Official Report 297KB pdf
Item 3 is our first evidence session on the Agricultural Holdings (Amendment) (Scotland) Bill. We will hear from Scottish Government officials on the content of the bill and associated documents. It is not for officials to answer questions on policy decisions, but they can offer clarification on the content of the bill and associated documents. The policy aspects should be left to our discussion with the Cabinet Secretary for Rural Affairs and Environment. We expect to hear from stakeholders at next week’s meeting, and the cabinet secretary at the meeting on 25 January.
Section 1 of the bill seeks to amend the definition of “near relative” to include grandchildren of a deceased tenant, who would be eligible to inherit a family tenancy from a grandparent. What do you mean by “near relative”? Why is the extension limited to grandchildren?
I thank the committee for inviting us here and wish you a happy new year, as it is your first meeting in 2012. I make it clear that I am a policy official and my legal adviser will kick me under the table if, at any point, I stray into legal territory in a way that is not wholly accurate.
Is there any impediment to extending the definition of “near relative” beyond grandchildren to nephews and nieces? There is the possibility of other people being involved. I take your point about the submission from the tenant farming forum, but would it be possible to extend the definition?
Caroline Mair will answer from a legal perspective and, as the question touches on policy, I will give a response on the policy. However, as the convener said, the policy questions are for the cabinet secretary.
I cannot see any particular legal impediment to extending the definition. However, we must bear in mind that, if we confer new rights on people by extending the definition and the benefits that flow from it to nieces and nephews, there will be an associated disadvantage or disbenefit to a landlord who might be contesting a notice to quit.
I will complete that answer by touching on why the Government is holding tightly to the TFF recommendations. Over the years, relations between the different parties—the landlord side and the tenant side—have, at times, been strained and the Government has put great effort into making progress in a consensual way. The significance of the TFF recommendations is that, by definition, they have the consensual support of all sides in the debate, who have collected around the table. It is for the cabinet secretary to answer the policy question whether he would be prepared to move from that position. For us, it is significant that the bill, as drafted, has that consensual support. Anything other than that would not have, at least demonstrably, the consensual support of all sides in the debate. As Caroline Mair says, any change to the interests of one side will have a counterbalancing effect on the interests of the other side.
I am looking for guidance on how extended succession would work in practice. Is the assignation of tenancies standard—is it the norm? If it is not, is there a danger that extending the definition of “near relative” could lead to a dispute arising whereby a spouse and a child who helped to farm under a tenancy both sought to take up the tenancy when the tenant died? I wonder whether there could be a potential difficulty in extending the definition.
I do not perceive there to be a significant difficulty with priority. My understanding is that the position depends on the type of lease that the family member who works the tenancy has under the Agricultural Holdings (Scotland) Act 1991. That is important because, if the lease says that it is only for the lifetime of the tenant, there may be difficulties with assignation anyway. However, if it does not say that, the practical likelihood of a problem arising would be low given that, if the wife and the son or daughter worked the unit on behalf of the father—who was taking a less involved role—there would be an assumption that they would take on the tenancy. It would be a matter for the individual family and the landlord, depending on their future intentions. That is where the area of dispute could kick in.
So you do not envisage that it will be a problem.
No, but if the NFU Scotland perceives an issue with that, it might be able to give detailed examples when it gives evidence next week.
Are you aware that, in crofting tenure, assignation can be by agreement between the tenant and a successor? That provides a resolution mechanism if the assignation is outwith the family. There is already a precedent in Scottish agriculture.
Yes. It would be naive and unrealistic to think that any legislation that is introduced would entirely avoid the risk of dispute. However, as you say, there is precedent and arrangements are already in place. Therefore, although we are not naive enough to think that there would never be any dispute in an individual case, we are confident that the matter has been considered in enough detail by enough experts—not only within the Government but in the stakeholder groups and professional bodies—to ensure that the matter is as clear as it can be and that the risk of dispute is acceptably low.
A wee bit more clarity is required.
I will go back to the definitions and will pick up Graeme Dey’s point. If two children and/or two grandchildren, for example, were involved in the farm, what competition would there be between them in the event of the tenant’s death?
It would depend on who had succeeded to the tenancy. To talk about changing the law of succession in agricultural holdings is a bit of a misnomer. That is not what we are doing; we are simply changing a definition that applies when a landlord serves a notice to quit following the passage of a tenancy by succession.
To make it clear for us all, you are saying that a wider group of people might be able to serve a counter-writ to contest the landlord’s writ to foreclose the tenancy.
Yes, that is right. At the moment, when a tenancy passes by succession, the landlord has certain rights to serve an incontestable notice to quit. Where the tenancy passes to a near relative of the deceased tenant, persons who fall within that category have a greater degree of statutory protection because they are entitled to serve a counter-notice. That means that the matter must go to the Scottish Land Court before the notice to quit can be successful, and they may successfully contend that notice.
That is fine. Thank you.
Is there any indication of how many holdings or farming units the proposal will affect? I am not sure whether this is a complete shot in the dark. Do you have any indication of the number affected by the change?
We do not have firm statistics. How many cases would be affected in future is a speculative question. In ballpark terms, we think that the number would be very small. I do not know whether it would be safe to speculate that the number of cases affected might be in single figures or low double figures but we are talking about a relatively small number. The Government views the proposal as a positive and consensually agreed but modest change to the legislation. We do not think that it will revolutionise the system or affect a large number of cases; it is a modest change.
I will move on to the section on the prohibition of upward-only rent reviews. Most of us will be pretty surprised to learn that rents could go only up in some cases. In most markets the level of rent would be market led. My question is similar to John Lamont’s question. Do we know in how many limited duration tenancies—perhaps you could give the figure as a percentage—there is a clause that stipulates that rents are only to increase and that only landlords can initiate a rent review?
Part of our problem with all the lease arrangements is that, because they are contractual arrangements between two parties, we do not know the exact details of all the leases, so we do not have a figure for the number of individual cases in which that clause is in the contract. We know from Falkirk Council’s evidence that there seems to be at least one such lease out there, but we do not know the percentage, or the volume, of leases that have such clauses.
I suppose that there are two aspects. First, the rent can only increase and, secondly, the rent review is always led by the landlord. Can we look more closely at the fact that rent reviews are led only by the landlord? Can tenants currently seek a rent review in short limited duration tenancies and limited duration tenancies?
As Fiona Leslie said, because we are talking about private arrangements between landlords and tenants, we do not have statutory data so we are dealing with anecdotal evidence. Our understanding from stakeholder organisations, which the committee will also hear from, is that this is a small issue and the practice is not widespread, although there are examples of it happening. In the Government’s eyes, this is again about dealing with a relatively small issue that affects a relatively small number of individual cases. The aim is to have a positive impact, but the change will not revolutionise the sector.
That was going to be my second question. Would that be the case with all LDTs and with traditional partnership agreements? If not, is there room for the bill to address that issue?
The prohibition of upward-only and landlord-only-initiated rent reviews will apply only to LDTs under the Agricultural Holdings (Scotland) Act 2003. As David Barnes said, it will not have retrospective effect; it will prohibit the inclusion in future LDTs of such terms, which are perceived as unfair. The provision was included as part of the package that the TFF recommended. It is not proposed in the bill to interfere with the contractual terms of 1991 act tenancies.
Mr Hume might find it helpful to know that landlords and tenants can negotiate their rent through section 13 of the 1991 act, which contains statutory provisions on the code that they should follow in such negotiations. Therefore, there is potential for partnerships under the 1991 act that are still running to explore the issue.
That is helpful, thank you.
Do the witnesses have intelligence on how things stand in practice where there is not such a prohibition—that is, where there is the possibility of an upward or downward rent review? Are there many examples of downward rent reviews? I would have thought that market circumstances would normally dictate an upward direction.
We do not have data on that. As I said, in an area in which there is no statutory collection of data we rely very much on intelligence from stakeholder organisations, with which we work closely through the TFF, and individuals. We have not had a conversation with stakeholders about the issue that you raised, although we can certainly do so. However, if the committee takes evidence from stakeholder groups, they might be able to help you with what I guess will be anecdotal evidence rather than statistically valid data on the matter.
Am I correct in thinking that the ban on upward-only rent reviews will not deal with a situation in which the level of rent at which a tenant farmer entered a tenancy has become unsustainable because of changes in market conditions and should arguably be reduced? The provisions will only stop the rent going up; there is no provision that will allow a reflection of changing market conditions to be incorporated into a lease where the rent is frozen.
The provisions for fixing the level of rent in a rent review are set out in legislation and are untouched by the bill. If market conditions ought to lead to a change in the rent—in one direction or another—provision in that regard, first, exists in statute and, secondly, is untouched by the bill.
I will digress slightly and talk about the stats behind the proposals. You are aware that there was a 10 per cent drop in tenancies in Scotland between 2005 and 2011. Do you have figures on the extent to which the drop is due to tenants purchasing their farms or to landowners taking back vacant land and perhaps reletting it under alternative arrangements?
I am happy to take that question to our statisticians, to ascertain whether we can come back to the committee with an answer, although I am not confident that our statistical sources will enable us to discern the trends that you mentioned.
I have a question about the commencement procedure. The bill says:
To my knowledge, the two months is a standard amount of time to allow people to become aware of changes to legislation and take them on board. I can take the question away and come up with a more specific answer.
Is it related to the fact that we do not know when Her Majesty will put pen to paper?
Yes. We do not know when the bill will receive royal assent. A date will be set, which people can be made aware of.
On implementation, the two-month period is fairly standard, although it may vary slightly. I imagine that the philosophy behind it is that it accords with the idea that while people must be aware of the law—there is not an excuse not to be aware of the law—it is reasonable to allow a short bed-in period.
The provision is not retrospective per se—it applies to circumstances that exist when the act comes into force. It has to work that way or it would not achieve its intended effect because recent changes in VAT would have the effect of freezing rents for three years. What we are clarifying in the bill is that a change in the rate of VAT or an option to tax will not constitute a variation of rent such as would prevent parties from having the rent reviewed for the next three years. If that were not to apply to VAT changes that have taken place in the past couple of years, in cases that are affected by that change in VAT the rent would effectively be frozen for a three-year period from the date of that change, or from the date that any option to tax was taken by the landlord. It would not therefore achieve its effect, which is the mischief that we are trying to rectify with the provisions.
My next question concerns the date on which section 1 would come into effect. I think that the provisions in section 4(1) are clear about that, but the view has been expressed—you may be aware of it from the papers—that they are not.
Certain responses to the draft bill that was put out for consultation raised issues about the transitional arrangements. We took those on board and amended the transitional provision in the light of those comments. It is hoped that that has clarified the position. We changed the transitional provision to make it clear that it will affect only cases in which a tenant farmer has died after the act comes into force. We believe that that is a nice, clear and unambiguous cut-off point.
I note the rationale that has been given that the cut-off point is “clear and unambiguous”, but I presume that scenarios in which the tenant has died before the bill has come into force, but notice has not yet been served—such as the NFUS and the Scottish Tenant Farmers Association suggest—would not be beyond possibility. I presume that that would apply only in a finite number of circumstances. What is your opinion of that?
My understanding is that how far back we would have to go in time would depend on whether the tenancy is passing by testate succession or intestate succession. If a tenant dies and the estate is distributed and wound up according to the law of intestate succession, it may take some time. It would introduce a degree of uncertainty to apply the changed definition to circumstances in which a tenant might have died, for example, up to a year before. We would be changing the rights and expectations of some parties whose circumstances are extant at the point when the act comes into force.
I will supplement what Caroline Mair said by referring back to the balance of interests. It is an interesting situation: the two organisations that the member mentioned are both members of the TFF, and the whole raison d’être of the TFF is to broker compromises between organisations that have differing views. It is possible for a single organisation to have its own view—if it were up to that organisation in isolation, it would have a certain preference—while in the context of the TFF it signs up to a compromise that is slightly different. We are aware that we are living in a situation in which there are differing nuances of view.
Thank you. I have a final point on that. Obviously, we will pursue this and other issues through the evidence that we will gather from stakeholders in due course. If a notice has not been served, it could be argued from a semantic legal perspective that in a sense there is no retrospective effect because the de facto position is that a notice has not been served. However, I will leave that for another day. I presume that there have been examples in Scots law of legislation that has had retrospective effects—I do not imagine that that has never happened.
Yes—the Government’s position thus far in response to those representations is not based on there being a legal impediment.
It is possible to pass legislation that has a retrospective effect, but we generally try to avoid that because we prefer not to interfere with established circumstances or the existing rights of parties. It is preferable for new law to have a future effect rather than a retrospective one so that it does not interfere with established rights of parties who rely on it.
Thank you very much. As there are no other questions, I thank our witnesses for their evidence. I know that we have points to follow up with stakeholders and the minister in due course.