Rural Economy and Connectivity Committee

Meeting date: Wednesday, November 1, 2017

Official Report 472KB pdf

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Subordinate Legislation

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Land Reform (Scotland) Act 2016 (Supplementary, Consequential, Transitory and Saving Provisions) Regulations 2017 [Draft]

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Agricultural Holdings (Modern Limited Duration Tenancies and Consequential etc Provisions) (Scotland) Regulations 2017 (SSI 2017/300)

Agenda item 2 is subordinate legislation. We will consider one affirmative instrument, as detailed on the agenda. The committee will take evidence from the Cabinet Secretary for Rural Economy and Connectivity, and the motion to approve the affirmative instrument will be considered under agenda item 3. It would be reasonable for the discussion to also cover any points about the related negative instrument to be considered under agenda item 4. Members should note that there have been no representations to the committee on the instruments.

I welcome from the Scottish Government the Cabinet Secretary for Rural Economy and Connectivity, Fergus Ewing; Jennifer Willoughby, who is head of the agricultural holdings team; Fiona Buchanan, who is a senior policy survivor—I mean adviser; that is twice that I have made a slip of the tongue on agricultural matters—and Douglas Kerr, who is a solicitor.

I invite the cabinet secretary to make a short opening statement.

Thank you, convener. My statement is of necessity technical and is important to convey. However, it is a bit long.

I am very pleased to be here to support the committee’s consideration of the draft Land Reform (Scotland) Act 2016 (Supplementary, Consequential, Transitory and Saving Provisions) Regulations 2017, which were made by the Scottish ministers in accordance with powers conferred by sections 127(1) and 127(2) of the Land Reform (Scotland) Act 2016. The regulations form part of a package with the Agricultural Holdings (Modern Limited Duration Tenancies and Consequential etc Provisions) (Scotland) Regulations 2017, which are a negative instrument. There is also the Land Reform (Scotland) Act 2016 (Commencement No 6, Transitory and Saving Provisions) Regulations 2017, which are a commencement instrument that is subject to no parliamentary procedure. Together, the three sets of regulations make provision for the introduction of modern limited duration tenancies. I will briefly outline the content of the draft affirmative regulations and touch on the others, if I may.

Modern limited duration tenancies were introduced by the 2016 act as an option for future agricultural tenancies. They replace the existing limited duration tenancy option, which is set out in the Agricultural Holdings (Scotland) Act 2003. LDTs that were already in existence before the regulations come into force will continue to exist, but there will be no new ones except in very limited and specific circumstances.

The draft affirmative regulations make a series of consequential modifications to other acts to ensure that, where they currently refer to LDTs, references to MLDTs are inserted. That will ensure that MLDTs can follow smoothly from LDTs. LDTs are not simply being replaced in those acts because, as I said, those that are already in existence before the regulations come into force will continue to exist.

The 2016 act also introduced the repairing tenancy, which is a further new type of tenancy. That type of long-term tenancy can be used where land is currently not in a state capable of being farmed and the tenant is required to improve the land to bring it up to standard. However, the relevant provisions of the 2016 act that provide for the creation of repairing tenancies are not yet in force. The draft affirmative regulations will insert references to repairing tenancies where they insert references to MLDTs. However, the regulations also contain transitory provisions to ensure that those references are to be ignored until the repairing tenancy provisions that are contained in the 2016 act come into effect. We drafted the regulations in that way to reduce further layers of amendments to the various enactments in the future—so we are thinking about you.

The regulations contain other consequential modifications and supplementary, transitory and savings provisions in relation to the repeal of various sections of the 2003 act by the 2016 act. Again, that is in order to facilitate transition from LDTs to MLDTs. It also ensures that MLDTs can use the existing rent review system, as set out in the 2003 act, until the new rent review provisions in the 2016 act come into force.

All of those provisions are to ensure that LDTs can be replaced by MLDTs in timely fashion and that the two forms of tenure can co-exist until existing LDTs naturally come to an end or are converted—whichever may happen.

The commencement and negative instruments also contain transitory and savings provisions, and the negative instrument also has consequential modifications. Again, they are intended to ensure that references to MLDTs and repairing tenancies are inserted into relevant secondary legislation and that references to repairing tenancies are to be ignored until the relevant provisions come into effect.

The negative instrument also sets out a definition of a new entrant to farming for the purposes of eligibility for a five-year break clause for an MLDT. Constructing that definition has been a lengthy process and has resulted in something that appears quite complex. I have written to the committee separately about that, as I thought it would be helpful to do so. I hope that my letter has addressed some of the questions that members may have. I shall not cover again the ground in the letter, although we will be happy to take questions on it. However, I assure the committee that my officials have worked closely with stakeholders to ensure that the regulations meet their requirements, particularly in relation to the definition of a new entrant.

The committee will be aware that the Delegated Powers and Law Reform Committee has considered the regulations and identified some issues in relation to the commencement and negative instruments. We will lay an amending instrument to address the issues that that committee has raised.

The equality impact assessment, business and regulatory impact assessment and financial memorandum prepared for the 2016 act remain valid for the regulations. I commend the regulations to the committee and I am happy, along with my officials, to take questions.

Before we go on to questions, some of us would like to declare interests. I declare an interest, which is that I am a partner in a farming partnership and, as part of that partnership, I have a new form of tenancy and a secure tenancy. I also declare that I am a member of the Royal Institution of Chartered Surveyors, which may have been consulted on the instruments, although I have not spoken to RICS about it.

Likewise, I declare an interest. I am involved in a farming partnership in Aberdeenshire.

I am the joint owner of a very small registered agricultural holding, which is grass let to a neighbouring farm.

Cabinet secretary, I thank you for your letter, which, as you say, is about a complicated issue. Some committee members found the flow chart at the back of the letter extremely helpful as a method of tracking the issue through. I want to make an observation, which is that some of the policy notes on the instruments are extremely technical and complicated, and I am thankful that, having studied agricultural law, I have been able to understand them. There may be committee members who have not studied agricultural law and do not understand them. I would welcome it if, in future, there were simpler policy notes that make it easier for committee members to understand what the Government is trying to achieve. I will address that matter at the Conveners Group.

I am not asking you to respond, cabinet secretary; I simply wanted to make that comment.

I have a number of questions, which are probably for officials and are aimed at helping me to understand what the negative instrument that is before us is trying to achieve. The first question is obvious, but it is just to get something on the record. I understand that the starting assumption in regulations 3(2) and 4(2) of the Agricultural Holdings (Modern Limited Duration Tenancies and Consequential etc Provisions) (Scotland) Regulations 2017 is that anybody with an MLDT is a new entrant until otherwise proved. Is that correct?

That is right.

I just wanted to be certain about that.

Does the definition of a new entrant—subject to other things, which we will come to—for the purposes of an MLDT influence or interact with the definition of a new entrant for the purposes of the Scottish rural development programme? In other words, can someone be a new entrant in one but not the other, or do they of necessity have to be a new entrant in both domains?

Technically, someone can be a new entrant in one and not the other. This is purely for the purposes of an MLDT and whether someone gets a break clause in their lease.

That was my conclusion, but I wanted to hear it said on the record. Obviously, for grant purposes, people probably want to be a new entrant, but in this area they may not want to be new entrant.

Just to be clear, the five-year break can be put in only if someone is a new entrant and both the lessor and the lessee agree to it. That is the only circumstance in which the five-year break can be put in.

Yes, that is right.

Now I want to look at definitions. First, regulation 3 has various provisions under which people are considered not to be new entrants. Looking at one particular omission, I might have expected that to include people who are engaged in contract farming but have never owned or controlled a tenancy. Is it the policy intention that someone who has spent perhaps even 20 years as a contract farmer should be considered as a new entrant for the purposes of an MLDT?

That is correct. That is what our stakeholders asked us to do.

So I am reading that correctly. That is the policy decision that was agreed with the consultees.

Regulation 3(5)(c) refers to

“persons who between them—

(i) hold or control, directly or indirectly, more than 50% of the voting rights in T;”

What does “indirectly” mean?

It is designed to cover situations in which someone might hold the right through another legal person, for instance, or the right is not in someone’s name specifically but they still have an ability to exercise it.

You are going to have to explain that a bit more for me. I do not know about Stewart Stevenson, but I did not understand that.

Me too.

I thought that it would be what was formerly classed as a front man.

Does Douglas Kerr want to explain what it means?

Before he does that, can I perhaps refer to regulation 5? It might help to link the explanation to the phrase “dominant influence” in regulation 5, which is of a similar character. I would really like to know what that is going to mean, or who will decide what it means.

The provisions are designed to capture the range of relationships that a person might have if they are sitting behind a legal person, and they explain what control there might be. We were not looking so much at who has the rights to the capital or revenues, but at who controls the decisions or directs the will of an organisation. We were trying to make the regulations as expansive as possible, so the term “indirectly” is to cover situations in which a person might exercise a right through someone else—for instance, they might hold the rights in a legal person who has the right to vote in that company.

The term “dominant influence” applies if someone can enforce their will. In essence, it means that they have more influence than others.

What I understand from that is that it is about operational decisions that are related to how farming is conducted, and is quite independent of ownership and financial benefit from farming.

Yes, that is the policy intention.

I want to push a little bit on that. Personally, I am not quite sure how you define “indirectly”. Let us say that there is a son and a father. The father may indirectly control the son, but the son will deny it. Legally, if you took that situation to court, it could not be proved. As far as the law is concerned, I struggle to see how, by putting it into the regulations, you are achieving anything that can be enforced.

The intention behind including the term “indirectly” was to cover situations in which someone held the right through a legal person. The father and son relationship might be caught by the provisions on “dominant influence”, but, generally, we were trying to strike a balance between making the provisions work while recognising that there might be situations in which the law cannot capture the specific circumstances.

Can I push one more time on that? Would you be happy to go to court and prosecute on the basis that you could prove that there was indirect control by another person? “Prosecute” is the wrong word, but would you be happy to argue that case?

Our position is that the regulations set out how to determine that but, in the first instance, it is not for the Scottish Government to determine those issues, because it is for the parties to look at that. I do not think that we would be pushing that.

As far as I understand it—my officials will correct me if I am wrong—there is no question of prosecution of crimes here. This is a matter of civil law—private law between individuals—and of regulating the proposed facilities to encourage leasing to new entrants. That is where we are starting from, and the work with stakeholders was designed to achieve that policy objective. I do not mean to be critical; I am just saying that it is nothing to do with criminal law, as I understand it.

11:15  

No, but we are considering circumstances where the lessor and the lessee both have to agree that there is a break point and they presumably both want a five-year break in the MLDT, and the provisions say that a lessee who is indirectly controlled or influenced by someone else is not entitled to write that into the MLDT. That is the bottom line of what the provisions are intended to mean. In policy terms, the situation where both the lessor and the lessee want the MLDT to have a five-year break but there is considered to be indirect control is not expected to happen terribly often—it will be comparatively rare. Is that fair comment?

Yes, I would expect so.

Right. Sorry—I am feeding you the line in the hope that you will say it.

However, I want to be clear about whether “dominant influence” in regulation 5 is essentially the same thing expressed with different words.

It tries to get to the situation where the party can express their will, and their will can determine the operations of the company where they might not have a specific right. That captures the situation of the legal person; that might not be the structure that we normally think of as—

It would be helpful if you could give us an example. Having been involved with companies in all sorts of ways, I sort of get it, but I am not sure that I do. I am a bit like Edward Mountain, who has some legal training, and I have experience, but I still do not quite get the real circumstance.

It might be useful if we write to the committee on that point separately to explain our thinking behind it.

The committee is in the position of having to report to Parliament today. If I am correct, the date on which the provisions come into operation is only four weeks away.

You are right. We have to make a decision on it today if the cabinet secretary presses ahead with the instrument.

This is a negative instrument, remember.

It is negative, yes. You are right, Stewart—thank you.

Sorry, convener—just a second.

Douglas, are you able to give us an example?

Sorry—I was just conferring with a colleague. To refer to the example that you gave earlier, convener, we think that one instance might be if the son has the rights in the legal person and the father is exerting the will. It might be that the father is, in practice and in fact, exercising influence over the son, who has the interest in the legal person.

So the use of the phrase “dominant influence” in one part of the regulations and of “indirectly” basically come down to the same thing.

Yes.

Do you wish to raise something on this point, John, or is it a separate—

I have a comment about process, which is relevant to this point.

I understand that the legislation has its genesis in the Land Reform (Scotland) Act 2016, on which there was formal consultation. We are told that informal consultation with stakeholders will continue taking place during the implementation process. I want to understand who was involved in that, and whether some of the issues that Mr Stevenson legitimately raises have been raised by any of the stakeholders.

Do you want to answer that, cabinet secretary, or will Jen Willoughby answer?

I will start with a general answer. The question of who was involved is pertinent. Scottish Government officials worked closely with stakeholders. Reference is made to NFU Scotland, Scottish Land & Estates, the Scottish Tenant Farmers Association, RICS and the Scottish Agricultural Arbiters & Valuers Association to identify the definition of “new entrants” that would be most appropriate.

That is all for the purposes of this measure, which is designed to remove perceived barriers to landlords granting leases to new entrants. As I understand it, the big picture is that there can be concern among landlords that some new entrants might not stay the course and might not exhibit “good husbandry”, which I think is the phrase that appears in the legislation. If that happens for whatever reason—I am not ascribing blame to anyone, but it happens—the landlord might be left with a very long lease and a tenant who is not exhibiting good husbandry in farming. That would be a problem for both of them, because the landlord would have a tenant who was not really doing what they were supposed to do or able to do, and the tenant would be left with an obligation to pay the rent, perhaps for a number of years after a point when it would be sensible to bring things to a close.

In essence, that is the practical problem that the stakeholders and officials intended to pursue. To protect myself, I ask officials to say whether I have got that right, but I think that that is the causa causans behind the measure. Is that right, Jen?

Yes, that is correct.

Everything else follows from that. The aim of the perfectly legitimate focus on those technical questions is to create anti-avoidance provisions, although one might not expect them to apply in the majority of cases, and the courts are there to interpret legislation.

On the second point that Mr Finnie rightly raises, we intend to bring forward an amendment to deal with Delegated Powers and Law Reform Committee issues, so it would not be impossible to bring forward an amendment if it subsequently emerged after further discussion with stakeholders that there is a technical defect in the anti-avoidance provisions. That is perfectly possible and I would of course be willing to do it should the need arise. I am not convinced that it is needed at the moment, but that is a matter for the committee to opine on.

That is helpful—thank you.

Stewart Stevenson has a question.

I am of course trying to avoid casus belli.

I have two questions, both of which are fairly straightforward. One relates to limited liability partnerships. Despite the efforts that the UK Government is making on the subject, there is still a lack of clarity on ultimate control and ownership in a number of situations where an LLP is involved. What consideration has been given to that issue? We should remember that we are talking about only the ability to put in a break point and not about the fundamentals of the MLDT, which I welcome.

Fiona Buchanan will answer that.

Mr Stevenson will be aware that recent changes have been made to the law across the EU to start to tackle the issues with LLPs. Scottish Government officials are working with colleagues to explore opportunities to ensure that industry is fully aware of its legal obligations in relation to LLPs, particularly in the agriculture sector. We are working closely with Companies House, which has contacted everybody in the agriculture sector with an LLP and asked them to confirm their details. That has resulted in some individuals saying that their LLPs have ended. We are in regular correspondence with Companies House, and we are happy to share that correspondence with the committee as we progress. I will have to confirm this in writing, but I think that there are 504 Scottish agricultural limited partnerships. However, it may be that the paperwork is not in place in relation to LLPs for individuals in agricultural tenancies, which is the issue that Companies House is exploring.

That is helpful and quite reassuring.

Regulation 5(2) refers to “equivalent persons”. One of the categories of persons that I thought that might apply to is proxies who, for the purposes of a meeting only, might exercise deliberative control over decisions while not otherwise having any interest through ownership or influence. Is that the sort of thing that is meant by the term “equivalent persons”, or is there more to it than that?

The term “equivalent persons” was used to capture the fact that not all legal persons will have shareholders and share capital.

So you are thinking of partnerships, for example.

Yes.

You have just had some detailed questioning from Mr Stevenson. My question is much broader but, nevertheless, important.

In your letter, cabinet secretary, you say:

“Attracting new entrants into agriculture has been identified as one of the most serious issues affecting the industry.”

I could not agree more and I expect that you feel that the MLDT will go some way to addressing that problem. However, to be honest, I hae ma doots and do not think that it will make much difference.

The real problem with the tenanted sector in Scotland is that landlords have lost confidence in letting land for the long term simply because various Scottish National Party ministers over the years have continually raised the issue of an absolute right to buy. Thousands of acres have been lost to the tenanted sector this year alone. Do you agree that the real problem is that the absolute right to buy is still floating around in the background?

On a point of order, convener.

I will take the question and let the cabinet secretary answer.

I have a point of order. I do not see the relevance of that question to what we are discussing.

I do.

The link is that Peter is trying to identify the way to increase tenanted land, which is the aim of the MLDT. I take Richard Lyle’s point. I will let Peter finish his question and allow the cabinet secretary to answer it.

Thank you. I felt that I made the link. It is an important one, and I would like the cabinet secretary to respond. If he unequivocally took off the table the absolute right to buy, that would do far more for the tenanted sector than anything else that we are discussing.

We are focusing on specific statutory instruments and I will address my remarks to them. Of course, there is a much wider debate but I think that I am able to say that I have worked with all stakeholders, including Scottish Land & Estates, in numerous informal and formal meetings and engagements to indicate that we are determined to get the best possible use of land in Scotland and to encourage landowners and tenants to work together. To be frank, the statutory instruments have resulted from that practical working. I am here not to score political points but to address relevant questions on the instruments. That is what I shall do.

I am working positively with landlords and tenants to encourage them to use the vehicles that we have provided, which—after all—they negotiated themselves prior to the 2003 act and in respect of the statutory instruments that we are discussing. We discussed the matters with landlord representatives as well as tenant representatives and introduced the measures after that in the hope that they would be used. I encourage their use so that more new entrants come into farming. I am not saying that the instruments will do everything but, of course, we have solid financial support measures for young farmers and new entrants. That is the principal policy means by which we seek to bring new and younger people into farming.

So you have no comment on the absolute right to buy.

Peter, that is straying. I will stop that there and move to Richard Lyle’s question on the statutory instruments.

I read the letter and do not see the concerns that other people have. It says:

“Stakeholders have not raised any concerns with us about this process.”

I ask the cabinet secretary to confirm that.

I remind the committee that we are not doomed, as Mr Chapman suggests, and that the right-to-buy in housing was introduced by the Tories 30-odd years ago, so it is not the first time that the right to buy has been used.

11:30  

You have made your point, Richard. I think that you have strayed as far as you accused another committee member of straying, so I will park the matter there.

Do members have any other questions? I would like to ask one question, to sum up my concerns.

The panel will be pleased to know that I will not go into the wording of the SSI in great detail.

On the issue of long-term leases and landlords’ concerns about them, I am a bit unclear about what is new compared with what was in the 2003 act. In layman’s terms, is it the definition of a new entrant or is it the five-year break clause that is being introduced?

The five-year break clause is new, as is the definition of a new entrant that applies to that five-year break clause. It is a new definition, but only for the purpose of MLDTs, and the thing that is new about MLDTs is the introduction of the five-year break clause.

Thank you.

I have one further question that relates to the points that Stewart Stevenson raised regarding “equivalent persons”, “dominant influence” and indirect control. It seems to me that you are trying to sweep up a variety of interests that could conflict with the aims of the legislation, but those definitions may not necessarily work. It would be nice to have an assurance from the cabinet secretary that, if the aims are not achieved by those sweeping-up phrases, he will consider introducing further legislation to achieve them.

If anyone brings any manifest flaws to our attention, we will study them. That applies to the generality of subordinate legislation. If we are persuaded that there is, indeed, a flaw, we will take steps to correct it. I am happy to give that assurance.

Thank you, cabinet secretary. Would you like to make any closing remarks? If so, I ask you to make them brief.

I simply commend these measures.

Agenda item 3 is formal consideration of motion S5M-07896, in the name of the cabinet secretary. I ask the cabinet secretary to move the motion formally.

Motion moved,

That the Rural Economy and Connectivity Committee recommends that the Land Reform (Scotland) Act 2016 (Supplementary, Consequential, Transitory and Saving Provisions) Regulations 2017 [draft] be approved.—[Fergus Ewing]

Motion agreed to.

That concludes consideration of item 3. I suspend the meeting briefly to allow witnesses to leave the room. I thank the cabinet secretary and his team for attending the meeting.

11:33 Meeting suspended.  

11:34 On resuming—  

Item 4 is consideration of a negative instrument: the Agricultural Holdings (Modern Limited Duration Tenancies and Consequential etc Provisions) (Scotland) Regulations 2017. No motions to annul have been received and there have been no representations to the committee on the instrument. Do members have any comments to make on the instrument?

I welcome the approach that has been taken. We should always challenge these technical things. Every politician in the Parliament agreed on the 2003 act, but it ended up—to some limited extent—flawed by technical issues. I therefore welcome the fact that the cabinet secretary is looking at bringing forward another instrument to address the concerns of the Delegated Powers and Law Reform Committee. I also heard the cabinet secretary say that, in that context, he would look at anything that we have said. For my part, I have not identified any changes that I would encourage the Government to make, but I thought that it was important to flush that out from his officials.

When there is a switch between two pieces of legislation, the transitional arrangements are absolutely key. I take reassurance from the fact that I have not received any representations in respect of any issues and the fact that there is on-going engagement of the people who should be engaged with on the issue.

Is the committee agreed that it does not wish to make any recommendation in relation to the instrument and that it welcomes the discussion of the instrument?

Members indicated agreement.

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Common Agricultural Policy (Direct Payments etc) (Scotland) Amendment (No 2) Regulations 2017 (SSI 2017/317)

Item 5 is consideration of a negative instrument: the Common Agricultural Policy (Direct Payments etc) (Scotland) Amendment (No 2) Regulations 2017. No motions to annul have been received and there have been no representations to the committee on the instrument. Is the committee agreed that it does not wish to make any recommendation in relation to the instrument?

Members indicated agreement.

That concludes today’s business.

Meeting closed at 11:36.