportunity for employment within the community, aligned with increasing and maintaining rural housing opportunities. This was reinforced by Arran small landholders who also suggested that the Government consider closing tax loopholes benefitting landlords.

Infrastructure

Small landholders indicated that there could be difficulties concerning access rights to the land immediately around their house/steading. A number also indicated that although the landlord owned the access roads and was obligated to maintain them, maintenance in fact usually fell to the small landholder.

Security of Tenure

Another recurrent theme was continued security of tenure for small landholders. Whilst 2 people responding to this question raised this issue, six small landholders overall felt this was paramount.

Diversification & Expansion

Some small landholders wanted to see greater co-operation between the landlord and the small landholder to allow for expansion and diversification. Some small landholders felt that they should be allowed to diversify without the landlords consent. It was suggested by some Arran small landholders that RTB solutions could begin to resolve this. Some small landholders also wanted to expand and rent more land to encourage the development of more viable farm businesses. All evidence indicates that landlords would also wish to see thriving small landholding businesses.(see Legislation section)

Advisory Services

Small landholders on Arran asked for an advisory service ^[138] that would address concerns regarding record keeping, succession planning, assignation and & new entrants, land management and maintenance of the land.

Small landholders on Arran were open to the idea of a Scottish Land Commission or Tenant Farming Commissioner ( TFC) that could intervene or make changes on their behalf, but had reservations about how they could interact successfully with this organisation.

Land Ownership

Small landholders on Arran asked Government officials about the possibility of tracing how ownership of land on Arran had changed over time. They also asked about clarity of land owned by the Forestry Commission on Arran. ^[139]

Social & Economic Aspects

A number of pressing social and economic issues were raised by the Arran group. These concerned lack of housing, attracting and retaining skilled workers, planning, income, access to justice and the role of Women in Agriculture. Officials provided feedback on a number of Scottish Government initiatives directly to the group and to landlords on Arran. In addition, the island benefits from an economic planning group, some of whom are also small landholders.

6. Conclusion

Summary of key issues identified

Small landholders indicated that they wanted their lifestyle to perpetuate and called for allocating small landholdings a specific purpose e.g. creating a greater sense of community or acting as environmental guardians.

Small landholders and landlords asked for the legislation governing small landholdings to be more accessible and fit for purpose in relation to a modern day tenancy. In modernising, both wanted to see greater confidence in new provisions that benefitted both sides of the small landholding equation.

Landlords asked for greater flexibility allowing for innovation and diversification, enabling small landholders to flourish and develop viable businesses. All small landholders also called for greater opportunity to diversify. Small landholders also sought more information on how they might access funding and banking to allow for greater investment in their holdings, given that any borrowing may be reliant on ownership of capital assets such as buildings.

Right to buy is recognised as a pivotal issue by both small landholders and landlords. Some small landholders requested the right to buy land under their buildings and the surrounding garden ground as a bare minimum, whilst other small landholders sought a right to buy the whole holding. Arguably, small landholders can negotiate with their landlords on an individual basis to buy either part of or the whole holding, even though there are no legal provisions supporting this. However, the right to buy can be a complex process. Both landlords and small landholders are acutely aware of the issues surrounding the disparity in valuation of land used for agricultural purposes versus the value calculated for land that has the potential for industrial or residential development.

Security of tenure was an issue that was non-negotiable for small landholders and they wanted to retain this regardless of how the legislation might change. However, landlords saw security of tenure as a barrier, preventing them from removing small landholders that were not managing the land well.

Much of the frustration experienced by small landholders and landlords came from a lack of understanding of how the legislation worked in practice and of their obligations and rights. Non-uniform practices that didn't reflect the legislation had sprung up over time and had become established as a normal way of working due to lack of regulation. Those practises can vary radically from location to location. This problem could possibly be resolved by bringing small landholdings under the control of an organisation like the Crofting Commission. This type of organisation may then have responsibility for the creation of a code of conduct that both parties could adhere to.