Rural Affairs, Climate Change and Environment Committee

Meeting date: Wednesday, March 25, 2015

Official Report 628KB pdf

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Review of Agricultural Holdings Legislation Final Report

Item 2 is evidence on the final report of the review of agricultural holdings legislation. We are joined by a panel of stakeholders, whom I welcome to the meeting. We have Scott Walker, chief executive of NFU Scotland; Stuart Young, chair of the Scottish Land & Estates agricultural holdings strategy group and representative of Dunecht Estates; Ken Bowlt from the Royal Institution of Chartered Surveyors; Martin Hall of the Scottish Agricultural Arbiters and Valuers Association, who is a former SAAVA president and a representative of the tenant farming forum; Mike Gascoigne, convener of the rural affairs committee of the Law Society of Scotland; and Christopher Nicholson, chairman of the Scottish Tenant Farmers Association.

I will kick off with a question about the idea of establishing the post of tenant farming commissioner. Do you agree with the proposed role for the commissioner, which would be to investigate and solve complaints using a number of codes of practice? Should the codes be statutory? What remedies should be available to such a commissioner?

To answer that, it is worth briefly going back over a bit of the history. Many disputes arise between landlords and tenants. Although there is recourse to the Scottish Land Court to solve disputes, that is problematic in terms of cost, time and the atmosphere that it generally creates in the industry. NFU Scotland has long advocated a post along the lines of a commissioner or adjudicator. That would be somebody who could be proactive in relation to disputes and who could intervene. For the want of a better description, they could act as an arbiter in certain circumstances. Often, what is needed is simply someone to bring both sides together to talk and someone to enforce a set of conditions and ensure that the individuals involved adhere to them.

Given that background, the basic principle of the review group’s proposal is sound. Statutory codes need to be put in place, and whoever is the adjudicator or commissioner needs strong powers to enforce their decisions. It is vital that the role is proactive. Basically, it would involve the various issues on which there can be disputes, such as rent reviews and waygo, and the commissioner would signpost individuals to where they can get the best advice.

It sounds like a job for the United Nations. Perhaps there would need to be more than one commissioner, if that is what we are talking about.

Are there any other points of view?

The Scottish Tenant Farmers Association has been an advocate of the creation of a tenant farming commissioner for a long time. We see such a commissioner as vital to the future health of the sector, and we believe that the commissioner would benefit from having statutory powers and statutory codes of conduct. The commissioner should be able to create and implement statutory codes that would act as a guide to how landlords and tenants deal with all the processes such as waygo and rent reviews. Furthermore, it must be possible to audit those processes to ensure that the codes have been followed correctly.

On the wider remit, the tenant farming commissioner should be able to investigate complaints in the sector, monitor what is happening and mediate and act as arbiter not only in individual situations but in situations involving the stakeholder groups—in particular, the NFUS, SLE and the STFA. There are many areas where consensus can be reached but, in some areas, consensus will not be reached and there is a role for a tenant farming commissioner to act as mediator or arbiter in those situations.

Should the codes be statutory?

11:00  

SAAVA believes that the codes should be voluntary rather than statutory but that the tenant farming commissioner, whoever that might be, should have teeth to enforce those codes. With a bit of cajoling, there could be a great deal of consensus in the industry on putting in place voluntary codes that cover the areas that need to be covered. In the event that codes cannot be agreed on, the commissioner might need to be able to introduce something that is more statutory, but the emphasis should be on voluntary codes rather than on introducing more layers of legislation that are not needed.

Good morning. Scottish Land & Estates is very supportive of the concept of having a tenant farming commissioner. In fact, we think that we should work with other stakeholders with a view to introducing an interim commissioner, given that it will be some time before any legislation comes into effect. I believe that there has already been dialogue between key stakeholders to that effect.

As to whether the codes of practice should be statutory, our position is that we would prefer them to be non-statutory, but we are very open to looking at existing examples in other sectors and to considering whether we can learn from them and develop our own codes.

I am a bit surprised by Martin Hall’s view that we should have a non-statutory code yet we should give powers to a commissioner. That seems to be an odd direction to go in. If we accept that there should be enforcement of a code, surely we must have a statutory code that allows people on both sides to be very clear what is to take place and what the consequences will be thereafter if that does not happen. In my view, the mixture that Martin Hall proposes seems not only odd but ineffective.

I do not think that such an arrangement would be ineffective. If there are codes in place that the commissioner has teeth to enforce and powers to make the enforcement meaningful, I have difficulty understanding why we could not operate on the basis of voluntary codes.

Because, given that we are talking about an attempt to resolve a problem between two parties and this is the only way in which it is likely to be resolved, to do it in a way that is not statutory and puts too much flexibility into the process will not produce any result. I represent tenant farmers who are at the end of their tether because of the situation that they are in with their landlord. To say to them, “By the way, here is a non-statutory code and somebody might be appointed by somebody else—we are not entirely sure who—who will be able to enforce it at some stage in the future,” is, frankly, to offer them hope deferred. If we are to take action to resolve issues, we should have the courage to take that action in a clear way that provides accountability. A published code that is on the statute book is an accountable code. A non-statutory code would be subject to the vagaries of interpretation, which has not benefited many of my constituents.

There are a couple of examples of situations in which a non-statutory approach has been taken. We had the code that the industry developed on the rent review process. Latterly, there was the agreement between the three stakeholders regarding the mechanism for rent reviews to avoid huge increases in rent.

Those have not worked, which is why we are considering further legislation.

They have worked in part, but they would work even better with the appointment of a tenant farming commissioner.

And if they had a clear statutory basis.

Do you have anything to add on that, Mr Gascoigne?

I simply mention our recommendation that the Private Rented Housing Panel would seem to be a suitable starting point for the kind of operation that the commissioner might be in charge of. It seems to work quite well.

Perhaps Mr Bowlt has an interesting view on the matter.

The RICS would be supportive of having a commission—possibly a commission or board rather than a commissioner—to deal with process, so that if there is a problem with the way in which people are practising, it can be addressed. That is as opposed to a failure to agree; there is a slight distinction there.

One hears suggestions that there are problems with how people on both sides practise. How does one address that? A commission would help with it if it was a commission of experts who had the necessary skills and was at arm’s length from Government, so that it was independent and people could have confidence in it. Confidence is something that the sector struggles with, and confidence is at the heart of many of the problems that we have in improving relationships and making new units available.

What remedies should be available to the commission or the commissioner?

What the remedies would be has got to be thought through. I think that we would look at penalties as the last resort.

There are voluntary codes of practice. The code for the rent review process is meant to build a bit more time into the process and force people to get going earlier and be more open and transparent about how they approach rent review. That has been taken on board certainly in my profession. I know that we are using it now and are going out that little bit earlier and giving tenants the chance to come back.

The problem is not one-sided; it is not just landlords and their agents who can be criticised for their practice. I can give examples of where we have used the code of practice and not had any response from a tenant. I have seen examples of where landlords have left messages or sent up to 20 pieces of correspondence, looking for a response from tenants. I think that it cuts both ways and that there are issues on both sides. There should be a bit more dialogue on whether there should be penalties and what those should be. At the moment, the Land Court has indicated that, in the event that one party has followed the code of practice and one party has not, regard might be had to that, so there is an incentive to follow the code of practice.

Dave Thompson has a small supplementary question, before we come back to Christian Allard.

Ken Bowlt, you are saying that you have evidence that it is not just landowners and their agents but also tenants who have not followed a code of practice. Surely that must lead you to the conclusion that the commissioner and the codes of practice must have a statutory basis, so that all parties must follow them. That is the problem with a voluntary system. People do not need to follow it and it leads to problems on both sides. If there is a commission with clearly set out responsibilities, and if there are codes of practice that are developed through discussion and which the commissioner can apply statutorily, the commissioner has the ability to pull people together.

If, in addition to a legal role, the commissioner had a mediation role—either the commissioner could be the mediator, or he could take on professional mediators, of whom we have many good ones in Scotland—that could get people together to work their way through the statutory codes. We would have a robust system that would be fair to everyone.

Do you agree? Do you accept my logic?

I do not disagree, but I can only speak from my own experience of acting for both landlords and tenants. The vast majority of people are reasonable, but you aye meet one or two who are not. For example, there was the case that I mentioned in which we had used the new code of practice for the rent review and it took about 20 phone calls and letters to the tenant. We persevered. We did not need to go to Land Court. I have been in practice for more than 30 years and I have never ended up having to have a rent dispute settled by arbitration, nor have I ever ended up at the Land Court. I am sure that a lot of people in practice would say the same. In my experience, I have never needed the Land Court. It is sitting out there and everyone knows that, whether you are a landlord or a tenant, if you end up going to the Land Court, it is an expensive business.

I do not think that anyone would want to go to the Land Court if they could avoid it. However, from what you are saying, it sounds as though everything is rosy and working really well and we can all just go home now.

Certainly, that is my experience. It is at variance with some others, but that is my experience.

I would like to develop this a little bit further and I will bring in Scott Walker in a minute. On the point about the French SAFER system, we have a French national here who may want to comment.

I was quite intrigued by the STFA submission. Perhaps Christopher Nicholson wants to talk about it. I am a great fan of SAFER. What exactly do you think we should take from SAFER for the commission or for whatever we decide to have? What examples were you thinking of?

One of the key benefits of having a commissioner or an organisation such as SAFER is that it can ensure that the buying and selling of land and the letting of land is carried out in the public interest and in a manner that would benefit the local community and agriculture in that area.

My understanding of SAFER is that if there is, for example, a land sale, SAFER is required to approve the purchaser and has the power to intervene if it thinks that someone else is more suitable to occupy that land. In the same way, SAFER has a say over approving the tenants of let land. SAFER ensures that land is managed and occupied in the public benefit.

So SAFER would come in after the event. That may be the safer way to do it.

Sorry?

After the event of a tenant acquiring land or whatever—is it better for SAFER to come in after the sale or after the transaction?

I think that SAFER should approve the transaction.

I think that the transaction happens and then, afterwards, it has to go through SAFER for it to decide—

If it is acceptable.

If it is acceptable or not. Is that what you are looking for here?

We think that a tenant farming commissioner could have a role like that. There are examples—one of the recommendations in the ag holdings review report is that there will be certain opportunities to assign tenancies outwith tenanted farming families. There is a role for an organisation such as SAFER or for a commissioner to approve who the new assignee is; otherwise there is a danger of the biggest operators taking up all the opportunities.

Does anyone else want to comment on that?

Indeed. We will come on to assignation and so on in more detail later, but Scott Walker may wish to comment on this related point about a commissioner and the SAFER process.

On the point about a commissioner and statutory codes, the reason why we are here and why we have had the review group is that the current system is not working satisfactorily. I think that everyone agrees that we want to move to a situation where, for existing tenants, things are thought of as being fair; we also want to create an environment where people want to rent land in the future. That is the ultimate aim—that is where we wish to get to.

There are plenty of situations where everyone around the table can say that things are working fine because there are situations where that is the case. However, there are also plenty of situations where there is a dispute and where things are not working. The tenant farming forum, for instance, came up with a very good voluntary code on how to conduct rent reviews and the process that people should go through. I suggest that looking at such codes would be the basis for setting up any new commissioner in the future.

However, the nature of a voluntary code is that, when you have two reasonably parties, they will agree to it and work with it but in situations in which either of the parties is not reasonable or a series of events has occurred beforehand, they do not stick to the code. For that reason, statutory codes that are enforceable by a commissioner are hugely important if we are going to bring confidence back to the sector. For us, it is the fact that a dispute will not have to be settled in the Land Court that will make the commissioner successful. If we have a commissioner but individuals are still required to go to the Land Court, the commissioner will not be effective and the role of the commissioner will not do what it is supposed to do, which is to settle disputes, intervene in cases where there are disputes and bring confidence to the sector.

11:15  

I want to press you on that. You have defined the purposes of the commissioner in a utilitarian manner, saying that it is a way of resolving difficulties between those who cannot resolve them themselves. However, you have not taken the step that Christopher Nicholson has talked about and SAFER has done, which is to have a wider test of community benefit.

It does not seem to me that the state would have a role, per se, in simply making either side in a dispute happier. That is Ken Bowlt’s job—given that he says that he has never met a difficult situation, I am going to follow him around the country to see how he does it. However, the concept of the public good is the reason why the state would be involved in appointing a commissioner—I agree that the commission or the commissioner should be at arm’s length. It is that issue that land reform—we will come on to the wider issue of land reform—has to address. The relevant issue is the wider public benefit and the use of the resource of land in the interests of the local community and the wider country. That is what we need to start to address, and that needs to be factored into how you see the role of the commissioner.

In terms of public good and the consideration of where there is market failure, we will talk later about rent reviews, for instance, where there is market failure because there is no clear market for certain forms of tenancies, which is why you need to set up a statutory mechanism to deal with it. That is why we are looking at other aspects of wider legislation that is going through Parliament just now.

One of the presumptions that the NFUS makes is that land should be used for food production. When you consider public good, public benefit and what people are using land for, the driver for us would be that it is being used for agriculture and food production. Those are the reasons why Government intervention and legislation is justified.

We have talked about ensuring that there is a good partnership between the landlord and the tenants and that the relationship improves. Somebody said earlier that not everything is rosy, but we have to ensure that the implementation of the review’s recommendations will involve legislation, followed by a number of initiatives and the development of codes of practice and guidance.

How would the panel members help to shape opinions to improve that relationship between the landlord and the tenants?

The key stakeholders have a fundamental role to play in working together. They have demonstrated that they can do that, having set up the rent panel last year, which has had some positive effects, as I have seen when using it myself.

I think that good progress could be made by stakeholders getting together, closing the door and working through things together.

May I introduce the word “trust” into the debate? We need to ensure that everyone has trust in the process and that we keep in mind the common good in terms of what we want to see in the countryside. The tone of the debate and what will follow thereafter will be based on the trust between your organisations and between landlords and tenants. Does anybody want to comment on that?

In the last decade, stakeholders got together in what was called the tenant farming forum, which was a large, cumbersome body that did not deal with problems or come up with solutions very satisfactorily. In the last year, three of the main stakeholders—the STFA, the NFUS and SLE—set up the rent panel and the joint initiative. That seems to be working much better.

The debate is about improving relationships between landlords and tenants, and we would like to encourage landlords to become more evident in that debate. Stuart Young is here today, but I feel strongly that a landowner or a landlord should be here to represent landlords, rather than a professional agent. I have no objection to Stuart, but we have to do whatever we can to create greater landlord involvement and ensure that landlords themselves determine what is best in the long-term interests of their estates, rather than being represented through professional advisers.

That is a good point. I have met Stuart, who is my neighbour, a lot of times, but I have never met the person who employs him.

On the point about intermediaries that has just been raised, I would like to hear the panel’s views on the following comment from the review:

“Many submissions have alleged that inexperienced or insensitive intermediaries at times cause a souring of landlord/tenant relationships that is both unhelpful and unnecessary. Others have suggested that there may be what amounts to an excessive use of professional intermediaries to the exclusion of any personal contact between landlord and tenant”.

I highlight the next point because it gives me serious cause for concern for the future:

“the number of landlords who have chosen to contribute to the Review itself through a professional intermediary has been notable.”

Why has that happened? Is it helpful to the future of relationships?

I am tempted just to say “yes”. I hesitate to speak because I know that someone will lambaste me as a consequence of what I am about to say.

For many landlords and tenants, when the two individuals talk, the relationship is good, they know what they are trying to achieve and what the long-term objective is, and they can come together. There are many situations out there where agents get involved. To a degree, that professionalises the relationship, but in other respects, particularly in recent years, it has often involved conflict and the view that it is intended to escalate rents.

The relationships that have been built are not the same as those that used to exist between the landlord and the tenant. Certain agents have a reputation that goes before them—some people would call them hard negotiators, while other people would say that they sail pretty close to the wind. That does not build up trust and a long-term relationship.

That takes us back to the point about trust, which is not something that can be created overnight; it has to be worked on and built upon. It does not take much to damage trust and, unfortunately, that means that people enter into discussions feeling that neither side is being wholly honest, or that both sides are looking at the situation from slightly different angles. That clouds all the discussions that take place. That is why I say that, for NFU Scotland, it is important that legislation is passed in this parliamentary session, that we get a framework and that everyone knows how they can work with it.

SLE, the STFA and NFU Scotland are of a mind to make this work. All the organisations are of a mind: we need to ensure that there is a fair deal for tenants and landlords and that people are encouraged to consider renting out land, whether that is a traditional estate or an owner-occupied farm.

Why did landlords get agents to respond to the consultation? I will leave Stuart Young to say something about that.

I say to Christian Allard that the invitation to meet Charles Pearson will be in the post tomorrow.

I am not sure that I understand why there should be a view that there is a difficulty with an agent or intermediary responding to a consultation or inputting to the review group. I like to think that I know how my principal thinks and works. That is what I am employed to do; it is part of my function and role. He has wide and varied business interests that consume his time. That is why I am there. Therefore, I respond, make submissions and, I hope, represent his position accurately.

My purely personal view is that if the matter is important to the future of the relationship between landlords and tenants—which it is—I would have hoped for more direct submissions to the review of landlords of whatever scale. That is the point I am making.

I do not know that intermediaries are necessarily helpful. Let us be realistic: many tenant farmers cannot afford the professional advice of intermediaries in the way that larger landlords can. At the time of the review, the business interests of the landlord should, perhaps, be focused on making a submission. That is just my personal view.

I am sorry to use myself as an example again, but I do so because we are talking about intermediaries and I am one. Before I submit anything, I run it past my principal, who reads it. He sees exactly what is said to represent his opinion.

The RICS took a keen interest when there was a suggestion in the media—which picked up the points that Claudia Beamish made—that the intermediaries, agents and factors were at the heart of the problem.

For the record, that was not why I asked the question; I want to be clear about that.

Other people might feel that way, although it might not be your view.

No, no—I am just saying that I did not raise the issue because of what I read in the media.

That is fine.

It did not ring true with my experience, in that the relationship of trust and confidence that Christian Allard talked about is at the heart of working on a rural estate with let land. Most of the people in the profession spend a lot of time investing in the relationship. They do not go in to do a rent review and then disappear for ever; they have a continuing relationship. Some of the relationships have lasted through the generations—for more than 100 years in some cases. It is in everyone’s interests that there is a good working relationship. That is absolutely key.

The RICS took an interest in the matter. We had various meetings with all the big players in Scotland—I had never seen them all in one room before—and many of them were seriously offended by what had been suggested because it did not ring true to them. Andrew Thin came along to the meeting because, I think, he was the one who went public with the criticism.

The RICS said, “We have a code of practice. We expect the very highest standards of our members, and if any member steps out of line they will get dragged up by the professional practice section.” The RICS is very strict and very worried about the profession’s reputation. It has a lot of members in Scotland, and it is important that we retain our reputation. We made it clear that we have not had one single formal complaint. We said, “Give us a complaint and we will investigate it”, but there was not a single complaint.

11:30  

Some things are easy to say, but if they are not evidenced, a professional body cannot act—it cannot act against its members on the basis of hearsay; it has to have some representation of the facts, and the RICS has never had the benefit of that. The professional body has made it abundantly clear to the people who may be making such suggestions that they should come forward and the matter will be dealt with. The RICS has not only its own code of practice but a royal charter, so it has a duty to consider the public interest as well. If there is something that is not necessarily against the code of practice but which should be considered in the public interest, it will be prepared to take that up.

We have a lot of questions to get through. The tenant farming forum and others have been running through the same issues for the past 10 years—I do not think that we want to spend that much time on them today. It was a fair point, and although Christopher Nicholson has asked to respond to it, we really have to move on. [Interruption.] Dave Thompson wants to pursue the issue. Is your question about a particular case or the general principle? The RICS has a code of practice that is not statutory, so how could it ever be enforced? That is the fundamental question.

It is about a general principle. However, if Christopher Nicholson wants to come in first, I would be grateful if we could hear him.

Over the weekend, I read a statistical account of agriculture in south-west Scotland that was written in 1875. The last couple of pages looked at the tenanted sector. The author pointed out an emerging problem, with many landlords handing over responsibility for the management of their estates to outside agents. The suggestion was that that was resulting in short-term policies for the management of the estates that were not only not in the interests of tenant farming and agriculture in general, but not even in the landlords’ long-term interests.

That is as true today as it was 140 years ago. If there was more landlord involvement in policy, in how estates were run and in taking a long-term view, we might see landlords putting forward different policies today. We would also have easier resolution of disputes if landlords were more willing to sit down and talk with tenants directly, rather than through intermediaries.

There we are. We have heard a range of opinions.

Thank you, convener.

I want to comment on what Ken Bowlt said about trust and confidence. Going through the various submissions, I noted with interest that on a number of the issues the RICS takes the diametrically opposed position to that taken by the STFA. Those issues include rent review recommendations, freedom of contract, extension of assignation, conversion of secure tenancies to limited duration tenancies, the pre-emptive right to buy, the absolute right to buy, the conditional right to enforce sale and the ministerial right to intervene. I just think that it is interesting that the RICS’s position is the opposite of that of the STFA, and I do not see any of the effort to be balanced that I might expect of a professional organisation. It is pretty obvious that he who pays the piper is calling the tune in relation to the RICS.

That is another point of view. Does the RICS want to come back on that? We will come back to each of the individual issues.

My only point is that RICS members represent both sides. We have tried to put a response together that is based on RICS members’ experience. It is probably fair to say that the owner of the land is often better resourced than the tenant—that is a fact of life—and that they probably seek professional advice more frequently. For example, what the RICS is trying to do on rent review, which is a challenging exercise anyway and one that we will probably come back to—

We are coming to it straight away.

It is a challenging exercise for anyone, including professionals, but we try our best.

As I said, I have personally never ended up in the Land Court in front of an arbiter. We put a lot of effort into trying to get our rent reviews done as fairly, reasonably and openly as we can. I am not saying that it is a rose garden, because there are difficult characters on both sides. However, we are concerned about the suggested new proposals based on budgets. We like the principle that the rent should be based on the productivity of the farm and—

I think that we will come on to the detail of rents, which is what Sarah Boyack is about to lead on, rather than stray into looking at the detail in terms of the principles that Dave Thompson mentioned.

Sorry.

I ask Sarah Boyack to please go ahead.

Thank you, convener. I have a series of questions about rent and rent reviews. This is clearly a major issue, as the first few minutes of this evidence session have shown; it is certainly one on which the committee has periodically taken evidence. The review also addressed it as a key issue, and I have some questions about the review’s recommendations.

First, I want to pick up on Ken Bowlt’s last point, which was about the principles on which the setting of rents is based. We were just getting into that when we discussed the difference between the suggestion by the NFUS and the STFA, which focuses on productive capacity—the capacity to work the farm and raise revenue from it—and the RICS approach, as I read it, which is about a fair rent that is more commercially driven. I think that the issue goes to the heart of some of the discussions that we have had about whether we regard agricultural tenancies as important and the extent to which we want to attach a priority to them in terms of food production and environmental management.

Another issue is that, if rents get too high because there is competition for them or because they are treated strictly commercially rather than as something that is connected to the farm’s capacity to deliver, there is potentially a barrier to tenant farmers, given the capacity to raise money and invest. My first point is therefore about that principle.

My second point is about the setting of rents for long-term, secure tenancies versus the setting of rents for shorter limited duration tenancies. Can the witnesses give their views on whether they think that the process and the principle should be different for the different tenancies?

I will come back with further, detailed questions.

Right, who wants to start off? Try to keep your answers short and to the point.

I will deal with the two extremes. At one extreme are the annual grass lets for which some crazy prices are paid. However, I think that that should be left to the marketplace. There are specific circumstances each year that will affect those rental prices. I hope that, once the CAP beds down, some sense and sensibility will get into the grass let market.

At the other extreme are secure tenancies, and we think that the review group’s suggestion of looking at the productive capacity of the land and standardising the costings when setting rents is a sensible way forward. What we really need now is more detail on how that mechanism would actually work and how it would be implemented in practice. However, I think that there is broad consensus in the industry that what the review group suggested on rents for secure tenancies is a sensible progression on what we have at present.

Given that tenants have argued for the removal of the open market rent test since it was introduced in 1958, we see the recommendation on rents as one of the most significant features of the review’s report. It is important that a fair rent is set according to productive capacity, which will allow the landlord to get a fair return on his investment and the tenant to get a fair return on the fixed equipment that he has provided.

We believe that for any tenancy in which the tenant provides a significant amount of fixed equipment—in other words, secure tenancies and longer-term LDTs—the rent test should be based on productive capacity, given that both the tenant and the landlord are investing capital. Because of the scarcity and distortion aspects of Scotland’s land market at the moment, if the rent is based on the open market, rather than productive capacity, the landlord takes away a greater proportion of the rent than he should, and the tenant is left with an insufficient return on his investments. A move from open market rents to rents that are based on productive capacity should ensure a fairer distribution of the divisible surplus to both parties.

The members of Scottish Land & Estates acknowledge the views put forward by the STFA and the NFUS vis-à-vis the move towards the productive capacity test, and we are prepared to see that worked up. We would need to see some worked examples that show how the flowchart in the review group’s report would work in practice, but we are certainly not wedded to the retention of an open market test.

We are of the view that in any new LDT the parties should be free to agree the rent-setting mechanism and that if there is no such agreement they should revert to the default productive capacity position.

Productive capacity has always been a starting point in setting rents, so there is a strong logic behind the recommendation. SAAVA would certainly like some examples to be worked up but I have to say that, given our involvement in dispute resolution, it looks to us like the move will introduce more capacity for disputes to arise. We would like that not to be the case, but I am just flagging it up as a practical difficulty that we see on the horizon.

Why would that be the case?

Simply because there are so many more subjective variables in productive capacity than there are in the current system.

People would come to the table with historical information about how well farms have performed, having compared the situation in different parts of the country to reach a view on what it would be reasonable to expect.

But even within local areas there are huge variations. For example, one piece of grade 3 land might be able to grow 1.5 tonnes of barley while another might be able to grow 3 tonnes, or one acre of land might be able to carry one beast while another might be able to carry two. As a result, there is the potential for huge variations in rent.

You also have to look at the hypothetical tenant. That approach already exists, but as far as farming systems are concerned, there is the strong possibility that you will upset a tenant farmer if you suggest that he is not farming his land as it could be farmed if he used a different system.

That was useful.

I have a couple of follow-up questions. The first is the extent to which diversification by tenants would be taken on board in rent reviews, and the second relates to spare housing on a holding that, although part of the farm, is not necessarily being used. How should such issues affect valuations for fair rents?

We welcome the proposals on diversification, which should make it easier for tenants to gain landlords’ consent to diversify.

In terms of setting the rents for diversifications, we should be aware that existing diversification rental agreements have already been arrived at and we may not want to override some of those. However, going forward, we agree with the proposal that a landlord should have a return for what he has provided as part of the diversification. For example, if the landlord has contributed to a building, a fair rent should be apportioned to him.

We feel that housing is part of the fixed equipment of the farm and that that was the way the farm was let at the start of the lease. It could be problematic to go down the road of attributing a rental value to surplus housing, which may be used for part-time farm workers, for example.

11:45  

I will come back to a more general point after Claudia Beamish has asked her question.

I have a quick follow-up to the point that Martin Hall made about productive capacity. I do not want to put words in anyone’s mouth, but would it be the case that the move from historic to area-based payments would help with the definitions as cases build up, in view of the fact that there are two definitions of rough grazing and other areas? Surely that would help to simplify the definitions of productive land.

It would help, but even within those bands there are huge variations in the quality of the land and its productive capacity, particularly in band 1.

Scottish Land & Estates was supportive of the review group’s proposals vis-à-vis diversification and housing. The issue of surplus housing has been somewhat thorny in rent reviews. The approach that has been suggested is very sensible.

We will move on to improvements in a minute or two. Market values first started to be taken into account, as Christopher Nicholson says, under the 1958 Tory Government, and we are now looking at a means to move away from that kind of approach. Would I be right in thinking that the decline in tenancies that has been going on for decades has some of its roots in that move towards free market values in rents? The arguments in more recent decades have further reduced the number of tenancies, but was that one of the starting points for the realities of farming and the market getting completely out of kilter?

There is a lot of truth in that. The ability of landlords to set a rent that is not viable in the long term is one reason why many tenants have given up. In some extreme examples it is used as a means for a landlord to coerce a tenant to give up, by setting a non-viable rent.

Are there any other comments on that?

The RICS remains convinced that having a market check on rents is a sound way forward. It is the way that we approach all valuations: we look at what comparables are out there historically. Christopher Nicholson has talked about scarcity in the agricultural scene and how the lack of availability of land results in too many people competing for too few farms and very high rents being tendered. However, it must be acknowledged that we already have a process for people who are looking at comparables. Under the existing arrangements and legislation, we have to extract scarcity, which is not an easy thing to do.

We did that recently for one holding that we put on the open market; we secured a rent and ended up using as a comparable about 50 per cent of what was achieved on the open market. We were not taking a figure that is achieved in the open market and presenting it to sitting tenants and telling them that we have to double their rents, because we realised that if we did that, we would start the next Jacobite revolution. Instead, we consider many other factors and adjust the rent for evidence of scarcity, using a much lower figure. There is already an adjustment for the fact that there are few holdings available and that open market tenders are higher, to ease the negotiations for sitting tenants.

We are going to explore all that a good deal further by looking at investment, improvements, compensation and waygo. Jim Hume will ask the question.

Access to finance is obviously extremely important for tenants. The review’s recommendation 9 is that we should consider allowing tenants to register their tenancy in the land register so that the tenancy could be borrowed against. What are the panel’s views on that?

Recommendation 10 is for a three-year amnesty for recording waygo improvements. Many improvements that have been made by tenants have not been registered. What are the panel’s views on an amnesty to allow tenants to register their improvements? I am also interested in the panel’s views on possible changes to the waygo protocols for the future.

We are pleased that the review recognised an evolving investment pattern on tenanted farms that means that, in the secure tenanted sector, tenants are having to provide an ever greater amount of capital for fixed equipment. We disagree with the review group’s finding that there is no evidence for differences in investment levels between owner-occupied and tenanted farms. We think that there is a huge amount of evidence the length and breadth of Scotland and that the lack of investment in the tenanted sector is a concern for the future health of the sector.

The review group has gone down a certain route to try to give tenant a greater ability to raise capital by recommending that a secure tenancy should be registered with Registers of Scotland so that it could be used for mortgage purposes—that is, so that a lender could grant a standard security on the registered lease. However, as the RICS submission points out, some thinking has perhaps not been joined up here in that that situation is of benefit to a mortgage provider only if the value of the lease is realisable. Because freedom of assignation is restricted on secure tenancies, the value of a registered tenancy would not be realisable because it would not be tradeable. The review group went to stage 1 on the issue but did not complete stage 2.

The alternative that is proposed is that a secure tenancy could be converted into an LDT with a minimum term of 35 years and assigned for value, but we fail to see how an improvement that might have a lifespan of 100 years or more can maintain its value under a lease of only 35 years. Therefore, we question whether that means to realise value will ever realise the true value of improvements and we are also concerned about the possible complexities of going through the conversion process as it leads to quite a few uncertainties. I do not think that a mortgage provider or a bank would be willing to take the risk of going through a lengthy and uncertain conversion process; it would rather have an easy means of realising value if the worst came to the worst and it had to call in the security.

There needs to be a bit more thought about how tenants go about raising finance for improvements. We must bear it in mind that there is no obligation on the landlord to provide modern improvements; landlords are obliged only to provide what was considered necessary at the start of the lease. In most secure tenancies, the start of the lease predates modern farm improvements.

We feel that the amnesty is of great benefit to the tenanted sector. There are many tenants who have lost their letters of notice or for whom there is uncertainty over who provided an improvement. It is important that all tenants’ improvements are covered by the amnesty.

We are in full support of the recommendation, but there are two aspects that we find problematic. First, the recommendation that any tenant’s improvement that the tenant does not notify the landlord of during the amnesty period is assumed to revert to the landlord is a plain contravention of the property rights of the tenant. There will no doubt be many tenants who do not take advantage of the amnesty and we do not see why someone who does not take advantage of the amnesty should run the risk of losing his improvements.

Also, we foresee the potential for disputes. There is a role for a commissioner here. There needs to be a form of dispute resolution for the amnesty period and the disputes that may arise from it. At the moment, the Agricultural Holdings (Scotland) Act 1991 prevents disputes over improvements from being referred to alternative dispute resolution: the default is the Land Court and there is no alternative. That could be a major limitation on the amnesty. If tenants do not know that there is an alternative to the Land Court, the proposal may serve little purpose.

That has been a long contribution, but it has taken us to the nub of the matter.

I will address those three points. First, in regard to investment, because of the low profitability in agriculture, investment is difficult for a tenant. One of the advantages that an owner-occupier will always have is the security of land and the appreciation in land values: banks have far greater certainty about lending when it is supported by the underlying asset of the land. Those are the facts of the situation.

The principle of allowing the registration of secure 1991 act tenancies is good, but we doubt whether it will make any big difference to the banks in terms of providing finance to tenants or to the basis on which they provide finance to tenants.

On waygo, we agree with virtually everything that Christopher Nicholson says. The issue is that, over a long period of time, not all improvements have been properly recorded and notified. That can often cause disputes in setting rents and can also cause dispute and uncertainty about what a tenant will get for the purposes of waygo if they are thinking about leaving a holding. We see the amnesty as an opportunity to catch up on all that, starting from the principle that, wherever the tenant has invested in and improved the holding, the presumption should be that that is compensated for at the point of waygo. The amnesty provides the opportunity for that to take place.

If we go forward on that basis, the onus is on the industry to ensure that everyone knows about the amnesty and what they have to do in that time. If it brings all the records of condition up to scratch and brings all the details up to date, it will be a huge benefit for the industry in the future.

To take on the point that Christopher Nicholson made, even once we reach that point, the issue is that individuals still feel uncertain whether they are going to get the full amount of money that they should at the point of leaving the tenancy. In most situations, landlords will pay the amount that the tenant should get, but in certain situations there can be a dispute between the two parties and, with the only recourse being the Land Court and given the length of time and course of action that is associated with the Land Court, we need a far quicker dispute mechanism. Expert determination would be the classic way to intervene and that is something that the commissioner could impose on the two parties if they could not reach a settlement between themselves.

12:00  

I will deal with the issue of the amnesty first. It was a proposal that Scottish Land & Estates originally put forward, and you will find that there was a considerable degree of consensus on it among the STFA, the NFUS and Scottish Land & Estates. I would like to emphasise that we should try to limit the time period over which we record improvements to one year rather than the three years suggested in the review. I think that settling that brings considerable advantage, particularly in the process of rent review, when you want to firmly establish whose fixed equipment is whose. If that could be done sooner rather than later, I would hope that it would prevent disputes arising when it comes to setting rents.

I was going to hold off on talking about conversion and succession at this moment, as I imagine that that is a question that you will come to.

Yes, you are right.

On the point about security and the ability to grant a security on a lease, we have taken some soundings from lenders, and the banks have told us that it is not an issue for them. What they want to know about is the serviceability of the loan. They want to know the track record of the applicant and their overall balance-sheet position. Therefore I am not convinced that security is the factor that is holding back investment in holdings.

I support the amnesty and the practical benefits that it would bring about for rent reviews and at waygo, because there is a great deal of uncertainty over that. An amnesty would certainly assist in that process if we could bring it into being.

Do you think that a year is long enough, given the protracted nature of some of the discussions about who owns what?

My personal view is that one year is not enough. I think that it is just too tight a time to capture all the improvements.

Okay, I just thought that I would mix it a little there.

We are probably finishing off that question, but I did not hear anybody say that we should not have an amnesty. The recommendation is three years; I think that that is quite encouraging regarding waygo.

There has not been too much talk about waygo protocol, but some of that may come into the discussion of assignation, which we will go on to next.

There is quite a broad consensus that the dispute mechanism that we have at the moment is not correct.

The evidence seems to concur with Christopher Nicholson’s view that the amounts of investment that there are when there is an owner-occupier and when there is a tenant are not similar. We have also had evidence in the past, regarding the SRDP, that tenant farmers go for management options and owner-occupiers go for more capital options. I thought that I would finish off on that point before we go into assignation.

To correct something that has been said, I note that, although the default position is to go to the Land Court for waygo valuations, in practice it is very rare that that happens. In most cases, it is two arbiters and an oversman and that system works very well at present for waygo valuations.

Sorry, I was referring not to the valuation of an improvement, which comes at waygo, but to the question of whether an improvement should be recognised as an improvement, which is decided at the period when a tenant serves notice. The dispute over the appropriateness of an improvement cannot be referred to anyone other than the Land Court.

I agree with Christopher Nicholson on that.

We move on to retirement, succession and assignation.

We are coming to the nub of some of the proposals. I have been trying to think of a way to amalgamate all the issues into one question and have failed miserably, so I will have to deal with them in three subsections.

I will base my first two questions on specific recommendations in the review. Recommendation 13 states that the family members to whom a tenancy could be assigned or bequeathed should be widened to include

“any living parent, or any living descendant of a parent, or spouse or civil partner of any living descendant of a parent of the tenant or of the tenant’s spouse or civil partner”.

To my mind, that widens out the possibility that somebody with absolutely no connection to the holding at all could be bequeathed or assigned the lease. Does the panel think that that is fair, particularly if no fit-and-proper-person test is built in?

An important point that I am not sure has been brought into the discussions is whether the holding is a viable unit. One reason for the reduction in the number of tenants over the past 50 years is that holdings have had to get bigger and bigger in order to be viable, which means that there have been fewer holdings to put on the market. Does the panel feel that the proposal is fair, given that it seems to involve a lack of challenge for the person who is able to let the land?

You refer to landlords not being able to challenge a possible successor, but we understand that the existing test would remain and that the landlord could object on the basis of the successor’s character, farming ability and financial background, which is what the landlord can do at the moment. If I assigned my lease to any next of kin, the landlord could object if the successor was not of fit character or not of fit ability to farm or did not have access to sufficient capital to farm. There is good protection of the landlord’s interest.

So you believe that the fit-and-proper-person test is built in already.

Yes.

In that case, I stand corrected. Does anybody else want to comment?

I do not think that what Christopher Nicholson described is what the review group recommended.

I had always assumed that that detail would remain.

When it comes to succession and conversion, it is important to achieve a balance. Our view is that the proposals that the review group has come up with are not appropriately balanced and represent a substantial erosion of the landlord’s rights. As the committee will have seen from our submission, we have taken opinion from senior counsel, and counsel’s firm view is that the proposals represent a breach of the European convention on human rights and will ultimately leave the Government with the prospect of a hefty bill of circa £600 million for paying compensation to landlords.

That is pretty blunt and fundamental in terms of the position of Scottish Land & Estates and how we see things. Clearly, we do not want to go into any new legislation that would create a period of conflict and court action that was a repeat of the Salvesen v Riddell case. We should see whether there is a better way of going forward.

We have always understood that the particular succession difficulty was associated with successors who are currently excluded under the legislation but who have an attachment to or are working with the holding. We would support succession rights if the successor had an attachment to the holding and was earning a proportion of their income from the holding.

I want to challenge the assertion about the ECHR. This is always a matter of opinion, and Mr Young has an opinion—but no more than that—on the matter. A different perspective could be taken, which is that the freedom to assign has gradually been eroded since the 1948 legislation, but the pendulum is beginning to swing back to a more reasonable set of arrangements by which assignations should take place in the best interests of the tenant and the landlord, provided that that will lead to the continuing safe and secure operation of the farming business.

Christopher Nicholson’s view about ensuring that there is still a test is a good one. However, it is inevitable that the pendulum will continue to swing towards much more free assignation. It would be better to engage with that, which is what communities want—they often feel aggrieved when tenants cannot assign in the way that they wish—and to find a way to make it work for both sides, rather than to bring along the big stick of the ECHR and say, “If you even think of doing this, it will cost the Government a lot of money, so back off.” That is not a helpful contribution to the debate. It would be helpful to find a way in which the approach could be made to work so that tenants feel that their desire for the business to continue in the way that they believe is right for it and for their family is supported by landowners, by negotiation.

It would be irresponsible of Scottish Land & Estates to have identified the difficulty but not brought it to the attention of the Government and the committee. Some landlords might well share Mike Russell’s view, but others might well have a completely different view and feel that their rights would be severely prejudiced, resulting in a loss of value that they wish to pursue.

I will press the issue. Tenants might feel that their rights were being unfairly restricted. I could take you to see a constituent of mine who believes that his rights were strongly impinged on because, although he wished to succeed his uncle in the tenancy to a farm, he could not do so. There are rights on both sides.

Rights do not accrue only to property; they also exist in individuals and communities. That is why we are holding a seminar next week on human rights and land reform, which you are welcome to attend. I hope that you will attend it, because there is a balance of rights to be struck. Although it is helpful for Scottish Land & Estates to seek counsel’s opinion, it might also be helpful to recognise that that is only an opinion and that negotiated discussions might be better.

When the TFF was up and running, assignation was discussed over many years. It was generally recognised that there is a problem for families, especially when there has been an untimely death, in that nieces and nephews do not have a right to take over a tenancy. It was also generally recognised in the industry that we needed to change the rules. That was as far as it went. There was a bit of dispute about how far the rules should be changed.

What we have in front of us—the idea of going up the family tree and then down again to pass on the tenancy—seems broadly sensible. We still have to keep certain restrictions in place, to ensure that the people who take on the tenancy have the wherewithal to pay the rent and the knowledge to carry out the farming enterprise. In our discussions with the review group, we believed that such protections would remain.

If we consider the wider public interest, as well as the individual business, we want whoever takes on the tenancy to be able to farm the land properly and to contribute to agricultural holdings. The review group’s proposal seems broadly sensible.

We leave it to others to determine the issues about lawyers and what it is possible to do under the law.

I am struggling to understand what Stuart Young said. If a landowner has a good tenant who is complying with all the conditions that he mentioned for running a farm, and if that tenant wants to assign to another good tenant, who will run the farm really well with all the safeguards and so on, what is the detriment to the landowner? They are just getting a new good tenant in place of an old good tenant.

The only thing that comes to mind is that there has been a steady decline in tenanted farms. Opposing the proposal would lead to a continuing steady decline in such farms. If that is the intention, you should be open about it. If it is not, perhaps you can explain the difference between an old good tenant and a new good tenant.

12:15  

Without the widening of succession and conversion, tenancies would come back to landlords in the normal course of events when there are no successors. With the right climate and environment, landlords would re-let the holdings. They might want to sell a holding because they needed to raise funds for a particular purpose, to plant a holding and change the land use or to re-let it. Having that range of options is valuable to the landlord. I am highlighting the loss in value in relation to the proposals as they stand. A landlord would not necessarily want the perpetuation of the tenancy ad infinitum.

It strikes me that you are striking at the heart of the purpose of having secure tenancies, because you are saying that landowners will have their own views about how they want to use the tenanted land and that, if a landlord has an opportunity to get rid of a secure tenant because they are retiring and there is nobody they can assign the land to, the landlord will take it. You are suggesting that landlords would prefer the legislation to be swept away totally so that they have the freedom to do what they want with what they see as their land.

I do not think that I have suggested that existing succession rights should be swept away. I have indicated the support of Scottish Land & Estates for a widening of succession rights when there is hardship. I just think that, if an opportunity arises, it is of wider benefit that a landlord can reorganise his affairs.

The review group recognised in the report that 1991 act tenancies are perhaps not fit for purpose in the longer term. Since 2003, public policy has determined that new tenancies should be fixed-duration tenancies.

We must come back to Alex Fergusson, but Christopher Nicholson has one more point to make.

I have two quick points. First, I was genuinely surprised by the opposition from landlords to the widening of family succession. In England, the Department for Environment, Food and Rural Affairs “Future of Farming Review Report” in 2013 made the same recommendation on widening family succession and removing the equivalent of the viable unit test for English tenancies. I never noticed in the press opposition from English landlords to that recommendation.

Secondly, just to reinforce Dave Thompson’s point, we think that there is a strong public interest argument for taking every achievable measure to preserve the area of land that is under security of tenure. That security of tenure was introduced in 1948 and it has largely shaped Scottish farming in the intervening years. It is the one measure that has allowed Scottish farming to flourish. It has allowed tenants to make investments under security of tenure and has allowed a lot of tenants to move on to the next stage and buy their farms.

We have a limited history of 20 years of farm business tenancies with short-term leases in England and of limited partnership tenancies in Scotland over the past 30 years. A lot of those short-term tenancies have struggled even to keep the land in good heart, never mind to provide continuing investment in the holdings.

I do not see what is wrong with secure tenancies going forward. If security of tenure is not an option for new blood coming into the industry, I do not see how new blood will come in and establish successful long-term businesses.

I have a quick question from listening to the discussion. I think that we would all accept that family structures have changed. One or two generations ago in my family, there were six or seven brothers and sisters. However, it is pretty normal now for people to have only one or two kids.

The nature of families is changing. Is that not an issue when someone wants to retire and hand on the farm? Stuart Young suggests that the interest in the farm immediately stops if there is not a son, daughter or someone else in the close family who wants to be a tenant farmer. All the time that someone might have spent in their career would just disappear, and there would be no value left to the family, who would have no influence, either.

I ask for a brief response. We have made some progress, but we have an awful lot more to get through.

The RICS does not support the extension of assignation. A broader problem concerns farms becoming available to new entrants—which we will discuss later—because the 1991 act tenancies keep rolling on. The RICS believes that anything that does not allow tenancies to come back on to the market is not good.

Something like 80 per cent of the 1.1 million or 1.2 million hectares of let agricultural land is locked into 1991 act tenancies. In the past 10 years, three 1991 act tenancies have become available, and they were all re-let to farming families, because that was what the landlords wanted to do.

I think that extending the breadth of assignees will just mean that fewer farms become available. We need slightly more radical thinking if we are to unlock land, which is what the Government has said that it wants to do.

I guess that it is up to us to consider that.

Alex Fergusson has been waiting a long while to come back on his points.

The discussion is interesting and relevant. My question concerned whether this is fair, and I say that because I quite agree with Michael Russell that there needs to be a balance. We have all talked about trust and confidence, and if that is to be put back into the sector, everything that we do has to be fair.

The second recommendation under this heading is that 1991 act tenants should be able to convert their tenancy into a new LDT with a minimum term of 35 years, which could then be assigned on the open market. I want to spend some time on that topic, because some landowners and people who are in the business of letting land have told me that, although they understand where the proposal is coming from, they believe that 35 years—that is a minimum period—is too long. It has been put to me that the measure would be much more acceptable and would receive much more buy-in from the landowning sector—if I can call it that—if the period were reduced to 20 or 25 years. I would like to hear the panel’s views on that. People are not against the proposal in principle, but there is a worry about the length of the LDT.

Christopher Nicholson has already stated his view clearly, so that is one that you know of.

We find this to be the most contentious issue out of the proposals. Strong views on it have been expressed to us by tenant and landowner members of NFU Scotland. It is interesting that, today, I have SLE sitting on one side of me and Chris Nicholson on the other side, because it sometimes seems that, within NFU Scotland, the people they represent are competing against each other.

I will go back to the reason why the change was talked about in the first place. NFU Scotland was looking at the situation of tenants who had a secure tenancy but no one to assign it to, because the rules of succession limited who they could assign it to. Work that the Scottish Government has done shows that up to 70 per cent of secure tenants have somebody to whom their tenancy would be able to succeed, which leaves a group that does not have somebody.

If we widened the rules of succession as proposed, that would give people another option for passing on a secure tenancy. However, it would generally be better financially for those who were left with no one to whom they could pass on their tenancy to stay on the holding for as long as possible. We suggest that that would not necessarily be good for the individual or for the land, if it was being underused.

We came up with the idea of changing the assignation of secure tenancies to give some value back to the tenant and encourage him to move on, and—we hope—to ensure that the land is used more. That is the principle on which NFU Scotland’s proposals are based.

To speak to all sides in the argument, I believe that there is—as Alex Fergusson said—broad consensus that the idea of converting a secure tenancy to some kind of fixed-term arrangement is sensible. What we are really debating is the length of the fixed term, but I do not think that the industry will come to a full consensus on what that term should be.

The NFUS originally discussed having a fixed term of 25 years, and assignation being made to new entrants as a vehicle to give people a route into the industry. The review group came up with something slightly different. It has proposed that assignation should be wider, so that anyone—rather than just a new entrant—could be assigned a secure tenancy, and it has suggested 35 years instead of 25 years as a fixed term.

We can accept and go along with those proposals. As I said, however, we originally looked for the assignation to provide some other route for new entrants who are trying to get started in the industry.

Do you think for one minute that the large submission that you sent us at the last minute reflects the views of tenants in the NFU, or is it an example of the kind of dichotomy that exists—as you explained to us—and is visible in the NFU’s approach? We received a very large paper at the last minute, and it did not help us with any analysis. It does not sound to me as though the tenants in the NFU had very much say in the matter.

The point for us, with regard to the paper that we submitted to the review group, is that we see today’s meeting as the continuation of the process. We are not coming to the issue afresh today. We submitted a very detailed response to the agricultural holdings legislation review group, and most of what we suggested has appeared in the group’s report.

We should probably have made clear to committee members beforehand what we had suggested, and we should have shared with you the fact that virtually everything in the review group’s document is NFU Scotland policy. That should all have been explained.

I have tried to explain just now exactly what the position is. NFU Scotland is, in essence, just a smaller profile of the industry as a whole, and the tensions that exist within NFU Scotland on the issue of assignation reflect those that exist in the industry. There is consensus in the sense that people see that the flexibility will provide a mechanism for tenants to be able to move out of their land, and to ensure that the land is used more in the future. We are therefore getting down to the question of what a reasonable term would be, and whether there should be any other restrictions on who should be able to take over the tenancy through assignation.

As I said, we suggested originally that assignation should be limited to new entrants coming into the industry, but we recognise that that did not come out in the review group’s recommendations, and we are therefore willing to put it aside.

We have to move on—

Convener, you stopped me as I was about to make a good point.

I am sure that that is true, but—

May I close this section of our questioning by putting a practical suggestion to the panel?

Yes, but make sure that it is a practical suggestion. Dave Thompson can make his short point after that.

12:30  

I was going to discuss the ECHR implications, but we have been there.

Landlords see the ability to convert to a minimum 35-year LDT, which can then be assigned on the open market, as a way of preventing them from taking back in hand land that they own. That issue is right up there.

A tenant has a pre-emptive right to buy when a farm is put on the market. Should a landlord or landowner have a pre-emptive right to take on an assignation that is put on the open market? Is there any point in going down that route?

I will be quick. That would be better than not having it.

One of the original recommendations in the review group’s interim report was the option for assignation of a secure tenancy to continue as a secure tenancy but with a pre-emptive right for the landlord. That right was included to ensure compliance with ECHR. In the case of a conversion to an LDT, inclusion of a landlord’s pre-emptive right was possibly not required to be ECHR compliant. There was concern from some areas that landlords would simply exercise the pre-emptive right and take back in hand everything. I do not believe that that would be the case.

A policy that would be in the public interest and fair would be to put back in the original proposal, which allows open assignation of secure tenancies but with a landlord’s pre-emptive right to protect their interests.

Thank you very much.

My point follows on quite nicely from what Christopher Nicholson has just said. Thank you for letting me back in, convener.

If Christopher Nicholson is suggesting that the STFA wants to see assignations being extended to non-family members, that would deal with Ken Bowlt’s point about new entrants. If assignation were broadened, that would open it up to new entrants, so I do not understand the RICS point in that regard. That would also mean that there would be less appetite for people to convert to secure LDTs. Would that not resolve the problem, provided that all the safeguards were in place and there was a good tenant?

We will come on to the issue of new entrants quite soon, or at least I hope so.

Ken Bowlt was mentioned. Would he like to respond?

Pass.

Okay. Thank you for that.

I will take that response as acceptance of the point.

Who knows? We move on to the right to buy.

I seek the panel’s views on three questions in this section of our deliberations. It may be helpful if I outline the three issues and then get responses to the different aspects on which panel members want to comment.

I am looking for comments on, first, the removal of the requirement to register; secondly, the proposal for a tenant to be able to apply to the Scottish Land Court to force a sale where the landlord is failing to meet their obligations; and, thirdly, ministers’ right to intervene to address barriers to local sustainable development and how that might apply in the farming context.

The registration process is straightforward. If there are any issues on boundaries and so on, they are dealt with near or at the time of the registration. The RICS thinks that it is unnecessary to change the current arrangements for registration.

What is the Law Society’s view on that? In your written submission, you expressed a view on the need to register.

Yes. First, may I say that the Law Society’s role is to look for good law, or to avoid bad law? We do not, by our constitution, apply any thought or comment on policy.

It seems to us that there is no reason why there could not be an open automatic right to buy, avoiding the frequent, but probably nevertheless sporadic, inclination for some sub-tenants not to seek to register an interest because it might sour their relationship with the landlord.

On the first point, we see no reason for the current requirement to register. Many tenants have been deterred from registering by their landlords or agents, with the result that only about a fifth of tenants in Scotland have registered. We welcome the proposal as making practical and common sense.

It is in the interests of all tenants to register. I do not think that they should have to go through the process of physically having to register. The proposal seems common sense. Only when the land is being sold would the tenant get first right of refusal, and that seems sensible.

You asked about the Land Court and the use of ministers to force a sale. We have always said that the obligations for the parties must be spelled out clearly. Again, we see this as a role for the proposed commissioner. I am sure that, in most situations, people will adhere to their obligations and responsibilities. If they do not do so, however, the commissioner should intervene, drawing their attention to where those obligations are not being met and setting out a plan and a timescale for the landlord to put things right. Only if there is refusal, clear negligence or a failure to stick to the plan, should an enforced sale be put in place as a last resort.

We see that as a sanction that would be helpful, although it would be a last resort and hopefully one that would never need to be used, because the threat of it would be enough to ensure that the obligations were met.

That only really answers the second part of my question; the third part was on the right of ministers to intervene to address barriers to local sustainable development, rather than the landlord not meeting the obligation, which is a Land Court issue. It would be helpful to have your comments on that.

In some ways, I would see that as I see the role of the Competition and Markets Authority. Where there are any restrictions in place that are detrimental to the market and do not fulfil the demands of economic growth, it is quite right that the Government should intervene. Currently, the Government has powers for compulsory purchase through local authorities for certain measures. We would have to see how the provision was drawn up in legislation, but in that sort of scenario, where there is market failure and economic growth is being hindered, the Government should have the authority to do something about it.

Just to be accurate, the phrase is “sustainable development” rather than “economic growth”.

When we say “sustainable development”, we recognise that it crosses many different elements, but we would go back to agricultural production being the key aspect.

On Claudia Beamish’s first point, I think that there will be a degree of consensus among stakeholders on the removal of the requirement to register in relation to the pre-emptive right to buy, although the principal concern of the membership of Scottish Land & Estates is about what the trigger points will be and how they will be defined. The review group has not gone into that level of detail. We need to understand that, and we will be willing to engage as the issue is explored further.

The second element of the question was about the ability to apply to the Land Court to force a sale. If the process is fair and appropriate and involves appropriate checks and balances, the reality is that few landlords would ever be forced to sell. Arguably, anyone who put themselves in that position would face the consequences. It is not an issue that Scottish Land & Estates has great concern about.

On the power of ministers to intervene, perhaps not surprisingly we have a fundamental difficulty with that suggestion in principle. However, it is just a recommendation; we have not seen a detailed, fully developed proposal. The review group suggested that it was an issue for further consideration. We would be delighted to consider it further when there is something to consider.

We would have liked to be able to consider in detail your thoughts but, once again, we received your submission very late in the day. That makes it difficult for us to go into great detail.

I say with respect to Mr Young that I think there is some detail on the proposal on ministerial intervention. The parallel is with the role of communities, which we talked about earlier. Agricultural tenancies are a very important part of some communities, particularly smaller communities and island communities, such as those in my constituency. The difficulty exists when there is a sustainable development and the future of the community is being put at risk by landlords who are not fulfilling their obligations and whose actions are leading to widespread depopulation and the loss of farms. In those circumstances, there is a tangible and clear impact on a community. A community can suffer depopulation and its whole focus can move away from the rural, and none of us wishes to see that.

The parallel here is with other land reform actions that people can take as a community to ensure that the farming nature of that community continues. Individual tenants are being empowered to play a role in that. As the detail of that proposal develops, it will say two things. It will make it clear that the whole process should sit within the land reform legislation, because it is part of land reform. Secondly, it will require us all to look at the balance between individual rights under ECHR and wider community rights to make sure that the two are both given fair treatment.

I think that there is some detail on what is being proposed and I hope that all the organisations will take the issue very seriously, because there are places where communities have been severely damaged by the actions of landlords.

Michael Russell mentioned situations in which landlords are not fulfilling their obligations. My view is that the power to force a sale would deal with that problem.

It may, but the interests of the community must also be borne in mind. I can see that a forced sale might be an individual reaction, but when there are a range of tenancies in an estate with which there is a problem and the attitude of the estate is creating a problem, there needs to be a change. I have expressed my view on the matter previously. I think that, although large estates are one of the issues in land reform, they are not the only one; local authorities are a big issue.

There are specific circumstances in places where the policy of estates has led to depopulation. A range of bodies have presented evidence on that. That is the issue that an attempt is being made to tackle with the power of ministerial intervention. There is a need for a clear, well-defined and proportionate measure that puts the interests of communities alongside the interests of individuals.

12:45  

I am in danger of straying off slightly in response to Michael Russell’s point.

We have had quite extensive consultation with our members throughout the country on land reform, the community right to buy and community involvement. For us, the matter goes beyond estates and impacts on landowners of any size. There is a lot of concern in the farming community about the possible impact on individual holdings because, although people want to be supportive of local development, it could have significant impacts on the viability of individual businesses, depending on the farm and what piece of land people want local development to take place on.

Those are the general issues that we would bring up in the context of that wider discussion.

It is important that we have that conversation with individual farmers—I am doing so in my area—because the overwhelming majority of them have no reason to fear it at all. Indeed, there are advantages for them in ensuring that their role in the community is better defined. I do not think that the difficulty and danger that you mention exist. The issue should be addressed community by community and place by place, and I am playing my role in that. It is important to see it in the context of empowering and enabling communities rather than shutting them out.

I ask for comments on whether the review group came to the right conclusion on an absolute right to buy. Paragraph 208 of the report says:

“the concept of an absolute right to buy, through its potential impact on the supply of tenanted land and on the wider confidence of investors in rural Scotland, is one that the Review Group believes is not and would not be helpful in seeking to further the Scottish Government’s vision for tenant farming.”

I invite comments on that in the wider context of land reform.

Our main criticism of the review group’s conclusions on the right to buy is that it appears to have failed to see the benefits to investment that the right would bring. That goes back to the discussion that we had before. When a tenant buys his farm, he buys only the bit that he has not already paid for; he does not have to pay for his improvements. However, as soon as he has bought the farm, all those improvements become extra collateral that he can use to access finance. All over Scotland, where tenants buy their farms, there is, in general, incredible growth in their businesses in the following decades.

When the review group was going round and meeting in the spring and autumn, it proposed the open assignation of secure tenancies as an alternative to the right to buy. It stated that that would allow the investment that we would get under the right to buy to take place and, therefore, that there was little public-interest argument for a right to buy. However, the review group removed the open assignation option from its final report, which was the single biggest disappointment to our members in the review, and suddenly people are making an argument for the right to buy again.

The ability to buy a farm is a natural aspiration for many tenants. There are many problems with enacting such a measure, which might simply not be possible, but the call for the right to buy is a symptom of what is wrong with the legislation and the sector. Most tenants fail to see how those calls will go away without the gaps that are left in the review by the removal of open assignation being addressed.

It is only a report, of course. This discussion is about probing further before we suggest what the minister should do, so this is the next step.

We agree with the conclusions that are arrived at in paragraph 208 of the report. I also highlight that the position is consistent with the one that was taken by the land reform review group on an absolute right to buy. Two separate pieces of work have come to the same conclusion.

I agree with Christopher Nicholson’s comment that talk about an absolute right to buy is a symptom of what is wrong in the sector. It reflects the fact that some individuals in the sector feel that relationships are so broken or damaged that that is their only recourse. We have had a lot of debate on the issue within NFU Scotland over many years. It is probably the most contentious issue in all the discussions. That is probably because of the issue of trust and confidence, which was talked about earlier.

For many people who wish to let out land, especially on a long-term basis, the discussion about an absolute right to buy has really clouded their sentiment about doing so. Many of our tenants feel that discussions about an absolute right to buy are preventing the letting of land from functioning properly in Scotland. At the same time, we recognise that there are sub-tenants in NFU Scotland who firmly believe that the only solution to all of this is an absolute right to buy and that everything else that is being talked about is irrelevant, because that is the solution to all of it.

Our view is that, when we weigh everything up, the conclusion in the report—that an absolute right to buy would not deliver what we want, such as fair tenancy agreements for existing tenants and confidence in the sector for the letting of land in the future—is right, and the recommendation to rule out the right to buy is the right thing.

We cannot talk about an absolute right to buy any more now, but no doubt we will do so in the future. We have heard a variety of views on it, and Mr Walker mentioned new letting vehicles for the 21st century.

I come back to the aim of all of this, which is to restore an element of confidence and trust between landlord and tenant, basically, as well as trust in the system, so that those who have land to let are more willing to let it than they currently appear to be. That seems to me to be the core of the reinvigorated tenancy sector that I am sure that everybody round the table wishes to see.

There are proposals for new types of tenancy. We have the intriguing possibility of a full repairing LDT, again over 35 years—if I have an issue with that, it is only to do with the proposed length—and various other types of lease have been proposed.

One thing that was rejected was freedom of contract, which has been mentioned. It operates down south—how well or successfully may be open to question, but it seems to have restored a degree of confidence in the system, because people are letting land more than they were before that system came into being. Was the review panel right to rule out freedom of contract?

However, my main question is whether the proposals that have been put forward on types of letting vehicles are enough to restore the confidence that is needed for those who have land to let to do so.

Restoring confidence is about the entire package and how it is to be delivered. It is not about one specific element of the package; it is about looking at everything.

The new suggestion of a 35-year LDT seems sensible. It seems to be an opportunity. There are land holdings out there that need investment but the landlord is not in a position to make the investment to bring the land up to scratch. For somebody to take on that land with a minimum term of 35 years seems sensible, and it could work for both parties. That is an interesting development and one that we would like to see worked up in more detail.

Looking in general at short limited duration tenancies and LDTs, it is clear that there is nothing fundamentally wrong with the current letting vehicles. That is the message that I take from the report. The whole issue is one of confidence. Landlords need to feel confident to let on a long-term basis, and tenants need to feel confident that, when they come to the end of their term, they will get another term thereafter.

Where an arrangement is working, it is in the interests of both parties—the landlord and the tenant—to continue working together. Whenever a landlord brings in someone new, there is change and uncertainty. We need to reach a situation where people are encouraged to let—and to continue to let—on a long-term basis.

I will add two brief points. I am a little concerned about the proposed arrangements for dealing with cropping lets, and about how they would be adequately covered. From what I read in the report, it seems that people either go for very short-term lets year by year, which I do not think is satisfactory for any party in allowing them to look to the future, or they have to do a minimum of 10 years, which just does not fit in with some cropping practices.

My second point is on a slightly different situation. We have mentioned limited partnerships, which largely worked for most people for a long period of time. However, we have reached a situation in which limited partnerships have either come to an end or will be coming to an end shortly, and there is now tacit relocation each and every year. The tenant will be rolled on yearly, but that is not particularly good for either party, because no one knows how long the tenant will be rolled on for.

I think that it is the industry’s wish—I know that discussions have begun between SLE, STFA and NFUS, albeit that they are at a very early stage—to look at encouraging individuals who are in that situation to sit down and see whether they can come to any sort of sensible working arrangement that suits both parties. That would encourage landlords to put in place longer-term security for those individuals.

Our concern is a practical one that relates to an issue that Scott Walker touched on—the gap between one-year and 10-year tenancies, particularly for some areas of cropping land. If the proposed requirement is brought in, all that it will do is allow people to look outside the legislation for contract farming agreements or shared farming agreements, or for alternative vehicles. The gap would be a real problem for the industry.

I concur with much of what Scott Walker and Martin Hall have said, so I will be reasonably brief. It is important for me to say that, in the view of Scottish Land & Estates, some of the proposals that the review group has come up with are very positive. One example is the proposal to introduce a degree of flexibility in relation to the new LDT, although, with regard to the 35-year term for a repairing lease, we would rather leave the parties to reach agreement.

I reiterate the difficulty of not having something to fill the gap between one year and 10 years. I can think of many examples that I have come across in my working life in which people have wanted to let ranges of buildings. If, for example, I do not have any cattle but I have buildings, and my neighbour has cattle and would like use my buildings, how would I arrange that?

Well, that is contract farming, is it not?

The RICS would echo what everyone else has said. There is a problem with having only two options—the one-year or 10-year option, and the 35-year option. There is not enough freedom for the parties in that regard. If they only have those fixed vehicles that they can use, they will—as Martin Hall said—look outside the box to find other arrangements.

It would be helpful to hear briefly Chris Nicholson’s views on the comment that we need more options.

13:00  

We are pleased that the review group rejected freedom of contract for the obvious reasons of the land ownership structure in the tenanted sector.

We do not see a lot wrong with the new-style leases that we have at the moment—SLDTs and LDTs. LDTs were modified in 2012 to reduce landlords’ obligations on fixed equipment, so we do not see why they are not fit for purpose going forward. However, we should be realistic about what they will be used for. They will be useful as bolt-on lettings to existing businesses, but it is highly unlikely that they will provide a suitable base for new entrants to build a secure business going forward. To see that, we only have to look at where a lot of limited partnership tenants are at the moment—they were yesterday’s new entrants.

The discussion that we have just had highlights one of the difficulties. There are all sorts of issues around this that we could argue about for months if not years. The STFA made the point that open assignation deals with the problem simply and effectively. As soon as we move into SLDTs and so on, we get into all sorts of debates, whereas open assignation gives everyone freedom.

I like to keep things simple. The proposal will only complicate matters and involve the RICS and lawyers and everyone else even more in the future. We need to bear that in mind. That was probably more of a comment than a question, convener.

Perhaps Alex Fergusson is going to make a comment, too.

I am tempted to make quite a long comment, but it would not look good in the Official Report.

I think that Mr Thompson has got his wires slightly crossed on the issue. It has struck me that there is actually a great deal of agreement here. I would like to think that, with a bit of give and take either way as we go forward, we can all end up in agreement on the issue, which could only be to everyone’s benefit.

Hear, hear.

That would be wonderful.

Angus MacDonald has a question on new entrants and reducing barriers to entry.

The review identifies the need for more starter farms to be available and it found that some older tenants would be willing to provide an informal apprenticeship to a new entrant if they were able to assign the tenancy to them. What are the panel’s views on the review’s proposals on encouraging new entrants? Do you agree that there is need for a phased apprenticeship to tenancy?

The Scottish Government is making progress on the creation of starter units on Forestry Commission land, and there may be potential in the future in relation to Crown Estate land. We are well behind England, which has 3,000 starter units with county council holdings and other landlords such as the National Trust farms.

The real problem is where the new entrants go after that first rung on the ladder. If the starter farms are let for a five or 10-year period and the new entrants build up some capital, the difficulty for Scotland, and also for England, is where they go for the next stage in their careers. That is where we see the benefits of open assignation, which would allow a complete rung on the ladder for people to enter the tenanted sector and to upsize or downsize.

Open assignation would give opportunities for tenants who are approaching retirement but do not want to retire completely to downsize to a smaller holding, allowing someone younger to move into a bigger holding. It would give a level of flexibility that would bring huge benefits to the sector and go a long way towards bringing in new blood and affording people opportunities to move to the second stage, which is a secure base on which to develop a long-term business.

Everyone in the industry agrees that we want to do more to get in new blood and help the industry to develop. I agree with everything that Christopher Nicholson said about forestry units, Crown Estate land and other land that could be looked at as starter units for development. In addition, there is a culture of letting land in Scotland. Making more land available to be rented out will help people to get into the industry and help people to develop their business. It is important that we take the opportunity to ensure that the bill is correct and that it encourages people to let land.

There is also a role for the tweaking of the tax environment to encourage the letting of land to new entrants to farming and give them a leg up. Those who are already in farming usually have a financial advantage that allows them to increase the size of their holding, rather than somebody else getting in. The industry has been slow to take up shared farming agreements and various other agreements that allow somebody to start in the industry, build up their capital and slowly develop.

I was at a Scottish Agricultural Organisation Society conference recently at which a couple of very good examples were given by young individuals who have shared farming agreements in Scotland. One involved a woman who has taken over a dairy business and is slowly working hand in hand with the farmer and building up the number of her cows in his herd. She said that much comes down to personal relationships. It is about putting two individuals together and making sure that they can work things through.

We in the industry probably do not do enough to highlight those good examples. We need to shine a light on them to make people aware of them and of how they can make such situations work.

I do not want to stray into the issue of tax just now, as we can come back to it at another point. I want to wrap up the current discussion. Does Sarah Boyack want to ask the final question?

Yes. The question is where we go next with the legislation, as there are different views out there. One view is that we should have a new agricultural holdings bill, but another view is that a section on agricultural holdings should be slotted into the proposed land reform bill. The NFUS said that it is very much against the latter suggestion, because it feels that it would leave the agricultural holdings provisions “indelibly tainted”, which is pretty strong wording.

I am keen to hear the panel’s views on that. It has been quite a while since we last introduced agricultural holdings legislation. The cabinet secretary sees such legislation as a major priority given the review group’s report. So, it is about what happens next. The first question was about the tenant farming commissioner. How urgent is the need for legislation, and what is the best legislative vehicle?

Scott Walker has talked about the importance of the package and its ability to deliver confidence. Our position is very much that there should be a stand-alone, dedicated agricultural holdings bill that delivers a package and that it should be delivered in the current parliamentary session so that we do not have to wait for important things such as the tenant farming commissioner, to which you referred. They should be delivered sooner rather than later.

What is the argument against having that in a land reform bill?

My understanding from the dialogue that Scottish Land & Estates officials have had with civil servants is that it will not be possible to get the whole agricultural holdings package into a land reform bill. If it could be delivered in such a bill, that would be better. I agree to an extent with what Scott Walker said on the issue, although I am not sure whether I would use the same language as he did. Agricultural law is a complicated area and it deserves a dedicated bill.

I am surprised by that. I want to see, as I think many of my colleagues do, land reform legislation completed in this parliamentary session. I also want to see agricultural holdings legislation completed in this session. Given that a lot of the proposed legislation will come to this committee, the most efficient and effective use of resource would be to have land reform and agricultural holdings provisions in the same bill. There is in any case a strong connection between the areas. I think that Scott Walker’s language on the issue was unfortunate and, indeed, regrettable, because the connection between land reform and agricultural holdings legislation is about empowering communities and individuals and redressing the imbalance in power relationships that exist in parts of Scotland.

That is a positive, not a negative, agenda, and it is certainly not a negative agenda for Scott Walker’s members. I go back to the fact that we should be making that clear and having that conversation, but I simply do not see how, physically, two bills can be run in the next 12 months, and I see another ex-minister, Sarah Boyack, agreeing with that. Given the commitment to do both things, the most efficient and effective use of resources is to do them in a single bill. I would not accept a bill that excluded either of those items.

There is general consensus that we want an agricultural holdings bill to be delivered in this parliamentary session; indeed, as others have said, there is a great deal of consensus among all the industry bodies about what the main elements of that bill should be.

Again, I can speak only for NFUS members and the discussions that we have had around the country on land reform and agricultural holdings. It might be confusion on our part or on the part of our members, but our members are certainly concerned about aspects of the proposed land reform legislation. They think that some of it will be excellent or very good, but they are more concerned about that bill than they are about the agricultural holdings bill, in which they can see the direction of travel and what is going to be delivered. As far as confidence for farmers is concerned—I am purely talking about farmers here—we would want the two issues to be separated. Both pieces of legislation could go through at the same time, but it would be helpful if the issues were separated in people’s minds.

I see committee members shaking their heads. You will know far more than me about what is possible in a parliamentary session, but that is our wish, if it is at all possible.

My concern is not so much about getting things through by March 2016 as about getting things right in the land reform and agricultural holdings debates. Both bills will come to the committee for scrutiny, but I have to say that we do not have that long in this session of Parliament to scrutinise what are very weighty subjects. They are not without controversy—let us not pretend that they are—but getting the agricultural holdings legislation right brings with it the enormous prize of restoring the sector’s faith and confidence in the way that we have been discussing. That must be the principal aim, and I say for the record that I worry about the prospect of undertaking the scrutiny process properly and correctly if the issue is put into another bill.

Thank you all.

We could hardly be said to have not given the matter a large amount of scrutiny, including the scrutiny that we have given it today. This is only one of many times that we have had to talk through the matter. When we take evidence at stage 1 on the forthcoming bill, whatever shape it takes, there will be another wide-ranging review of people’s attitudes.

I thank the witnesses for the diverse views that they have expressed, but I must point out that the issue is all set in the context of the common good of this country. The public interest, which was emphasised by the land reform review group and, indeed, which underpins agriculture’s contribution to the common good, is something that we take very seriously. We will try our very best to achieve a satisfactory and progressive—even radical, as was mentioned earlier—outcome that I hope and believe will make Scotland a better place.

Before I close the meeting, I should tell members that on 1 April—of all days—the committee will consider five negative instruments, take further evidence on the agricultural holdings legislation from the review group and the Cabinet Secretary for Rural Affairs, Food and Environment and consider petition PE1490, which is on the control of wild geese numbers, as well as our future work programme. It looks like we could do with an extension to the number of hours in the day next week.

I now close the public part of the meeting and ask everyone to leave quickly, as we have two more agenda items to deal with.

13:14 Meeting continued in private until 13:47.