Rural Economy and Connectivity Committee

Meeting date: Wednesday, January 27, 2021

Official Report 704KB pdf

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Subordinate Legislation

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Agricultural Holdings (Relinquishment and Assignation) (Application to Relevant Partnerships) (Scotland) Regulations 2020 [Draft]

Item 3 is consideration of one affirmative instrument as detailed on the agenda. The committee will take evidence, then the motion on approval of the affirmative instrument will be considered at item 4. We have not received any representations on the instrument.

I welcome Fergus Ewing, the Cabinet Secretary for Rural Economy and Tourism. We also have James Muldoon, head of the agriculture support policy division; John Martin, senior policy adviser; and Kirsty Slee, lawyer, all from the Scottish Government.

The cabinet secretary will make an opening statement. After that, I will ask members if they have any relevant interests to declare.

I thank the committee for taking time to consider these important regulations and giving me the opportunity to address members.

The draft regulations were laid using the powers conferred in the Agricultural Holdings (Scotland) Act 2003, as amended by the Land Reform (Scotland) Act 2016.

Part 3A of the Agricultural Holdings (Scotland) Act 1991 enables tenant farmers who hold secure tenancies under that act and who do not have successors to seek to relinquish their tenancy to the landlord for value. In cases where the landlord cannot or does not want to take the tenancy back in hand, part 3A allows the landlord to assign that tenancy for value to a new entrant or to a person who is progressing in farming.

The regulations modify part 3A in its application to limited partnership tenancies. The effect of that is to allow eligible tenant farmers to seek to relinquish their tenancy but not assign it if the landlord declines to accept notice of relinquishment. The Scottish Government considers that that approach provides a fair balance to the rights of both parties within the lease in those tenancies where the limited partnership structure gives rise to a different set of rights and considerations on the part of the landlord and their tenants.

The regulations, along with the wider relinquishment and assignation regulations, will provide a mechanism and support for older eligible tenant farmers who wish to relinquish agricultural tenancies secured under the 1991 act and to retire out of agriculture to have greater clarity and an easier-to-use process.

My officials and I are happy to answer members’ questions.

Before we move to questions, I ask members to make any relevant declarations of interest. I declare an interest in that I am a member of a farming partnership in Moray.

I declare that I am a member of a farming partnership in Aberdeenshire.

I am joint owner of a small registered agricultural holding, from which I derive no income.

I am now a member of a farming partnership in Orkney. I am also a member of a number of agricultural groups, including NFU Scotland and Scottish Land & Estates.

I do not see any other member indicating that they wish to declare an interest, so I will move on to ask our first question of the cabinet secretary.

Cabinet secretary, perhaps you could clarify a point that affects farming partnerships that are based on agricultural tenancies under the Agricultural Holdings (Scotland) Act 1991. It seems that, if a general partner wants to resign, the instrument that we are considering does not give them any right to assign their tenancy, because such partnerships are specifically excluded. Is my understanding correct?

If I may, convener, I will preface my answer with a caveat. I do not often do this—in fact, I do not think that I have done it before—but this is a highly legally complex issue, which I have spent two hours researching this morning. If I should make any slip from a legal point of view I ask my officials to intervene, but I think that I am reasonably well prepared.

My answer to your question is that your understanding is correct. As I am sure you know well, convener, limited partnerships were introduced as a method of allowing tenants and farmers to enter into an agreement without conferring the security that secure tenancies provide. That was the purpose of such partnerships. They were attractive from the landlord’s point of view but less so from the tenant’s, but nonetheless they were deployed. Because such a partnership is a different beast from a secure tenancy, in which security of tenure applies, the landlord’s rights are greater.

Of course, I cannot reveal the legal advice that the Scottish Government has received but, broadly speaking, the approach that we have determined so as to steer a course in accordance with the law is that there needs to be a balancing of tenants’ and landlords’ interests under limited partnership arrangements. It was felt that the relinquishment provisions were satisfactory and complied with the European convention on human rights. However, had we extended what I will term the assignation rights in respect of passage to a new entrant, or to someone who wanted to progress in farming, that would have perhaps gone too far in achieving that balance.

We had to make a judgment with regard to the ECHR provisions. I must stress that those are very important—not only per se, because they protect the rights of property owners, but because they also provide for Governments balancing such rights with public policy in general. Therefore, by definition, the process is a balancing act. After taking lengthy and painstaking advice, our judgment was that such an approach would be fair and correct, and would strike an appropriate balance in the particular circumstances.

As I said, I hope that I have framed that in a way that is correct and not inaccurate. However, because this is such a highly legalistic issue, it might be helpful were my officials now to have an opportunity to add anything that they feel is necessary—in case I have failed the legal exam, since the last one that I took was in 1976.

Kirsty Slee has not asked to come in, but I will be happy to bring her in to correct you, cabinet secretary, if you are failing on those legal points. She does not look very keen to do so.

Thank you. I have nothing to add. That is a comprehensive summary of the approach that has been taken. I am happy to leave it at that.

Thank you very much, Kirsty—and thank you, cabinet secretary, for clarifying that point. I have one further question, then we will have questions from other members.

On the assignation of a tenancy, the incoming tenant usually pays the waygo compensation to the outgoing tenant. Did you consider that the instrument’s provisions would be detrimental to new entrants or neutral? We all want to see more entrants coming in to take on tenancies where possible.

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I give the same caveat as before, but I believe that the effect will be neutral. The measure whereby assignation provision will be available to a new entrant or those who wish to progress in farming is long overdue and is separate from the waygo issues, which are free standing. As members will know, there are a number of financial demands on a new entrant or new farmer in setting up a new business. For some types of farming, the capital that is required to get stock and for buildings is substantial. I am not suggesting that anything is straightforward about such matters, because I think that the convener is hinting at the financial position of a new entrant or someone else who would be able to avail themselves of the assignation provisions. Anyone who wants to come into farming and start afresh faces financial challenges.

Most new entrants do not really start afresh—they probably worked as fencing contractors or might have done a bit of their own contract farming. In other words, they have learned the ropes, they have done their apprenticeship, they know what they are doing and they have decided to move up to the next level. Nonetheless, the Scottish Tenant Farmers Association has warmly welcomed the assignation provision and has described it as a ladder or a way in for new entrants. The organisation, with which we have worked closely, has campaigned for the measure for a long time.

The provision will be very helpful to older farmers who are perhaps on the wrong side of 60—as I am, sadly—and who might not even be in possession of their original hips. To be serious, it will help farmers to make their lives a little less demanding, which active farming, of course, is.

The provisions are obviously very complicated and have been four years in the making. Unfortunately, during that time, a number of retiring tenants have had landlords who have been unwilling to take part in informal negotiations. Some tenants have been unable to wait for the regulations and have had to leave their tenancies with reduced legal compensation. Does the cabinet secretary know how many people have been holding on for the new regulations? Will a significant number of people make use of the provisions very soon?

Ms Watt has asked several questions. I believe that many people have been waiting some time to avail themselves of the provisions. I am aware, as the STFA press release that was issued recently states, that there might be others who would like to avail themselves but have not been able to.

The most recent survey of opinion shows that most landlords and tenants get on quite well and are satisfied with the relationship. That is very much welcome. I think that 80 or 90 per cent are satisfied—it is about 90 per cent in the case of landlords—but that leaves 10 or 20 per cent of them. I hope that it is possible for landlords and tenants, voluntarily and by negotiation, discussion and agreement, to reach an accommodation on all important matters, but there will always be a number of cases in which that does not happen. I regret that, but it is a fact.

I will make another point in response to Ms Watt’s questions. The process has taken a long time. I accept that it has perhaps taken too long. As the minister, ultimately, I am responsible for that. I was in the Parliament when we passed what became the 2003 act. We did so with good intentions, but an important measure in that act was judged to be illegal by the courts. The case was Salvesen v Riddell, if I remember correctly.

That judgment found that the Government had breached article 1 of protocol 1 of the ECHR. I say “the Government” but, collectively, we—the predecessor committee—and the Parliament passed a law that was proved to be ultra vires because it contravened the convention. That is very much in my mind. Obviously, as the minister, I do not want to be the person who passed legislation that is open to challenge—far less to see it actually being challenged. The ECHR is a very important document that protects the legal rights of individuals, including property owners, so we have to proceed with care.

In essence, that is why it has taken such a long time. Although I cannot divulge legal advice, I can absolutely assure you that lawyers have worked painstakingly with civil servants to try to strike the right balance, and they have had discussions with various stakeholders in order to deliver a piece of legislation that will help a vast number of people in Scotland. Frankly, I am pleased to be able to explain why it has taken longer than I would have liked to arrive at that place but, having arrived, I am very confident that the legislation will unlock opportunities for young people to enter farming, which must surely be a good thing, as well as allowing those who wish to retire to do so.

Having served on the Rural Affairs, Climate Change and Environment Committee in the previous session of the Parliament, which took extensive evidence on these issues during our scrutiny of the Land Reform (Scotland) Bill in 2015 and 2016, I am certainly delighted to see the SSIs that are before us today.

It is clear that the approach encourages the continuation of tenant farming and social cohesion in rural areas. As the cabinet secretary has mentioned, it will be particularly beneficial to older tenant farmers who wish to retire out of agriculture and, crucially, it supports the retention of younger people in farming families and assists in removing barriers for new entrants. All in all, it is a very welcome development for landlords and tenants, as it creates a greater level of confidence all round.

That was a more of a comment than a question, convener.

I agree that it was a comment. No answer is required, cabinet secretary.

I think that Peter Chapman has a question rather than a statement.

I do. I am pleased that the cabinet secretary believes that this will unlock a lot of new tenancies so that new folk can get involved in agriculture. For many years, I have said that the tenanted sector in Scotland has not been working as it should, so I hope that this will make that happen.

If the landlord decides to take back the tenancy, what is the process for assigning its value? On the flip side, if the landlord does not take back the tenancy, is there a similar method for calculating the value of that tenancy for a new person coming in, or is that just subject to market forces? That was two questions.

Again, I start with my original caveat, but my understanding is that first, the tenant who wishes to be outgoing offers relinquishment to the landlord, then, if the landlord does not wish relinquishment, the assignation procedure kicks in and can take place. The assignation is then a matter between the existing tenant and the prospective assignee.

Market value and valuation is a complex area. I have asked about and had advice about it, obviously. A lot of work has been done on that by all parties. Discussions took place with stakeholders early in 2019 and subsequently. The tenant farming commissioner, Bob McIntosh, it is also going to provide guidance. I saw that Scottish Land & Estates welcomed that, and I think that all parties will do so.

The arrangement is not new. Land agents are already involved in the work around the valuation of the particular interest that has been assigned. I read the formula for that area, but I am not sure that it would serve any particular purpose if I were to read out a fairly arid and lawyerly text today.

My understanding is that people in the farming community are generally familiar with what is involved and are ready and willing to activate it. The tenant farming commissioner is a welcome adjunct to the system and plays a positive, constructive and collaborative role in encouraging all parties to make the new system work.

I hope that that answers Mr Chapman’s questions. If it is insufficient—because he asked a slightly technical series of questions—I will ask my officials to add something.

I am happy to bring in your officials, but I am not sure that reading out a list of how a waygoing tenancy is valued would be of huge benefit. Having gone through that before, I know that it is quite formulaic. I do not know whether any of them would like to come in—I see that they are all looking the other way, which is always a good thing to do. Peter, did the minister answer your question?

Not quite. I think that there is a formula if the landlord wants to take back the tenancy. I was wondering how, if the landlord does not wish to do that, a valuation is decided between the new tenant coming in and the tenant who is relinquishing the tenancy. Is that just subject to market forces? How is that valuation going to be done?

It would be a matter for consensual agreement between the outgoing and incoming tenants. It would be for the two parties to negotiate, presumably with the benefit of some advice and with reference to guidance that will be forthcoming from the tenant farming commissioner. In that respect, I guess that it would be like any property transaction.

Essentially, it would be a matter for the parties concerned, but, in this case, with quite a considerable statutory overlay that would help to guide the parties with regard to how that valuation should be calculated. We are talking about a different species of beast. With regard to a property right, it is quite easy to understand the value of land that is being sold with vacant possession. That is what happens in the property market in Scotland. However, the fact that the agricultural holdings provisions impose the right of security means that the value of land with a secure tenancy is different, because the landlord is not able to enjoy the fruits of possession—that is the legal phrase that I am dredging from my memory banks, dating back to the 1970s and 1980s. Therefore, it is essentially a matter for the two parties, but they will receive a substantial amount of support in terms of advice that they can access from agents and the tenant farming commissioner, and in terms of existing practice, because, as I said, the arrangement is not new, and, indeed, many parties have already come to an agreement and are just waiting on the statutory instrument to come into force.

In all of these things, the key thing is that we have willing parties. Parties going into a contract must be, in general terms, willing to have both of them benefiting therefrom. That is the idea of contracts in the free market, which is something that I imagine that Mr Chapman supports.

Good morning. I know that the regulations have been welcomed. A constituent with whom I have been working over the years is happy about their introduction and has already set up a meeting with his landlord. I am sure that landlords, tenants and land agents are already very knowledgeable about them, but who is responsible for communicating to those people that the regulations are now in place? Is it the Scottish Land Commission?

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Primarily, we communicate that to the specialist farming press, which covers such matters in a great deal of detail and reports on them very accurately. The likes of The Scottish Farmer will, I am sure, report substantially on the regulations.

In addition, representative bodies such as NFU Scotland, Scottish Land & Estates and the STFA, which has been leading the campaign in this area for many, many years, will immediately inform their members that the provisions have been approved by Parliament. The jungle drums beat quite loudly in farming circles, and news travels fast. Good news travels pretty fast—bad news probably travels even faster—and I think that this good news will be communicated and promulgated to everybody who is likely to be affected. Nonetheless, Emma Harper makes a fair point and, in light of her question, I will ensure that we take pains to get our message across to all.

Good afternoon, cabinet secretary. I think that we all welcome efforts to encourage new entrants into farming, and the regulations do just that. Do you have concerns about abuse or artificial workarounds in relation to any aspect of the regulations? If so, what safeguards have been, or could be, put in place to address those concerns?

We have set out additional rights that will accrue to an existing tenant farmer, and I believe that we have done so in a way that will allow the new system to function well.

On what measures we have taken to prevent circumvention, the first point to consider is that the draftsmanship has been the result of a long and considered process. Secondly—this is probably the main point—there has been expansive engagement with the parties involved, including the main representative bodies, to secure a broad consensus. From working with those representative bodies, as I do and as Mr Halcro Johnston does—as we all do, in fact—we know that they have a wealth of experience. To be frank, such bodies have not just centuries but millennia of experience, given the senior members of the farming community that tend to populate them.

I am confident that we have come up with a workable scheme. I am not aware of any specific avoidance or circumvention plan that could operate in that respect. I do not know whether Mr Halcro Johnston has anything in mind—if so, he might want to share it with us now—but I am not aware of any obvious plan that would be able to thwart the legislation’s intent. I do not think that that is likely to happen, but we will keep all such matters under review.

Jamie, do you want to come back on that, or are you happy with the answer?

One issue that was raised with me—[Inaudible.]—the potential for—[Inaudible.]—pass on to a younger family member, with the potential that the value would then increase. I wondered whether that is an area of concern, or whether there are various safeguards within the—[Inaudible.]—legislation or the regulations, or the—[Inaudible.]—scrutiny, to ensure that that does not happen.

I do not know whether you heard me, cabinet secretary—I am sorry if you did not.

I am sorry, but I could not make you out very well.

Nor could I. Jamie, could you repeat your question, please?

Apologies. I will try to speak a bit louder and a bit closer to the microphone.

One of the issues that has been raised with me—[Inaudible.]—passed on to a younger family member, because the value may be higher, with a view to their transferring it on further. Is that an area of concern? Is scrutiny and supervision in place to ensure that that does not happen?

Did you get that, cabinet secretary?

I think that I got the gist of it. An assignation by an existing tenant farmer to a relative is a process that is already heavily regulated and controlled. Measures to avoid such abuse—if that is how it is seen—are dealt with by the existing legislation. If the issue that Mr Halcro Johnston raises is a factor, it is not one that is a result of anything that we are doing this morning. However, that answer is just off the top of my head. I am not quite sure that I have totally grasped the scenario, so perhaps it would be best if one of my officials were to add something—should they have anything to add.

My understanding is that it is a question of who is an appropriate assignee. Is that right, cabinet secretary?

Yes.

I confirm what the cabinet secretary said. The existing provisions on when a landlord is entitled to object to a proposed assignee are already fairly tight. If somebody was proposing to assign a tenancy to a person who had no farming experience purely for the purposes of trying to get round the valuation requirements in the provisions in part 3A of the 1991 act, the landlord would have solid grounds for objecting to that assignation. The basis for that objection would be that the person was not an appropriate assignee under the existing provisions, which are in section 10A of the 1991 act. That is why the issue has not been specifically addressed in these regulations.

On a related point, the landlord also has an opportunity at the end of the relinquishment and assignation process to object to the proposed assignee. Controls for the landlord are built into both the existing assignation process and the proposed assignation process.

I had forgotten about that section in the act—thank you for reminding me. I will have a look at it.

There is a concern that, one way or another, an established farmer might manage to get round the rules and regulations and be able to outbid a new entrant or progressing farmer. What safeguards are in place to ensure that the assignee is a new entrant or someone who is relatively new and progressing in the industry, rather than somebody with a fairly well-established business who would probably be able to offer a bit more to the outgoing tenant to take over the tenancy? There is a concern that there are people out there who would try to do that in order to get more land.

I believe that the legislation sets out to define the two categories of qualifying—that is, permitted—assignees. Those are, first, new entrants and, secondly, those who wish to progress in farming. Mr Chapman’s question is fair, and the answer is that those were the groups that we wished to benefit, as it were, by conferring rights upon them to be the qualifying prospective assignees. The definitions of new entrants and progressing farmers have been subject to considerable consideration to ensure that they deliver the policy objectives and are as fair as possible to outgoing tenants, potential incoming tenants and landlords, and that opportunities for abuse are eliminated, or at least minimised.

I think that it was right that we went beyond new entrants to include people who are progressing in farming. The definitions are there for people to see; I do not propose to read them out.

Broadly speaking, the approach that we have taken is one that not only meets the policy objective of encouraging new people into farming but which also does not exclude people who have just reached the first rung on the ladder and want to move up. It is realistic to assume that the sort of people who will make a success of farming are people who have had experience of working in the farming world in various different categories and want a farm of their own.

The definitions have been very much drafted with Mr Chapman’s fears in mind, and with the intention of encouraging precision and certainty, which are the two desiderata of good law.

As we have reached the end of members’ questions, we will move to item 4, which is the consideration of motion S5M-23935.

Motion moved,

That the Rural Economy and Connectivity Committee recommends that the Agricultural Holdings (Relinquishment and Assignation) (Application to Relevant Partnerships) Regulations 2021 [draft] be approved.—[Fergus Ewing]

Motion agreed to.

I thank the cabinet secretary and his officials for their time.

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Agricultural Holdings (Relinquishment and Assignation) Regulations (SSI 2020/430)

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Land Reform (Scotland) Act 2016 (Commencement No 12) Regulations 2020 (SSI 2020/428)

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Animals, Food and Feed (EU Exit) (Scotland) (Amendment) Regulations 2020 (SSI 2020/455)

Item 5 is consideration of two negative instruments and one laid-only instrument, as detailed on the agenda.

The Delegated Powers and Law Reform Committee has considered these instruments and reported SSI 2020/455 in respect of the failure to lay the instrument in accordance with laying requirements, and on the general reporting ground, due to text being included in error in regulation 5(2)(c).

The Delegated Powers and Law Reform Committee notes that it is satisfied with the explanation that it has been given by the Scottish Government for the failure to comply with the rule. The Scottish Government has also committed to omit the text that was included in error in a forthcoming Scottish statutory instrument.

The laid-only instrument—SSI 2020/428—was included on the agenda for the committee to note only.

No motions to annul have been received in relation to the instruments. Do members have any comments to make?

As there is absolute silence, I propose that the committee make no recommendations in relation to the instruments. No one has indicated to the contrary, so that is agreed.