Rural Development Committee, 19 Nov 2002

Meeting date: Tuesday, November 19, 2002

Official Report 349KB pdf

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Agricultural Holdings (Scotland) Bill: Stage 1

Welcome back, ladies and gentlemen. Agenda item 3 is resumption of our stage 1 consideration of the Agricultural Holdings (Scotland) Bill. We will take our final evidence on the bill. I welcome again Ross Finnie, who has a different hat on. As is becoming customary, I ask him to make any opening remarks before we ask questions. It would be useful if the minister introduced his formidable array of officials.

I am sorry about that. Not even my best attempt would give me a majority over the committee, but I am trying hard. On my right is David Milne, and further right is Douglas Greig. They are the lead policy officials on the bill. On my left is James Shaw, who is the instructing solicitor for the bill except the dispute resolution provisions, which provides a role for Judith Morrison, who is the instructing solicitor on dispute resolution. She is familiar to committee members, as she has appeared before. Further on my left is Anthony Andrew, who is the head of the Executive's land and property division and has advised on land valuation issues.

I am conscious that time runs on, so I will proceed. The bill is one major element of our land reform programme. It is directed exclusively at reforming the tenanted sector of our agricultural communities. The Executive is committed to a pluralistic system in which a strong tenanted sector supports the owner-occupied sector.

It is clear from the many years during which the proposals have been compiled and from the responses to the bill that landlords and tenants share the view that the bill is needed for two principal grounds. The first is the need to improve the workings of the Agricultural Holdings (Scotland) Act 1991, which have been found wanting in some ways. The second is the need to expand the range of tenancy agreements, to expand the ability to engage in diversified activities for those who wish to and to help reform the dispute resolution process.

If members look at other European countries, they will find that almost every successful agricultural economy in the EU has a strong tenanted sector. It is important to recognise the benefits of such a healthy sector. It provides a vital way in for new blood to our rural industries. A healthy rented sector gives the ability to rent land when that is needed and allows successful farm businesses flexibility in the way they operate. Tenants benefit from investment by landlords as partners in their enterprise and tenants can invest more in their particular enterprise as tenants. If we are to achieve those benefits, it is important that we reform the current framework.

The bill develops some of the key messages of our agriculture strategy. It also offers benefits and new opportunities to existing tenants who will receive new rights and find it easier to enforce some of their existing rights. Limited duration tenants will be able to diversify into non-agricultural activities and all tenants will find cheaper and simpler recourse to the dispute resolution arrangements that are provided for in the bill. Last, tenants under the 1991 act will, of course, acquire a pre-emptive right to buy their holding from a selling landlord.

New opportunities should emerge for new tenants to enter the market. The new blood and new ideas they bring can stimulate more productive use of tenanted land. I hope that the limited duration tenancies will be directed towards that aim. The introduction of the new tenancy options should encourage landlords to let land. I hope that they will also benefit from the revised dispute resolution arrangements. Rural communities as a whole should benefit from the aggregation of all of those activities and the extension of the activities they provide for.

Since the proposals in the bill first emerged from the work of the land reform policy group four years ago, we have continued to work closely with a wide range of interests and have consulted broadly. I am therefore pleased that most of the witnesses who have appeared before the committee over recent weeks have broadly welcomed the general thrust of the bill.

I am, of course, conscious that questions remain about some of the more detailed aspects of the bill and I will be happy to deal with as many of those concerns as possible. That is a phrase that ministers can use very readily when they have as many supporting officials with them as I have. We are always prepared to look further at some of the issues that have been raised to see whether we can, or cannot, improve the way the bill works or is intended to work.

Thank you, minister. As no committee member has caught my eye, I will begin.

Very few of us would disagree with most of the proposed contents of the bill, but it is a matter of some concern that much of the evidence we have taken has centred not on the contents of the bill but on what a sector of the tenanted sector would like to see in it. They would like the pre-emptive right to buy for secure tenants under the 1991 act to become an absolute right to buy.

Everybody has welcomed the intent of the bill, which is to revitalise the tenanted sector. If the pre-emptive right to buy became an absolute right to buy, would that revitalise the tenanted sector?

I can only repeat that the policy thrust behind proposing an agricultural holdings bill is, as the convener rightly said, to address serious issues in the tenanted sector. The thrust of the proposals that we have introduced is entirely directed at rejuvenating the operation of the existing law and of affording new opportunities to the tenanted sector.

Granting tenants the right to buy raises a different range of wider policy implications. I am wholly unpersuaded that doing so would do other than damage the pluralistic approach to holdings that is taken in our agricultural community. That is not the intention of our proposal. It is a related, but separate, proposal that would have very wide ramifications. As that proposal was not the thrust of our proposals, it is not a matter on which we consulted widely.

We are very concerned that extending rights in such a way would not only damage the pluralistic approach but have wider policy implications for any other sector that had commercial rented premises. We might discuss later the various technical issues that surround such a proposal but, as a general principle, it would be harmful and counter to the bill's policy thrust.

In its evidence, the Scottish estates business group felt that if the bill as published became law, it would be helpful to establish what it called a tenant farmers forum, which would consist exclusively of tenants and landlords under an independent chair. The group left us in no doubt that the proposal had the complete agreement of all stakeholders, apart from—at that stage—the tenant farmers action group. Have you been approached with that suggestion? If so, what is your reaction to it?

The answer to your question about whether I have been approached with the suggestion is yes. If we analyse the perceptions of landlords and tenants with regard to the ways in which the 1991 act is not working, we will find that there are problems with, for example, partnership arrangements, which were seen as a means of obviating the 1991 act's security provisions. Furthermore, there are strong feelings about issues such as write-down agreements, recompensation at waygo, the use of post-lease agreements in relation to the responsibility for repairs and renewals and so on. Such issues clearly demonstrate that there has been no sense of communication. As a result, there is a strong prima facie case for having a tenant farmers forum.

However, I am bound to say that, having considered the proposal, I am not satisfied that it would be appropriate to enshrine it in statute. One of the bill's major features finds its roots in the challenge to the industry that I made in our white paper for it to come together and formulate proposals for limited duration tenancies. Since then, both sides have woken up to the realisation that speaking to each other is not that much trouble.

The tenants and landowners groups—including the Scottish Landowners Federation—have made a thrust towards far greater co-operation. If people genuinely believe that, after the bill is passed, relationships can be improved and ingrained problems can be resolved earlier, there is nothing to prevent them from setting up the sort of organisation that you referred to. Indeed, I have already indicated that we would be very happy to co-operate with them in that. However, I am reluctant to turn it into a statutory body, which would carry the risk that people will begin to think that it is a non-departmental government body or something. Goodness gracious, let us keep away from quangos.

I did not mean to give the impression that that was the Scottish estates business group's intention, because I do not believe that it was.

No, I do not think so either, but your question contained two suggestions. My general view is that the proposal has much to commend it; however, my team and I are not persuaded that it would be sensible to enshrine such an organisation in statute.

Andy Wightman was one of several witnesses who gave evidence to us on 5 November. I asked:

"Does Andy Wightman think that the Scottish Executive's view is that it is public policy to ensure a greater diversity of land ownership in Scotland, and that a proposal for the compulsory purchase of private property in order to transfer it to another private individual is a worthwhile public benefit per se?"

His reply was:

"Yes, I think that that is the Executive's view."—[Official Report, Rural Development Committee, 5 November 2002; c 3738.]

I just want some clarification, because that is not my interpretation of the Executive's view. Have you any comment on the evidence presented to us by Andy Wightman?

Without being disrespectful to Andy Wightman, whom and whose views I know well, I am not sure that he is best placed to answer on behalf of the Scottish Executive about its policy objectives. We are trying to improve diversity in the range and nature of holdings, which is self-evident in the bill.

On the question of conferring compulsory purchase, for many years only crofting legislation has had special treatment in law, which has rightly been done to protect communities. There are three statutes under which someone can acquire a right to buy, but it is not an absolute right to buy because each individual case has to meet certain tests on which the Scottish Land Court would adjudicate. Those tests involve a judgment on whether such an acquisition could have a detrimental effect on the landowner. There is a distinction to be drawn between continuing the absolute ability in certain crofting and community situations and the generality of agricultural land, which represents some 80 per cent of Scotland's total land mass.

At the beginning of evidence taking at stage 1, I asked the convener for a ruling, and he ruled that we could take evidence on the so-called absolute right to buy, even though it is not in the bill. It has been an issue that has come to the fore throughout our evidence taking, but it is clear that the Scottish Executive does not want to include the so-called absolute right to buy in the bill. However, if the committee recommended such a section to Parliament, do you believe that it would so severely damage the bill that it would have to be withdrawn? Would it wreck the bill, or would you still proceed with it?

I am in danger of going down hypothetical routes. I want to make one observation. In my dealings with those who exhibit their frustration with the way in which the 1991 act currently operates, I have found it instructive to divide them into different camps. There are those who are philosophically committed to a right to buy. However, a substantial number of people, with whom I have had meetings and consultations, are deeply dissatisfied with some of the operations in the 1991 act. One example is the use of limited partnerships as a mechanism of interfering with the security of tenancy that should be afforded under the 1991 act but which can be obviated by the use of such a mechanism.

Other issues include the use of write-down agreements in compensation and waygo, and the use of post-lease agreements in terms of responsibility for repairs and renewals. There are also some question marks over the rent review formula. I would like to come back to that in evidence, if I may, because I am sufficiently persuaded by those genuine concerns, rather than the principles, that if we get beyond stage 1 to stage 2, they can be addressed.

On Mike Rumbles's question, before I reached any view on whether a right to buy was needed, I would have to ask myself—as I have done—about the fundamental issues behind the resurgence in that requirement. I can only repeat that I do not want to comment on what I would or would not do about a section that I have not yet seen. However, my view remains that, in some shape or size, granting an absolute right to buy would have a detrimental effect and be contrary to the policy objectives of the bill, which is designed to found on the pluralistic approach and improve greatly the workings of the tenanted sector.

I will follow that with one more question. The evidence that we have taken suggests that one reason why many witnesses have focused on something that is not in the bill is the tremendous amount of agreement about what is in the bill. Witnesses have complimented the bill. The difficulty that has been sitting in the wings is the absolute right to buy, or the compulsory purchase of private property. Has that clouded the other issues in the bill?

I am not sure whether it has clouded the issues, but I have not heard enough about the reasons for the improper operation—improper is not the right word; I will say imperfect operation—of the 1991 act. In speaking with other groups, I have acknowledged, as does the bill, those other issues. If the bill proceeds beyond stage 1, we can do even more than the bill contains to rectify those faults and therefore remove much of the frustration among those who feel that the 1991 act is being improperly operated.

The minister is unwilling to answer hypothetical questions, but I note that he has referred several times to what will happen if the bill proceeds beyond stage 1.

I cast my mind back to the Executive's original proposals, which did not include a pre-emptive right to buy—that was added later. The bill's boundaries were extended beyond simply rearranging the regulations about tenancies. If the bill included an absolute right to buy, would that not be perfectly well within the bill's general principles, so the Executive would have no case for opposing it?

A pre-emptive right to buy was always in our contemplation. When we issued the first white paper, we had difficulties with the earlier Land Reform (Scotland) Bill in formulating proposals that satisfactorily met the requirements of proper valuation. Those issues proved more difficult to resolve than we expected and it seemed imprudent to publish a further proposal while they were unresolved.

Between the issuing of that white paper and the issuing of the draft agricultural holdings bill, those matters were resolved. I still see a fundamental difference in principle between granting an existing tenant a pre-emptive right to buy, as between a willing seller and a willing buyer, and granting an absolute right to buy, which by definition has an element of compulsion.

The minister said in his opening remarks that the bill's purpose is to further the interests of the rural economy and that the bill is a central component of land reform. Is increasing ownership as opposed to tenancies in rural communities good for the rural economy? Will it lead to more or less investment in the rural economy?

If more people invest in the rural economy, that will be the outcome. The issues must be separated. The tenanted sector has become somewhat stuck. I draw a comparison with other countries that have successful rural and agricultural economies in which their tenanted sectors operate successfully.

The three years of consultation on the bill drew out what is wrong with the existing legislation. The bill aims to remedy that by taking account of the full consultation and to produce a more vibrant tenanted sector that has the capacity to make a significant contribution to the rural economy.

Although the minister is opposed to the absolute right to buy because of the issues of compensation and valuation, the Land Reform (Scotland) Bill gives crofters the right to buy salmon fisheries. In an answer to one of my written questions, the minister stated:

"We also believe that the creation of the crofting community right to buy salmon fishings should not impact upon the value of these fishings."—[Official Report, Written Answers, 12 November 2002; p 2195.]

Why would an absolute right to buy impact on an estate's value, if the absolute right to buy salmon fishings does not?

I have not referred to compensation and valuation in the meeting. I have made it clear that my first and fundamental opposition to an absolute right to buy is based on policy and principle. Our policy is to create and ensure a fully functional and pluralistic approach between landlord and tenant in the rural community.

There are a number of concerns about compensation, all of which are fairly technical and some of which relate to the ECHR. If somebody arrives at a demonstrable loss, I am concerned that the only person who would be liable for the loss would be the Executive. I do not wish to embark on such a course of action and that is not wholly inconsistent with policy, because liabilities are not the direction in which we wish to go with public expenditure on the rural economy.

So the minister's fundamental opposition to the absolute right to buy is based not on compensation or valuation issues, but on the future impact on the tenancy sector.

Yes.

What would be the impact on the tenancy sector of introducing the absolute right to buy for secure tenancies, which have not been created for around 20 years?

The point of the bill is to remedy what have become defects in the way in which the current legislation operates. The bill gives impetus to a more pluralistic approach in developing the tenanted sector and gets rid of some defects. I like to think that, in addition to the stimulation of new interest through limited duration tenancies, we might begin to see the prospect of new long-term tenancies.

From what I have seen in the past nine months, there is nothing in the nature of the tenanted sector to prevent new longer-term tenancies; they are still an option. The sector has become stuck and I like to think that the range of options that are available and the change in the tone and tenor of the way in which we operate will alter that. One thing is certain: if we moved to an absolute right to buy, we would, at a stroke, make permanent the fact that there will be no further long-term tenancies.

A couple of weeks ago, I met a tenant farmer who said that he would rather have compensation for his investment in improvements during the tenancy than be unable to retire and allow his son to take over the tenancy because he has no cash. Does the bill address that issue and, if so, how?

No. In our discussions with both sides of the industry and with many people, two related issues arose. I must be careful, but if the bill goes beyond stage 1, we must do something about agreements on compensation at waygo because people do not get a return for their investment.

I would want to lodge an amendment to provide that write-down agreements would not bind either party, for example. I am not yet clear about that because of the complex issues. We do not indulge in retrospective legislation, but we would have to deal with situations that occurred after the bill's passage. I am unable to advise the committee precisely how we would deal with that. However, I would want to remedy that very genuine concern by improving the bill during its passage.

You said that you wanted proper compensation so that the tenanted sector could become unstuck. The current lack of compensation at waygo means that very few people can move on, and that is causing the tenanted sector to stick. An absolute right to buy could rectify that quite simply. You mentioned considering compensation at waygo, which would perhaps have the same effect. Some evidence that we received suggested that landowners might not be able to afford to pay proper compensation. If that were the case, landowners would not allow tenants to invest in the farm, because they would be unable to pay compensation at waygo.

It is difficult to legislate for the potential financial position of a landlord at the point of someone seeking to exit. Richard Lochhead has just left the room, but I wanted to articulate to him that there are write-down agreements that militate against the interests of tenants. Those write-down agreements should not bind those parties. One cannot always speculate about financial provision. I am unsure quite how, if someone is allowed to receive such compensation at waygo, that would be improved simply by having an absolute right to buy, which would affect other aspects of the tenancy. The issue of compensation at waygo is being overridden by the use of write-down agreements. At the next stage of the bill, I would wish to propose amendments to address what I believe is a genuine concern.

If there were an absolute right to buy, the landowner would be compensated not only for the value of the farm, but for any detriment that was suffered through selling it. That would then give tenant and owner a financial basis upon which to sell a farm, enabling them to retire or move to a different property. It would also create some vibrancy in the sector. There are also issues about people's homes. People are very unwilling to give up a farm, if that farm is their home. They are unwilling to move if they do not have financial compensation to buy somewhere else, even at retirement, far less to move on to a bigger farm.

That argument cuts both ways. For example, someone who owns a farm may not have arranged their financial affairs to allow for an unplanned situation in which they would suddenly be compelled to dispose of their property. Why should someone contemplate that, if they are in a landlord-tenant arrangement? I do not want to go down that road. If a tenant cannot afford to buy, that leads to questions and comparisons of total retirement and whether a tenant could actually afford to raise money for the purchase. I am not happy about going down that road—we must deal with matters on an individual basis. There is not a principle involved.

It was put to us in evidence that often a problem with secure tenancies is that tenants are required to live in the farmhouse on a tenanted property. The removal of that requirement might go a considerable way towards alleviating secure tenants' concerns. Would you welcome amendments at stage 2 to alter the situation?

I would be happier to reflect on the evidence that has been given on that matter. We need to consider whether someone can devote themselves to the management of a farm if they are resident at some distance from it. If there is compelling evidence that removal of the residency requirement would improve the operation of the tenanted sector, I would be happy to consider that.

I want to return to the issue of an absolute right to buy and to ask about investment. If someone owns their farm, they have collateral to raise funds to invest in it. If they do not, they must consider other ways of securing investment. However, the landowner may prevent the tenant from doing that if they believe that they will have to pay compensation at waygo. There seems to be a problem, which the bill fails to address, with the balance of power and with investment in rural communities.

I have conceded that the provisions in the bill relating to waygo do not deal adequately with that issue. If we proceed with the bill, I will deal with the question of compensation at waygo for improvements.

Another issue is that of repairs and renewals. There are clear indications that the use of post-lease agreements on the responsibility for repairs and renewals has militated against tenant farmers. I want to address that problem, which is one of a number of factors that are working against the proper operation and spirit of the 1991 act.

We were given an example of a case in which a landowner might not be happy to compensate a tenant at waygo. If there has been an agreement to set up a hatchery as part of the diversification of farms, a landowner may be unhappy to pay compensation for that, given that they may not find another person to take it on. Without a right to buy, we are stalling diversification and investment.

The member and I could trade examples to illustrate the balance of advantage. However, we need to consider the sector as a whole—the people whom we consulted and who contributed to the consultation. As I indicated earlier, a number of people take the view that an absolute right to buy is needed. In my view, that has nothing to do with improving the tenanted sector of Scottish agriculture. However, tenants are entitled to assistance. We must address seriously some of the issues that have been raised and to which I referred in my evidence.

As the minister said, there is a sense of frustration among secure tenants. That is caused by the strictures of the legal format of the 1991 act. I welcome the minister's indication that he intends to lodge amendments to the bill that is before us, but we need to know what those amendments will be.

If sitting tenants are no longer to feel frustrated, will it not be necessary to apply compensation provisions and ban write-down agreements and post-lease agreements retrospectively? If we do not do that, all the sitting tenants will share the same frustrations that they have had for decades. I understand from Sir Crispin Agnew's evidence a fortnight ago that there is no legal reason why the bill should not apply changes retrospectively.

I am not about to get into an argument with either Fergus Ewing or Crispin Agnew about the state of Scots law. Perhaps James Shaw would do so, but I would not necessarily encourage him.

Let me be clear. It is simple to say that we could make provisions regarding write-down agreements that were entered into in the future. That is self-evidently the case, and the same is true for future post-lease agreements. What we are not absolutely clear about is how precisely to deal with existing write-down agreements or how to deal with the payment of appropriate compensation for things such as dilapidations. At this stage, all that I can undertake to do is to say that, if I get to that point, I will lodge amendments that I hope will address both issues.

Although Crispin Agnew may have made that clear statement, I am sure that even Fergus Ewing would concede that retrospection is a difficult issue to address. It is not simple. Perhaps James Shaw also wants to comment.

There may be slight confusion here about what retrospection means. My understanding from the evidence is that, at the date of the bill's coming into force once it is enacted, it will attack agreements that are in existence at that time. For example, if Mr Ewing's point is whether we will attack—to pluck just one example from the list—a write-down agreement that is in existence on the day before the bill's coming into force, the answer is that we will look at that. That would not be retrospection, because the provision would be attacking something for the future, which it might nullify from that point. That is retrospection in the sense that I think Fergus Ewing meant. However, if by retrospection he means making that agreement void from the start—say, if the agreement was entered into 20 years ago—that is not what the bill will do. Such an agreement will have had effect for those 20 years. However, the amendments that we introduce may have the effect of making such agreements null and void on the day that the act comes into force.

Whatever the legalistic answer is—I am not an expert but, to be fair to him, Sir Crispin Agnew most certainly is—there is a far more important point of policy. Unless existing agreements—

I understand that. I have given an undertaken that I will try to do that. Fergus Ewing tells me that I must address agreements that are already in existence, but I say to him that I am not yet able to describe how I might do that. All that I undertake to do is to be quite clear about going forward as regards new arrangements and to say that I want to be in a position to deal with those arrangements that are already in existence—as James Shaw described—so that the tenant gets that benefit.

Will existing sitting tenants who, when they entered into their contracts some time ago also entered into write-down agreements or post-lease agreements, be able to get the benefits of compensation?

We are seeking a solution to that.

That could be a major step forward in removing some of the frustrations, but let me move on.

Section 2 provides for a mechanism to convert secure tenancies to limited duration tenancies. Rhoda Grant mentioned how, in some cases, the current system deters tenants from retiring because they cannot achieve proper compensation. That point is accepted across the board. I assume that the Executive wants to see 1991 tenancies becoming limited duration tenancies or the possibility of that happening.

Will the minister respond to the suggestion from the National Farmers Union of Scotland that the termination of a heritable tenancy should attract statutory compensation? It is well known that the value to the landowner of land that is subject to a secure tenancy is 50 per cent or 60 per cent of the market value of that land if it could be offered with vacant possession. The point is that, if tenants who have tenanted their farms for decades—in some cases for generations—are converting the heritable rights that their families have held to the new vehicle that is the LDT, which will last for 15 years or thereabouts, should not some payment be made to them in exchange for some or all of the share of that value?

That is what the NFUS appeared to be recommending in its submission to us. Will the minister undertake to consider that and give a positive indication that he feels that that would be an encouraging move to end the current sense of frustration? I am sure that the committee would welcome that.

I am not wholly persuaded that I want to end long-term tenancies. Your comment was predicated on the view that I want to move to short-term tenancies, but I am simply providing a mechanism whereby that can happen. However, I am also trying to indicate that in the operation of the leased sector, I am trying hard to remove some of the provisions that have been open to various interpretations and which can cause frustration—I think that we share that word—for tenants and landlords. That bill will not necessarily cover all rights.

Compensation is an issue. If someone were to give up their existing tenanted right, they would get compensation at waygo, but there is an issue about valuation. If we are to have clearer legislation on the share of the value at waygo, the circumstances that you just described will have to be part of our consideration of the relevant section.

I want to move on to the pre-emptive right to buy and the absolute right to buy. How many secure tenants does the Executive expect to benefit from the exercise of the pre-emptive right to buy over the next 10 years, assuming the bill becomes law?

I do not know whether I can give you a precise number.

We know that 1 to 2 per cent, or perhaps slightly more, of agricultural land changes hands every year. There is nothing to suggest in our statistics that there is a variation between owner-occupied land and land that is under a secure tenancy. The provisions on triggering the pre-emptive right to buy apply to 70 per cent of land transactions, which is exactly what we saw in the Land Reform (Scotland) Bill. From that point of view, a significant number of the transactions that take place every year will trigger a tenant's right to buy, but I cannot give you an exact number off the top of my head.

Does the minister agree that in the case of some land holdings, the pre-emptive right to buy would be unlikely to apply for the foreseeable future—indeed for generation unto generation—because of the way in which the land is held legally? Does he agree that the pre-emptive right to buy will be academic for many secure tenants on estates in which property is held in trust, including vast estates in the area of Scotland that I represent?

The pre-emptive right to buy might be academic for those who are in the trust, but it would certainly not be for those who might reasonably have expected a practice that takes place, by and large, but that—surprise, surprise—occasionally does not, much to the disadvantage of those involved. Since the publication of the bill, amendments have been lodged in relation to the trigger points for rights of purchase. As we move to stage 2, it is clearly important to align the trigger points in the Land Reform (Scotland) Bill with the trigger points that are in the Agricultural Holdings (Scotland) Bill, for no reason other than consistency. The pre-emptive right to buy is not purely academic although I accept there are substantial arrangements for the law of inheritance and inheritance tax, which are not within my domain.

I suppose the underlying policy question is why is the right to buy okay for some tenants, but not for others—in fact, not for the vast majority of sitting tenants?

Sorry—a right to buy?

A pre-emptive right to buy—

With all due respect—

Perhaps I should formulate the question again. We heard from your adviser that 1 per cent of farms might go on the market in a year. That suggests that, during the next 10 years, one in 10 secure tenants—at best—would have the opportunity to acquire the pre-emptive right to buy. Why should not the other 90 per cent have the chance to develop their businesses and the opportunities that ownership of their farms might present? Judging by your figures, it seems that only one in 10 farmers would benefit from the pre-emptive right to buy, as opposed to 100 per cent of farmers under an absolute right to buy.

I do not accept that proposition. I am concerned about the percentage of farmers who would benefit from the bill. As the bill is designed to address a range of issues—of which the pre-emptive right to buy is but one—I cannot accept the proposition that the reforms it contains will either have no effect on or be of no benefit to those in the sector. As I said in an earlier answer, as a matter of policy, I draw a distinction between an arrangement that confers a right between a willing seller and a willing buyer and a right that confers upon one party some compulsion. Those are separate issues.

Fergus Ewing mentioned estates that are held in trust. I refer you to the same issue in relation to estates that are owned by companies that change hands, especially companies that are not registered in this country.

That issue was raised during our consideration of the Land Reform (Scotland) Bill. The practical matter of trying to ascertain or enforce the registration of those companies is extraordinarily complex.

One of the bill's intentions is to facilitate diversification. We heard evidence from one estate—although there are probably more—that has different tenancies on its land, including non-agricultural tenancies. Given the current state of farming, those tenancies produce far more income than the farm, or the rent from the farm, does. If the pre-emptive right to buy were given to the agricultural tenant only, it would act against investment by the other tenants on a property. The bill would work against diversification, rather than encourage it.

Under which provision are those leases made, if the tenancies are not on agricultural land?

An estate may lease land to various tenants who carry out their business on the estate. Such supporting tenants could be fish-farming tenants or horticultural tenants. If the pre-emptive right to buy were given only to the agricultural tenant, what encouragement would there be for any other tenant to invest?

I am not sure under which piece of legislation one might confer a different right. The pre-emptive right to buy would be explicitly conferred upon those who have a long-term tenancy under the 1991 act.

I am talking about the pre-emptive right to buy discouraging diversification.

That is a view that I do not share. I do not understand the circumstances under which one would grant a right to buy to persons who were engaged in agricultural activity but who might also be engaged in some ancillary activity.

If you are talking about an estate that is not on agricultural land and is not governed by an agricultural tenancy, that would be covered by different legislation. I do not think that one should be led to the conclusion that the pre-emptive right to buy would necessarily discourage diversification.

I would like to add to that. The pre-emptive right to buy will not apply to the new limited duration tenancies, so such tenancies will not act as a disincentive to diversification. The new limited duration tenancies will have an ability to diversify built into them from the start, so diversification will be permitted. I am not quite sure why you suggest that the new tenancies will act as a disincentive to diversification.

I want to pursue my point. Let us suppose that an agricultural tenant and a sporting tenant were on the same land but that the tenant bought the land through the pre-emptive right to buy. If he then decided to use a method of agriculture that worked against the interests of the sporting tenant, such as putting on far more sheep, that would mean that all the investment that the sporting tenant had put in would be to no avail.

In your example, we would need to know on what basis the property had been split and what rights had been granted to the respective parties. I do not think that splitting a property would create a separate tenement—I would have to ask lawyers about that. If one splits a property, rights and obligations must be conferred on both parties at the point at which the division is made. Conferring a pre-emptive right to purchase on one party would not obviate the agreement that was entered into at the point at which the land was split.

We are talking about commercial leases that do not fall within the ambit of the 1991 act. I would have thought that a commercial lease arrangement would be an entirely different proposition.

I want to ask about the criteria for objecting to diversification that would be available to landlords. Among the intended uses of the land to which a landlord could object are uses that would

"lessen significantly the amenity of the land or the surrounding area"

or that would

"be detrimental to the sound management of the estate".

Are not those criteria extremely wide? Would not the landlord be able to use almost any reason to object to diversification?

Where do those provisions appear?

They appear in section 35.

We spent a long time constructing section 35. We sought to be reasonable to all sides. The important point is that if a landlord were to seek to use the provision in a way that the tenant regarded as unreasonable, the bill would give the tenant the right to challenge the landlord's view in the Land Court. I hope that that provision will be influential in persuading landlords not to use the objection criteria unreasonably, but in the way that was intended.

That is fair enough. A landlord could also object if the intended use of land would

"cause the landlord to suffer undue hardship".

The reasons are wide ranging—they appear to encompass everything.

The landlord would still have to prove the point. It is possible to contemplate some form of diversification that would have an adverse effect. For example, a tenant of land that is a parcel of an estate might contemplate a use of the land that could have a prejudicial effect on the management of the estate as a whole. However, the burden would be on the landlord to state clearly which of the reasons set out in section 35(9) would apply.

If a landlord has a business on the estate several miles down the road and a tenant farmer wants to diversify into a similar business, would that constitute "undue hardship" to the landlord?

The case is somewhat hypothetical. If the business were the only one of its kind and competition was being created, the landlord might have a view on that. However, it would be unreasonable for the landlord to object to the tenant's doing something slightly different. It is difficult to speculate on the issue.

I am trying to get an indication of how widely the provision will apply.

The test of reasonableness must apply.

It is important to remember that we are considering the general principles of the bill. We will deal with detailed amendments at stage 2.

Stewart Stevenson would like to ask a short supplementary.

I will keep it well under half an hour.

You are dead right.

To what extent was a transfer of interest in a trust or a closed company considered as being appropriate to trigger the pre-emptive right to buy?

Did you say a closed company?

Yes.

That is a taxation term, rather than a corporate term.

But it is a readily identifiable company with an upper limit on the number of shareholders. Functionally, it is equivalent to a trust, but it is structured somewhat differently.

I know what a closed company is. I am not sure that the term is applicable to the bill.

You may choose an alternative term.

We considered a range of potential transfers. We need to extend the bill to encompass transfers for value, which this bill does not cover but which are included in the Land Reform (Scotland) Bill. When drafting the bill, our main concerns were traceability and enforceability. James Shaw may want to comment.

I am not sure that I can add much. I do not recall any discussion of closed companies, although it is not for me to comment on that matter. Stewart Stevenson is closely involved in the Justice 2 Committee, which is the lead committee on the Land Reform (Scotland) Bill. There was concern that the pre-emptive right to buy might be triggered all over the place by the resignation or death of trustees. The bill contains provisions to deal with that. As the minister has indicated, consideration is being given to streamlining this bill with the Land Reform (Scotland) Bill as amended at stage 2.

I was thinking less about the trustees than about those who benefit from the trust, who may not be the same people. The minister spoke about considering a pre-emptive right to buy when a transfer is made for value. I seek to distinguish between that and a situation in which a transfer is made of value, but not necessarily for value.

I have a simple question that may have a complicated answer. In the light of the experience of some other countries—in particular Denmark—is it legal to legislate that land may be owned only by entities that are domiciled in the UK?

That is not an express provision of the bill. It has proved extremely difficult to include in the bill transfers of companies whose ownership is not registered in the United Kingdom. We considered all sorts of companies, although I would not necessarily describe them as closed companies.

The issue was about being able to trace the owners of the shares and ensuring that the process of transferring the shares would be transparent, so that we could find out when the transfer happened. None of the circumstances apply particularly to overseas companies, and the clear advice was that the section would be incapable of being enforced in such circumstances. We examined the issue carefully in the context of the earlier consideration of the Land Reform (Scotland) Bill, and I know that the Rural Development Committee and others asked us to consider extending the trigger mechanisms. Much discussion and debate took place on those issues internally. The committee has before it our genuine attempt to make provisions that are enforceable, so that ownership can be traced and acted upon.

At some stage, it would be appropriate to prevent foreign entities from owning land.

I want to return to retrospective legislation. Earlier, my colleague Fergus Ewing referred to the evidence that the committee received from Sir Crispin Agnew. Fergus Ewing asked Sir Crispin Agnew:

"Is there any reason why those changes should not apply retrospectively to all existing secure tenants covered by the 1991 act?"

Sir Crispin Agnew replied:

"That is purely a matter of policy; there is no legal reason why the bill should not do so."

However, he went on to say:

"Although there is certainly no legal impediment to changing the situation, it is difficult to know whether it is appropriate to change agreements retrospectively in cases where people have entered into them in good faith."—[Official Report, Rural Development Committee, 5 November 2002; c 3734.]

Is not there a world of difference between retrospective legislation involving a willing seller and buyer and retrospective legislation involving the compulsory purchase of private property? Sir Crispin Agnew says that there is no legal impediment to legislating to change agreements retrospectively, but we must be careful about the appropriateness of that. Will the minister comment?

The question is whether we could have such legislation. There are other technical issues that we have not addressed. If the advice is that we make changes retrospectively, that is the advice. James Shaw made a slightly different distinction, between going back to day 1 and the impact on an existing agreement from the point at which the bill is passed. Certainly, that was true for the two items that we mentioned earlier, but those were not the issue to which you are referring now. The passage of the bill would affect the impact of write-down agreements and post-lease agreements without our going back to rewrite them. Do you stick to your earlier view, James?

I certainly would not change the view that I expressed on retrospection. The minister has said that certain things must be done in the future, because we are still considering the technicalities of existing write-down agreements and post-lease agreements and we need to consider the effect on the relationship between the landlord and the tenant.

With respect, I am not sure that you understood fully the meaning of my question. I was referring to the evidence that we received from Sir Crispin Agnew, who said that, in his opinion, there is no legal reason why we cannot have retrospective legislation. However, he adds a caveat by saying:

"it is difficult to know whether it is appropriate to change agreements retrospectively in cases where people have entered into them in good faith."—[Official Report, Rural Development Committee, 5 November 2002; c 3734.]

Our answer is that we agree with that wholly. The reason why I was unable to answer definitively Fergus Ewing's supplementary question about write-down agreements and post-lease agreements was because we recognise that the act will have a retrospective effect. We must consider further the impact that it might have, as well as the basis upon which those contracts were entered into. Therefore, the answer is yes. I am sorry that I did not quite understand the other part of the question.

We have not raised a point about which we received much evidence, which relates to sporting rights. It is fair to say that, with the possible exception of one witness, there was broad agreement among tenants and landowners that the work of gamekeepers is important and should not be hampered, prejudiced or imperilled and that jobs should not be put at risk.

Today, we heard evidence from two representatives of the Scottish Gamekeepers Association. They argued that they were concerned about the impact of a pre-emptive right to buy and more concerned about an absolute right to buy, but that their particular concerns were of a practical nature. If a sitting heritable tenant on an estate where there might be five or six farms purchases one farm, that might hinder or make impossible the continued operation of sporting rights and the jobs that depend on it. Do you share that concern?

My concern arises only in relation to a pre-emptive right to buy, because that is the only proposition that I am promoting in the bill. One must think through the precise problem and the nature of solving it.

As I understand it, two propositions have been put to you. One involves dividing an estate into parcels and the second is about who might be able to afford to buy the land.

The proper course of action is to proceed with the right of the tenant to acquire the rights—I am sure that you will understand the issues better than I do—but not to separate the rights within the land or to create separate tenements within that.

If you were in a position to exercise that right and did not wish to exercise it or there was a better way of dealing with the situation, there would be nothing to prevent you from setting up a commercial arrangement when you exercised the right.

I accept that that is a possibility, but I do not feel that it addresses some of the concerns that we have heard in evidence today and in previous sessions. Practical concerns were enumerated today by the gamekeepers who appeared before—

I am sorry to interrupt you, but the other issue is that under the proposition that I am promoting, there is a willing seller. If the seller wanted to dispose of the rights, they would need to find a buyer.

I am afraid that that does not address the concerns that we heard today. Unless there is a mechanism that provides for sporting rights to continue to be operated, a purchaser might not continue to operate them. The purchaser might also have different policies on access, forestry, fencing, stock control and times when stock are out on the hill. We heard all those points and many more from the gamekeepers. We are considering the principles rather than the details.

The proposal could be amended in at least two ways. One would be to exclude the sporting rights, which would require statutory provision for sporting rights to be dealt with separately—in the way that salmon rights and minerals are dealt with. A second option would be to create sporting rights as a form of servitude. There is no reason why we could not consider that, although it is not something about which we have heard technical evidence, and no doubt that will be required.

If we wanted to ensure that sporting rights continued to operate and that the pre-emptive purchasing tenant purchased land subject to those rights, a management agreement of some sort would be required. Sporting leases may already include provisions that we would expect to be adopted in or imported into a contract of purchase made under the bill. The argument was well made that at present there is insufficient protection for sporting interests and gamekeepers' jobs.

I hope that the Executive will consider the two alternatives that have been proposed as possible ways of addressing the real concerns that we have heard about at length.

I am happy to consider the practical implications of what has been proposed—it would be very silly for me not to do that. However, I am bound to say that making sporting rights a separate tenement from land contradicts the provisions of both the Abolition of Feudal Tenure etc (Scotland) Act 2000 and the Title Conditions (Scotland) Bill. As the committee would expect, we must consider the issue in the round—in a joined-up way. We must also consider the point that I made about the willing seller. The sale of a plot on an estate might interfere seriously with sporting rights. However, in the case of a willing seller there may be other considerations for us to address.

I would be happy to consider any anomaly at a later stage. The principle that we are advancing is that full rights should be granted to tenants. The point that Fergus Ewing properly makes must be considered within the framework of the Abolition of Feudal Tenure etc (Scotland) Act 2000 and the Title Conditions (Scotland) Bill.

I accept that. Gamekeepers are concerned about the continued operation of a particular form of land use. I hope that I am not misrepresenting them when I say that who owns the land on which sporting rights are exercised is not of paramount importance to them. The important point is that it should continue to be possible to exercise those rights. There may be a third option—to import into the contract of purchase under the pre-emptive right to buy management rules or a management agreement.

I will consider that.

We have almost reached the end of this evidence-taking session. I will finish by asking the minister to clarify an issue that has arisen—how the bill would impact on current limited partnerships. I raise this matter in the light of an e-mail from Moray Estates that has been circulated to all of us. At a recent meeting with the deputy convener, the factor of Moray Estates expressed concern that section 24 of the bill appears to extend the pre-emptive right to buy to all tenants who hold their tenancy under the 1991 act. That would include limited partnership arrangements. Can the minister clarify what impact the bill would have on current limited partnerships?

Section 24 extends the pre-emptive right to buy. However, section 58, headed "Rights of certain persons where tenant is a partnership", makes it clear that that would apply only to new partnerships formed following the passage of the bill. You must read section 24 in conjunction with section 58. The provision applies only to new partnerships. I would be happy to write to you to clarify the matter. The extension of the pre-emptive right to buy is limited by part 6 and section 58 of the bill.

I would be grateful if you would write to me on that issue.

I would be happy to do so.

I will be happier to receive your letter.

I thank all participants for answering our questions, particularly the minister and his officials.

It has been a long, tiring afternoon. Nevertheless, we still have a couple of items on the agenda. Item 4 is consideration of the evidence that we have received on the Agricultural Holdings (Scotland) Bill at stage 1. Today's session was our last evidence-taking session on the bill. As well as oral evidence, we have received a number of written submissions and a considerable amount of supplementary information from some witnesses. That information has been circulated to all members and I hope that they will pay attention to it.

We will now draft a report. As I mentioned, it will be produced in a short time scale. It is almost impossible to have it available in hard copy by Thursday, but it will be distributed by e-mail on Friday, to allow members to access it as soon as possible. If members have any points other than the most obvious ones that have been discussed during our evidence-taking sessions, it might be helpful to the clerks if they advanced them now. Do members have anything unusual that they wish to be included in the draft report?

It seems that members are happy to leave matters until our first discussion of the draft report, which will take place next week. I thank members for being helpful, as they always are.