Small landholdings modernisation: consultation analysis

1. Consultation findings: Right to buy

This section of the report outlines the consultation findings in relation to the first set of questions on the Right to buy.

The Scottish Government proposes:

To introduce into legislation an absolute right to buy the land under the small landholder’s house and garden along with a pre-emptive right to buy the remainder of the small landholding. This proposal will aim to provide small landholdings with a right to buy comparable to other forms of land tenure.

Key findings: The majority of respondents (73%) agreed that providing small landholders with the absolute right to buy the land under their homes and gardens could give them greater security and allow them to invest into their small landholding and business with confidence, and the majority (68%) also agreed that this could be beneficial in reducing depopulation in rural communities.

Over half of respondents (63%) agreed that small landholders should have the opportunity to purchase their small landholding if their landlord gives notice or takes action to transfer the land containing the small landholding for sale or transfer to another company or trust, and around half (49%) agreed that a clawback provision should be introduced to ensure fairness for the landlord.

The majority of respondents (73%) agreed that the most appropriate and fair valuation for the right to buy the land under the home and garden should be decided by a valuer appointed in agreement by both the small landholder and their landlord, or failing this, an independently appointed one. There was no consensus among respondents in terms of how the valuation of the right to buy should be calculated.

This section of the report outlines the consultation findings in relation to the first set of questions on the Right to buy, which focused on:

• Security of small landholders and business investment;
• Benefits in reducing rural depopulation;
• Giving small landholders the opportunity to purchase the small landholding if a landlord gives notice or takes action to sell or transfer the land;
• Introduction of a clawback provision; and
• Appropriate and fair valuation for the right to buy.

1.A Security of small landholders and business investment

Option	Total	Percent
Strongly agree	26	63.41%
Agree	4	9.76%
Neither	3	7.32%
Disagree	1	2.44%
Strongly disagree	3	7.32%
Not Answered	4	9.76%

The majority of respondents (73%) agreed that providing small landholders with the absolute right to buy the land under their homes and gardens could give them greater security and allow them to invest into their small landholding and business with confidence. Around a tenth (9%) disagreed and 7% said neither. 10% of respondents did not answer this question.

Key findings

The majority of respondents agreed that providing small landholders with the absolute right to buy the land under their homes and gardens could give them greater security and allow them to invest into their small landholding and business with confidence.

Respondents identified a range of potential benefits, from creating fairness across all types of secure land tenure in Scotland, to allowing tenants to invest in the buildings and wider holding, without uncertainty; increasing their ability to invest financially and plan their business; and environmental benefits, such as increasing small landholders’ motivation to carry out these types of activities.

Among those respondents who supported this proposal, one group felt that this change should be in line with crofting legislation, whilst others were in favour of alignment with secure 1991 Act agricultural tenancies.

A second set of respondents, the majority of whom were organisations, disagreed with this proposal. They gave a number of reasons, including that: small landholding tenancies already offer enough security; it is unclear why this change would give small landholders greater security than lease tenure; it would create practical difficulties and financial risk for those managing tenancies; and that this change would not be in the best interests of the tenanted sector.

Several organisations stated that this change would have a long-term, negative impact on tenants and new entrants, and contradicted the policy aim of retaining small landholdings for the future. They also felt that discussions around this policy have eroded confidence and led to a contraction of the tenanted sector in Scotland.

Respondents were asked to give reasons for their answer, and a total of 27 did so. This question received the most detailed responses and the following sections outline respondents’ views by topic.

Potential benefits

Respondents identified a range of potential benefits in providing small landholders with the absolute right to buy the land under their homes and gardens, including:

• creating fairness across all types of secure land tenure in Scotland, in terms of access to funding and development opportunities;
• allowing tenants to invest more in the buildings and the wider holding;
• increasing their ability to invest financially and plan their business;
• addressing issues such as the costs tenants face in maintaining older buildings, and justifying investment in property or land they do not own;
• potential environmental benefits, in terms of increasing small landholders’ motivation to carry out activities that contribute toward meeting climate objectives.

Respondents highlighted the poor quality of some housing on small landholdings, and the cost of maintaining older buildings, for example in relation to making improvements for energy efficiency. They felt this change would help to address issues including rented properties falling into disrepair, by encouraging better upkeep of the buildings through ownership. Further, one respondent noted that in their experience, when a tenant leaves a tenancy and retires without passing it on, the landlord is likely to sell the house and buildings for development.

Several respondents stated that it is difficult to justify investment in the buildings on their smallholding under the current arrangement, with several expressing their unwillingness to spend money and time making improvements to a property or land owned by someone else. They felt this change would encourage small landholders to make a range of improvements to the holding, from fencing to agroforestry, water and soil management. One respondent stated that businesses such as energy or installation companies would be more favourable towards doing this work if the smallholder owned the land.

One respondent stated that an absolute right to buy has always been the preferred option for small landholding tenants and this proposal is a good alternative. They felt it important that this right is extended to the solum on which their houses and buildings stand, as this would provide small landholding tenants with the security of continued use of their houses and buildings should they relinquish their leases.

Several felt that this should only apply where a tenant or their family has built the house. However, one respondent noted that most of the houses on small holdings were built with government funding, and have been extended or altered over time.

Financial support and investment

One key benefit highlighted by respondents was the positive impact this would have on small landholders’ ability and incentive to both invest in and plan their business. They felt this change would lead to greater confidence, security and stability, and make it easier to secure financial support from banks, including loans and mortgages. Several noted that ownership of the land would enable small landholders’ to borrow against the property, improve the buildings and invest in the business, as they would be more confident about seeing a return on this.

One organisation stated that whilst they aim to work with tenants and support them to invest in their small landholdings despite not owning the land, they recognise that tenants' borrowing powers are reduced by not owning the asset.

Alignment with other types of agricultural tenancies

Among those respondents who supported this proposal, one group felt that this change to small landholders’ rights should be in line with crofting legislation, giving them an absolute right to buy the remainder of their smallholding. Others were in favour of alignment with secure 1991 Act agricultural tenancies, and a pre-emptive right to buy for the entire small landholding.

Respondents raised further issues in relation to how this change in small landholding legislation would work in practice, including:

• how the right to buy would be recorded, as the approach taken under the Land Reform (Scotland) Act 2016 has made it difficult for full information about land to be obtained;
• the need to consider an option for a relinquishment provision, due to the age of many small landholders and in some cases a lack of successor;
• the importance of listening to those directly affected in terms of the benefits of this proposal.

Respondents who favoured alignment with crofting suggested that bringing small landholdings into the crofting framework would save resources, and give small landholders greater security through fairer compensation for the building as a fixture on the land, for example in enabling the possibility of investments being realised upon assignation, which would reduce the need for a right-to-buy.

Several organisations highlighted a potential issue in terms of small landholders in designated crofting areas being able to apply to convert their smallholdings to crofts, to benefit from the right to buy provisions within crofting law. As they identified, this could lead to a conflict with small landholdings legislation and may also contribute to existing uncertainty as to which regime landholders are operating under. One option to resolve this uncertainty would be to time-limit the right to convert a landholding to a croft under the relevant crofting law provisions.

Several organisations instead favoured a pre-emptive right to buy for the entire small holding, in line with secure 1991 Act agricultural tenancies. They highlighted a need for consistenty, rather than a hybrid approach which partly aligns with both crofting legislation and agricultural tenancy legislation. These organisations stated that a consistent approach based on a pre-emptive right to buy is more likely to benefit all parties, would have less impact on the wider tenanted sector, and is in line with the view of the Agricultural Holdings Legislation Review Group.^[4]

Potential negative impacts

A second set of respondents, the majority of whom were organisations, disagreed with this proposal. They gave a number of reasons, which are outlined in more detail below. These included:

• Small landholding tenancies already offer enough security for long-term investment, for example in terms of succession options;
• it is unclear why this change would give small landholders greater security than lease tenure;
• this would create practical difficulties in terms of decision-making;
• this change would not be in the best interests of the tenanted sector, and would set an unwelcome precedent;
• this change would benefit only a limited number of individuals and would not justify the potential wider impacts of the legislation;
• the potential negative impacts on landowners and estates, including financial loss and the risk of investing in land that a tenant may request to buy;
• a lack of fairness in terms of the rights and opportunities open to small landholders and their landlords (for example in selling a property);
• this change may be in breach of landowners’ human rights;
• on purchase by the tenant, it would no longer be a small landholding;
• it is not in line with broader policy aims.

In terms of the first point, one organisation stated that the land on which the house is built is protected by small landholding status, the landlord cannot resume it without sufficient grounds and would be required to offer compensation.

In addition to this, these organisations stated that it was unclear why ownership of the land under the house would give greater security or encouragement to invest, than a highly protected form of lease tenure, for example if the small landholder continued to rent the land and other buildings. One organisation noted that there is security of tenure and waygo mechanisms in place, whilst another respondent argued that a change in line with freedom of contract would give added flexibility.

Respondents also highlighted potential negative impacts on landowners and estates managers, for example in terms of the financial risk of investing in land that a tenant may request to buy. One respondent commented that an absolute right to buy for small landholders would represent a major change in the property rights of the landlord. In addition to these concerns, one organisation stated that a pre-emptive right to buy would enable better estate management and decision making.

Loss of the small landholding

Several organisations stated that in the event of the small landholder purchasing the land, it would no longer be a small landholding. Others stated that separating the residence from the land may lead to a loss of value due to severence, and the future loss of the small landholding. This was highlighted within the 2017 Small landholdings legislation review which stated that any decision to explore offering small landholders a right to buy would need to be balanced against the benefits of retaining small landholdings as a form of land tenure. As one organisation stated, the holding may be less attractive to incoming tenants who may not have access to housing, or would need to be incorporated into a larger holding. Whilst this can work in the context of crofting, it is less likely to work for small landholdings, and would have a wider impact on the local area.

This set of respondents felt that this change would have a long-term, negative impact on tenants and new entrants, and contradicted the policy aim of retaining small landholdings for the future. They stated that it would create practical difficulties for both the landowner and occupier in terms of decision-making.

One organisation stated that they did not support an absolute right to buy as they do not think this is in the best interests of the tenanted sector. They argued that discussions around introducing an absolute right to buy have eroded confidence and led to a contraction of the tenanted sector in Scotland. This view was also expressed by several attendees at the public consultation event held in Arran.

Lastly, respondents felt that providing existing small landholders with an absolute right to buy will benefit a limited number of individuals which would not justify the potential wider impacts of the legislation.

1.B Benefits in reducing rural depopulation for communities with small landholdings in them

The majority of respondents agreed (68%) that giving small landholders the right to buy the land under their homes and garden could be beneficial in reducing rural depopulation for the communities with small landholdings in them.

Option	Total	Percent
Strongly agree	23	56.10%
Agree	5	12.20%
Neither	4	9.76%
Disagree	4	9.76%
Strongly disagree	2	4.88%
Not Answered	3	7.32%

Key findings

The majority of respondents agreed (68%) that giving small landholders the right to buy the land under their homes and garden could be beneficial in reducing rural depopulation for the communities with small landholdings in them.

Respondents who agreed gave reasons including the need for affordable and secure housing, the longer-term maintainance of buildings on small landholdings, and the fact that it might address the issue of properties being allowed to fall into disrepair. They identified positive impacts for rural communities, including: making it easier for people to buy houses and move into rural areas, and encouraging tenants and their families to live there in the long-term.

Respondents who disagreed felt this change could have a negative impact on rural depopulation and the availability of housing, as it may lead to properties being used as short-term lets or second homes, and may reduce opportunities for new entrants in farming. A third set of respondents felt the proposal would have no impact on rural depopulation, for example as it would not add to local housing stock.

Lastly, participants on both sides stated that rural depopulation is due to wider issues, including a lack of job opportunities and affordable housing, and on islands particular challenges with transport, infrastructure and connectivity.

The majority of respondents agreed (68%) that giving small landholders the right to buy the land under their homes and garden could be beneficial in reducing rural depopulation for the communities with small landholdings in them. A smaller number disagreed (15%) and 10% answered neither. Respondents were asked to give reasons for their answer and a total of 25 did so.

Those who agreed gave reasons including the need for affordable and secure housing, and the longer-term maintainance of buildings on small landholdings. For example, several respondents felt that the land was more likely to continue to be inhabited and adequately maintained if owned by the small landholder. A number noted the issue of properties being allowed to fall into disrepair, for example when small landholders retire, and the long-term impact this has on rural communities.

Other points noted included: the need for alignment with crofting; the need to introduce a mechanism to prevent onward sales; and the suggestion that these changes should occur at specific points, for example if there is a change of ownership on the small landholding, and should not apply to all current tenancies.

Positive impacts for rural communities

A number of respondents identified potential positive impacts for rural communities, including: increasing tenants' sense of belonging; encouraging a settled community; opening up the housing market and making it easier for people to buy houses and move into rural areas. One respondent stated that outbuildings on small landholdings also present an opportunity for development into affordable housing.

Several respondents stated that a change to small landholding legislation, and greater security through ownership, would mean that tenants and their families would be more likely to stay on the small landholding in the long-term, and allow them to pass it on, leading to a positive impact on succession. As one respondent noted, this would have particular benefits in some small landholding areas such as the Island of Arran which needs to retain a young population.

In terms of the agricultural business, a number of respondents felt that giving small landholders the right to buy the land under their homes and garden would benefit rural communities by increasing small landholders' confidence in investing in their business, for example through diversification, giving greater financial sustainability. One organisation stated that this security could be created in other ways, for example by encouraging positive relationships between tenants and their landlords, in addition to introducing a right to buy.

Negative impacts for rural communities

Respondents who were unsure or disagreed with the statement felt this change could have a negative impact on rural depopulation and the availability of housing, as it may instead lead to properties being sold and used as short-term lets or second homes, which would have a negative impact on the local population.

This would worsen rural housing issues and may lead to the neglect of agricultural land. As one organisation stated, this may happen if properties were taken out with the scope of small landholding legislation, and a provision to prevent separation of the house and holding would reduce the risk of this happening.

A number of organisations who responded objected as the change would lead to the separation of the house and the land, which would have a negative impact on communities with small landholdings. Several that were unsure or disagreed made comparisons with the introduction of similar rights in the crofting context, in terms of it leading to houses being used as holiday lets, not permanently occupied.

Other issues raised by organisations included the fact that in the event of the small landholder buying the land, the holding would lose its protected smallholding status, for example in terms of the land being occupied for agricultural use, and that it may also reduce opportunities for new entrants in farming.

It would make no difference

A number of respondents stated that this proposal would have no impact on rural depopulation. As one noted, it would not add to local housing stock, whilst another respondent felt that it would not make a difference to the small landholder's decision about whether to stay or leave.

One organisation questioned whether this policy would be more effective than making changes to small landholding tenancies, for example greater security of tenure, or fairer compensation for improvements. They also stated that introducing a right to buy may reduce landlords’ willingness to create new tenancies.

Lastly, participants on both sides stated that rural depopulation is due to wider issues, including a lack of job opportunities and affordable housing, and on islands particular challenges with transport, infrastructure and connectivity.

1.C Opportunity to purchase the small landholding if a landlord gives notice or takes action to sell or transfer the land

The Scottish Government proposes: That small landholders should have the right to buy the remainder of their small landholding tenancy if the landowner of their land gives notice and takes action (with the view of selling the land or a part of the land) to transfer the land containing their small landholding.

Option	Total	Percent
Strongly agree	24	58.54%
Agree	2	4.88%
Neither	1	2.44%
Disagree	5	12.20%
Strongly disagree	4	9.76%
Not Answered	5	12.20%

Key findings

Over half of respondents agreed that small landholders should have the opportunity to purchase their small landholding if their landlord gives notice or takes action to transfer the land containing the small landholding for sale or transfer to another company or trust. Around a fifth disagreed.

Respondents who agreed gave reasons including: the financial investment small holders have made in their holdings, over a long period of time; the stress caused to small landholders by potential changes in land ownership; and the fairness in giving the small landholder the opportunity to buy the land before other parties.

Among respondents who disagreed with this proposal, the main reasons given was that it would cause confusion due its alignment with agricultural tenancy law.

Over half of respondents (63%) agreed that small landholders should have the opportunity to purchase their small landholding if their landlord gives notice or takes action to transfer the land containing the small landholding for sale or transfer to another company or trust. Around a fifth (22%) disagreed and 2% answered neither. Respondents were asked to give reasons for their answer and 28 did so.

Reasons for agreement

Among those who agreed, one group of respondents felt this should be the case due to the investment small holders have made in their holdings, from the financial cost of improvements and maintainence, to the length of time they have spent farming it, for example over multiple generations. Several referenced the idea of fairness, and felt it was appropriate that the small landholder is given the opportunity to buy the land before other parties. As one respondent stated, this right should be automatic and not require a registration of interest.

Other respondents referenced wider issues with the current system. For example, several noted the stress caused to small landholders by potential changes in land ownership, due to uncertainty about the new landlord or the risks of having an absentee landlord or one who does not manage the land effectively or in line with the tenant's interests. Other reasons given included: the lack of a current right to buy; the issue of absentee landlords; the need for long-term stability.

A small number of respondents stated that this should be an absolute right to buy, in alignment with crofting. Others stated that this change should be in line with the 1991 Act, including its provision for negotiation between the landlord and tenant.

Several respondents stated that a pre-emptive right to buy would be a suitable option, with one organisation noting that this option enables flexibility in terms of what land is sold and when, and that allowing interest in a smallholding to be registered supports estate management and investment; and one individual stating that a pre-emptive right to buy if the property is put on the market would not affect the landowner or the tenants’ rights. The former was supportive of an approach where rights to buy the land under the house and the garden aligned with a general pre-emptive right to buy the small holding.

One organisation raised issues similar to those given above, including how a right to buy would be recorded. For example, the approach taken under the Land Reform (Scotland) Act 2016, to remove the requirement for tenant farmers to register their pre-emptive right to buy, has made it difficult to access information about land. This organisation also again noted the need to consider the fact that smallholders in designated crofting areas may choose to convert their landholding to a croft, and the risk this would add to uncertainty as to which regime landholders are operating under. One option to resolve this uncertainty would be to time-limit the right to convert a landholding to a croft under the relevant crofting law provisions.

Reasons for disagreement

Respondents who disagreed with this proposal gave a number of reasons, with the main one being potential confusion due to the fact that whilst small landholding legislation currently aligns with crofting law in many ways, this change would be in line with agricultural tenancy law. One respondent stated that it does not make sense, and would cause further complexity, and a potential breach of the European Convention on Human Rights (ECHR) to give small landholders some of the rights of a secure 1991 Act tenancy despite crofters not having similar rights.

One organisation stated that small landholdings should be brought into the crofting framework, with the options it provides crofters with - in purchasing their land, and the safeguards it provides to ensure good agricultural use of the land. They stated that without these statutory requirements, and as recognised in the previous consultation report, a right to buy may lead to the loss of small agricultural landholdings outwith crofting counties, the neglect or re-development of land with potentially significant impacts on local food production and biodiversity.

Other reasons provided included: the transfer of businesses within a family due to death or mental incapacity may be caught up in this proposal; the view that the existence of a tenancy should not give a right to buy if ownership is transferred.

1.D Introduction of a clawback provision

The Scottish Government proposes: To introduce an appropriate clawback provision to ensure fairness for the landlord. This would mean that once the small landholder purchases the land under their home and garden or their small landholding, if they then decide to sell on either of these within a certain timescale, they would have to pay their landlord a specific amount.

Graph showing responses to the question ‘Do you agree that a clawback provision should be introduced to ensure fairness for the landlord if a small landholder who previously purchased the land under their home and garden or their small landholding and subsequently sells either of these within a specific timeframe?’

Option	Total	Percent
Strongly agree	9	21.95%
Agree	11	26.83%
Neither	4	9.76%
Disagree	8	19.51%
Strongly disagree	4	9.76%
Not Answered	5	12.20%

Key findings

Around half of respondents agreed that a clawback provision should be introduced to ensure fairness for the landlord, if a small landholder who previously purchased the land under their home, garden or small landholding subsequently sells either of these within a specific timeframe. Just under a third disagreed.

Respondents who agreed gave reasons including: the need for long-term stability within local communities; it would encourage landowners to sell and ensure fairness, and; it would prevent misuse and frequent changes in land ownership.

Respondents who disagreed gave reasons including: there is no need for a clawback provision if the sale price is fair; the landlord has made no further improvements to the land following its sale, and this would be unfair to small landholders; a clawback provision would be difficult to apply fairly and consistently.

In addition, several respondents noted the need to allow for circumstances outwith the small landholder's control, such as bereavement or retirement.

Around half (49%) of respondents agreed that a clawback provision should be introduced to ensure fairness for the landlord, if a small landholder who previously purchased the land under their home, garden or small landholding subsequently sells either of these within a specific timeframe. Just under a third (29%) disagreed and a tenth (10%) answered 'Neither'. Respondents were asked to give reasons for their answer and a total of 28 did so.

Agreement with the proposal

Those respondents who agreed gave a number of reasons, including

• the need for long-term stability within local communities;
• it would encourage landowners to sell, and ensure fairness for the landlord;
• it would prevent financial misuse and frequent changes in land ownership.

Several noted the need to prevent land being purchased for the wrong reasons, including to sell on for profit, with one organisation noting that this would be unfair to the landlord if they had sold the landholding at an affordable price or made a considerable investment into the landholding that has increased its sale value.

Respondents felt that the appropriateness of a clawback provision would depend on how the price was calculated, with several noting that a clawback provision would be necessary if the land had been bought at a price that did not reflect its market value, for example due to a discount to account for the tenancy.

Disagreement with the proposal

Respondents who disagreed with this proposal gave reasons including:

• there is no need for a clawback provision if the sale price is fair;
• the landlord has made no further improvements to the land following its sale;
• this would be unfair to small landholders due to the rent they have paid over a long time-frame;
• this would be unfair unless it were applied to other former tenants who have bought their land;
• this proposal may have financial implications, for example it may prevent investment by impacting the owners' ability to secure a mortgage or funding;
• the clawback provision, and rural house burden, has been wrongly implemented in crofting;
• introducing a clawback provision would perpetuate the existing relationship between landlord and tenant, for example in terms of the landlord looking for land value to be unlocked by the tenant;
• a clawback provision would not be appropriate as property values can both increase or decrease, and are subject to the market;
• clawbacks can be difficult to apply, for example where a tenant has improved a property after purchase making it challenging to calculate how much of the value of that improvement should form part of the clawback provision;
• a clause (rural burden) attached to small landholding sales may be a more effective way of addressing local housing concerns;
• the system of land-ownership is unfair, and long-established land-owners have already benefited enough from increases in land value over time and agricultural subsidies.

One organisation noted that if a property is sold on, for example for tourism purposes, this may reduce any intended benefits to the rural community in selling to the small landholder, for example the aim of addressing local housing issues and retaining the population. As this organisation stated, a clawback provision could help to deter the sale of landholdings for a specific time-frame, and may help to address concerns about tenants unfairly profiting from the sale of landholdings. The clawback would have to be set at a level high enough to deter sales, and this would vary in different areas, for example in relation to local housing demand.

However, they added that it is not clear that a clawback provision would necessarily be the best mechanism to limit sales, and that a clause (rural burden) attached to small landholding sales may be a more effective way of addressing local housing concerns, for example by stipulating that it cannot be sold as a second home.

As one organisation stated, introducing a clawback provision may deter sales to those who want to live and work in an area on a long-term basis. In such cases clawback could stifle rural development and it may need to be waived.

Another organisation which disagreed with the proposal stated that a clawback provision has not been seen as appropriate under the 1991 Act and would add further complexity. It would also not be appropriate as property values are subject to the market. In the market, land is more often sold subject to clawback where development is a possibility but not significantly recognised in the current value of the property, and as clawback provisions are negotiated on a case-by-case basis, this might be hard to define and apply in an equitable way.

Several respondents who disagreed with the proposal felt there was no justication for a clawback provision. As one stated, if this was introduced it should be for a minimal period and should end if the small landholder starts to make significant investments to the holding. Several felt a more appropriate option would be to use a title burden restricting use and ownership to people who planned to use the property as their principal private residence.

In addition, several respondents noted the need to allow for circumstances outwith the small landholder's control, such as bereavement. As one further respondent stated, many small landholding tenants are of retirement age and may need to sell the property following its purchase if they wish to retire or move into a care home.

1.E Calculation of clawback and the length of time it should apply

Respondents were asked how they think this clawback should be calculated and the length of time it should apply. There was no broad consensus amongst respondents in terms of the length of time they think the clawback should apply, with suggestions ranging from 2 years to the life-time of the purchaser.

In terms of how the clawback should be calculated, there was again no consensus with respondents making a range of suggestions. They stated however that the clawback should be: calculated in a proportionate way; take into account rent paid over time; and reflect any improvements made by the small landholder since purchasing the land and the impact this has had on its value.

Respondents were asked how they think this clawback should be calculated and the length of time it should apply. There were 36 responses to this question.

There was no broad consensus amongst respondents in terms of the length of time they think the clawback should apply. The list below outlines their answers and indicates the percentage of respondents who suggested each option:

• two years (6%)
• less than three years (3%)
• five years (6%)
• seven to ten years (3%)
• ten years (14%)
• twenty years (6%)
• twenty-five years (3%)
• life-time of purchaser (3%)
• no specific time should be attached to a clawback (6%)
• alignment with crofting (6%).

Several stated that this should be in line with clawback provisions in crofting legislation. For example, one respondent stated that the timeframe should be 10 years in line with the croft house grant scheme.

Of those who gave longer time-frame of 20 years, their reasons included: the use of this time-frame in a crofting context; the timescales of land management and rural property; the need for long-term stability and to prevent small landholdings being purchased for short-term sale; to incentivise keeping the property linked to the landholding; under existing legislation clawback cannot extend beyond 20 years.

Several respondents noted the need for flexibility, with others stating that an acceptable time scale should be agreed through negotiation. As one respondent stated, the time-frame and clawback calculation should act as guidance, and there is a need to take individual and relevant circumstances into account.

For example, one respondent stated that this should continue to apply if there is a clawback-free transfer to a related party, for example within a family, and that it should also apply if there is a successful change of use planning application.

How should the clawback be calculated

Respondents stated that the clawback should be: calculated in a proportionate way; take into account rent paid over time; and reflect any improvements made by the small landholder since purchasing the land and the impact this has had on its value, although as one respondent noted this could be difficult to calculate.

In terms of how the clawback should be calculated, there was again no consensus and a number of respondents were unsure how this should be done. For those who did respond, specific suggestions were:

• profit to be divided between landlord and seller 50-50%;
• 20% of any profit made within 2 years;
• 5% of the difference between the cost of buying the land and the sale price up to 10 years;
• 10% per year for 10 years;
• current market value, minus purchase price;
• 50% commercial price land has increased since sale excluding any land improvements by new owner within 2 years;
• calculation of the actual sale value minus the original statutory purchase price, with a large percentage of the uplift being given to the landlord;
• sliding scale over a seven year period starting at 70% of the uplift and reducing by 10% per year thereafter;
• Calculation of clawback should be on the land value under house, buildings and garden only;
• The clawback should be limited to a proportion of the increase in the small holding’s value compared to the sum originally paid for the land disregarding the value of any improvements carried out by the tenant or his family since the start of the lease, e.g. including the cost of licenses or consents.

One organisation stated that it should be set at a level that acts as an adequate deterrent to sale. This should perhaps differ in different parts of Scotland where demand for housing varies. Another organisation stated:

If a clawback is to be applied and whether or not subject to a development provision, it should be on a simple percentage scale applied to the difference between the sale price received and the purchase price (perhaps indexed) for a limited period of time (perhaps not more than five years). It should have the least restrictive effect on the business decisions of the purchasing tenant.

Several respondents stated the need for alignment with the time-frame used within crofting legislation. However, as several noted, criticisms of the use of the clawback provision within crofting should be taken into account, for example their misuse by crofting landlords. As one respondent noted, under crofting law the purchase price is fifteen times the annual rent, and not market value as suggested in this proposal. In this case, the rationale for a clawback provision is less clear.

1.F Appropriate and fair valuation for the right to buy

Option	Total	Percent
Strongly agree	10	24.39%
Agree	20	48.78%
Neither	5	12.20%
Disagree	3	7.32%
Strongly disagree	0	0.00%
Not Answered	3	7.32%

Key findings

The majority of respondents agreed that the most appropriate and fair valuation for the right to buy the land under the home and garden should be decided by a valuer appointed in agreement by both the small landholder and their landlord, or failing both of them agreeing a valuer, one would be independently appointed.

Respondents who agreed with this proposal stated that it was fair, reasonable, appropriate and practical. Several respondents noted the need for an agreed and recognised method of calculation, and others felt that if this was sufficiently transparent there may be not need for a value as it could be agreed by negotiation. In terms of who should pay for the valuation, respondents held mixed views.

The majority (73%) of respondents agreed that the most appropriate and fair valuation for the right to buy the land under the home and garden should be decided by a valuer appointed in agreement by both the small landholder and their landlord, or failing this, one would be independently appointed. A small number (7%) disagreed and around a tenth (12%) answered ‘Neither’. Respondents were asked to give a reason for their answer and a total of 26 did so.

Respondents who agreed with this proposal stated that it was fair, reasonable, appropriate and practical. Several respondents noted the need for an agreed and recognised method of calculation, rather than the process depending on individuals.

Similarly, one organisation stated that if the valuation criteria is sufficiently transparent there may be no need for a valuer as the landlord and tenant may be able to agree a purchase price by negotiation. One individual also stated this.

Further comments included:

• the need for the valuer to be fully independent;
• the necessary role of an independent third party in financial negotiations between a landlord and tenant;
• the need to take into account any fixed equipment owned by the small landholder (for example fences, gates, livestock equipment);
• the need for alignment with crofting legislation;
• the small landholder should be allowed to make a mutually agreeable offer, notwithstanding the independent valuation;
• the landlord should not be able to increase the price above the valuation;
• in the event of the failure to negotiate and agree a valuer, one should be appointed by the Tenant Farming Commissioner at a rate set by them.

In terms of who should pay for the valuation, respondents held mixed views. Whilst some felt the small landholder should not have to pay, others stated that the small landholder should pay, as they have initiated the purchase. One respondent felt that the cost should be shared between both parties. An additional suggestion was that both parties pay for their own valuation and come to an agreement based on these. Several noted that the cost of the valuation should not be prohibitive.

One respondent stated that in cases where there is a dispute, the suggestion that the proposed umbrella body has a role in appointing an independent valuer is a sensible option. Lastly, one organisation which agreed with this proposal noted potential challenges when compared with the crofting regime. Under crofting law, valuation is undertaken when the crofter sells on to a third party, for the purposes of assessing the clawback, and each croft is entitled to one house free of any clawback. As the purchase price is based on annual rent, it means that valuation at the time of purchase is not required. Requiring a valuation is likely to make the right to buy process expensive for the tenant which contrasts with the crofting position.

1.G Fair calculation of the valuation of the right to buy the land under the home and the garden site

Key findings

Respondents were asked how the valuation of the right to buy the land under the home and the garden site should be calculated to provide fairness for both the small landholder and their landlord.

There was no broad consensus, and respondents gave a range of suggestions on how it should be calulcated. Whilst one group stated that it should be based on open market value, others suggested it should be based on: the value of bare agricultural land in the local area; the value of the land at the point the tenant took on the tenancy; it should be calculated in alignment with the 1991 Act.

Respondents were asked how the valuation of the right to buy the land under the home and the garden site should be calculated to provide fairness for both the small landholder and their landlord. There were 30 responses to this question.

In terms of wider points raised, several respondents emphasised that the valuation should take into account rent paid, and works and improvements made and paid for by the small landholder including services, consents and permissions.

How should this be calculated

Specific suggestions for calculating the valuation of the right to buy the land under the home and the garden site made by respondents included:

• 30 times the rent and not market prices;
• negotiation at or around one third;
• current market value for a dwelling, or building site;
• open market with a discount for improvements made by the tenant;
• initial asset cost, inflation plus improvements;
• market value should be sought with a consideration of rent paid;
• open Market Valuation based on comparable evidence.

A number of respondents stated that this should be based on open market value. As one organisation stated, this is the only fair way to compensate the landlord for loss of control of their property and being unable to exercise their property rights, whilst others felt this should be balanced with an overview of rent paid and investment made over the duration of the lease.

Other points, outlined in more detail below, included:

• the valuation should be based on the value of bare agricultural land in the local area;
• the tenant should pay the value of the land at the point they took on the tenancy, and this should be calculated independently for fairness;
• it may be appropriate to consider means testing if the current tenant is going to require a loan to buy;
• it should be calculated in alignment with the 1991 Act.

The first point was raised by a fifth of respondents to this question, who stated that the valuation should be based on the value of bare agricultural land held under a secure tenanted lease in the local area, rather than as land with vacant possession.

One organisation stated that it should be calculated in alignment with the 1991 Act, based on the investment value of the property plus half the difference between that and the property’s value without the tenancy (vacant possession value), so assuming equality of motivation between the parties, with adjustments for waygo valuations for tenant’s improvements and dilapidations.

As this organisation stated, an alternative could be to follow the compensation approach, linked to interest rate markets, used under the Abolition of Feudal Tenure (Scotland) Act 2000. Whatever method is used, when it is just the house and garden being bought, that would require a valuer’s apportionment of the rent for the whole holding to find the share due for the part being purchased.

Disagreement with the proposal

Amongst those who disagreed with this proposal, specific reasons included: lack of support for the separation of the home and garden from the land; current use and title restrictions; no need for the land to be purchased, with option instead for land to be appropriated by the government and given to the small landowner on a permanent lease, to be passed on; the potential complexities of this proposal, due to the situation of varying ownership of the house and land.

One respondent noted the need to consider landlords' rights, stating that many landlords will not view valuation as resulting in a fair outcome when land which could not previously be subject to an enforced buy out becomes so. If smallholders are to be given additional rights, this respondent added, then it appears fair and reasonable that their landlords should be given the same and this would require an extensive overhaul of the existing legislation.