INSIGHT SCOTLAND ANNOUNCING OUR FIRST SCOTTISH OFFICE. Featured: issue 01. Amnesty for tenants improvements a practical guide

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1 INSIGHT SCOTLAND issue 01 february 2018 Featured: Amnesty for tenants improvements a practical guide Farm business finance Land Reform (Scotland) Act what s still to come ANNOUNCING OUR FIRST SCOTTISH OFFICE 01

2 First Scottish office for YoungsRPS e marked the start of 2018 in style with the official opening of our new office in Scotland. Headed by YoungsRPS Director Tom Oates, it is located in Thornhill, Dumfriesshire. W Tom Oates, office head, says: This is an exciting move for the company as well as for Mike and myself. Over recent years at YoungsRPS we have built a significant client base throughout Scotland, including a large following in the Isles. We believe the time is now right to offer these clients an enhanced service by opening a dedicated rural office in Scotland. Concentrating on the core rural services of farm sales, farm and estate management, landlord and tenant negotiations and farm finance, the YoungsRPS team in the Dumfriesshire office will include new recruit, Mike Halliday, who takes up the position of Farm Consultant. A graduate in Agriculture from Aberdeen University, Mike is the third generation of his family to farm in the Thornhill area. By bringing in Mike, with his considerable practical knowledge, experience of the tenanted sector, management skills and extensive knowledge of the Scottish environmental and grants system, we can offer a wider range of services to a greater number of clients in Scotland. A Scottish base will also enable us to expand the farm and land sales and purchase side of the business within Scotland. For the past three years Mike has been working as a Farm Consultant with the Scottish Agricultural Colleges (SAC), while also retaining hands on involvement in the family farm located just outside of Thornhill. During his career to date he has not only farmed in Scotland but also worked abroad. As a winner of a 2014 Royal Highland and Agricultural Society of Scotland (RHASS) Travel Scholarship he visited Australia and has also spent time working on a dairy unit in New Zealand and carried out a research project on livestock holdings in Belgium. He is a probationer with the Central Association of Agricultural Valuers (CAAV) and working towards full membership. He is a FACTS qualified advisor. Mike Halliday commented: Scottish heritage is strong throughout the YoungsRPS Scottish office team. Youngs previously had an office in Forfar which was a base for one of the current directors Graeme Bruce, while Tom Oates, who comes from a Borders farming family, has spent extensive time practising throughout Scotland. This is, however, the first Scottish office for the amalgamated company of YoungsRPS. 02 I m delighted to be joining such a well respected company as YoungsRPS in what is an exciting new venture for them. The company has a strong reputation for its core rural work and for offering down to earth practical advice to farmers and landowners alike. This suits my skill set well and I look forward to adding my expertise to their existing capabilities and working with the rest of the team who, between them, have great strength and depth of knowledge in rural property disciplines across the board.

3 Twenty million and counting Written by Tom Oates Director H aving been involved in land transactions worth over 20 million in Scotland over the past two years, YoungsRPS is well placed to provide sound practical advice through a thorough knowledge of the market. Over recent years, land values have risen dramatically and remained strong with a considerable amount of activity in the market place. A number of transactions are taking place off market, particularly recently, which highlights the need to engage an agent who is familiar with the market and able to advise on properties that may not be launched on the open market. One point that is being made abundantly clear to us is that there is keen interest in Scottish land from the English market. In general, land in Scotland, is currently achieving lower values to that of similar quality in England and accordingly the Scottish market is attractive to prospective English purchasers. The ability to get more for their money and often of better quality is attractive for those wishing to expand. The sale of Billerwell Farm near Hawick is an example of this, with one of the lots purchased by English purchasers. The farm - which extended to 343 acres - was publicly marketed by YoungsRPS and sold in excess of the guide price in two lots. A further example was the successful purchase of Falahill Farm, Heriot on behalf of an English based client. The purchase was fairly complex with multiple dwellings, extensive buildings and also a number of wind turbines. YoungsRPS helped in identifying the farm, negotiating the price, assisting with bank finance and advice during the purchase procedure and after sales assistance, all of which was invaluable to the client who was relocating to a new area. The ability to provide both the professional advice as well as practical and local knowledge was very much appreciated by the client. As we get further into the Brexit process, the big question is whether this will have an immediate effect on the farmland market. The uncertainty is quite probably going make prospective purchasers cautious, and likewise any lenders. If you are considering a sale or purchase it has never been more important to get the right advice. Tom Oates is happy to speak to prospective clients on a confidential no obligation basis. Call Tom on One point that is being made abundantly clear to us is that there is keen interest in Scottish land from the English market. 03

4 Farm business finance Written by Tom Oates Director T he only thing that is certain in this pre-brexit world is uncertainty. There are the doom mongers and the optimists, but it seems farmers are more prosaic about the future. They keep their heads down and get on with the job in hand; accustomed to being buffeted by markets and politics they are unable to directly influence. For some, one aspect that they can influence, is the structure of their borrowing. Given the background of uncertainty and prospects for less support, potential for difficult trade negotiations; renegotiating or obtaining new funding in the next two years may become ever more difficult and we are advising clients to look at the structure of their lending now. All clients should be aware of the terms of any bank lending they have - read the small print that you may have overlooked when taking out the loan. Many will be surprised to find that the bank can often review long term loans on a five-yearly basis. Even if this is not the case, if a business has an overdraft and long term loans with the same bank, pressure can be brought to bear by the banks on the overdraft facility if they are feeling exposed. Our experience is the bank that was desperate to lend at a fine rate when times were good are the first to panic when margins are tight. Under pressure businesses post Brexit could have life made even more difficult if their bank is less than supportive. As agents for The Agricultural Mortgage Corporation (AMC) we can assist farm businesses to review their borrowing and explain the benefits of AMC loans which include: All AMC loans are un-callable during the agreed term unless you fail to make your payments. AMC margins are set for the term of the loan. (Variable rate loans cost of funds will change in line with base rate). AMC lend for between 5 and 40 years. Loans can be repayment or interest only. AMC can lend up to 30 years on fixed rates. There are no annual reviews or charges on AMC s standard loan (except for Flexible loans). Just one initial set up fee.. AMC loans are available for business purposes including new buildings and fixed equipment, loan restructuring, farm and business property purchase, machinery purchase, diversification and working capital. Of course some will be considering further investment in their business to make it fit for the future and in this respect we are happy to have a confidential discussion to see how we can help. Tom Oates will be pleased to assist, please call him on

5 Amnesty for tenants improvements a practical guide Written by Tom Oates Director T he amnesty on Tenants Improvements commenced on 13 June 2017, forming part of the Land Reform (Scotland) Act The amnesty itself only lasts for three years and provides 1991 Act, Limited Duration Tenancy (LDT) and Short Limited Duration Tenancy (SLDT) tenants with a one off opportunity to clarify some of the grey areas from the past. The amnesty is aimed at improvements where the correct notice procedure was not followed at the time of undertaking the improvement. The true value of obtaining an amnesty agreement during the amnesty cannot be emphasised enough, helping to circumnavigate potential disputes in the event of end of tenancy or waygo compensation negotiations, protecting yours and any future generations position. Preparation is key There is some considerable work to be done in preparing for the amnesty and speaking to one of our land agents at an early stage could streamline the process. Firstly, sit down and think about what actually has been done. Prepare a list and think outside the box, so not only the new shed, but land that has been broken in, drainage systems that have been installed or new fences to create new field parcels. Speak to your family, particularly previous generations as their improvements may still qualify. Our agents can then identify those which are relevant, especially where there has been change of lease. The use of plans allows you to paint a true picture of the entire holding and to assist in clear identification. Obtain multiple copies of your farm plan and then use one plan to identify new fences, another to identify areas that have been drained and so on. For buildings, a steading plan means you can identify individual buildings, areas of concrete and hardcore, etc so that there is no confusion at a later date about which building you were referring to. YoungsRPS can assist in providing satellite images and digital farm plans on our mapping software. During the amnesty, there is no need to consider the cost of the improvements or what they are worth. Valuation will only come into effect if you ever leave the farm, or during a rent review when these items will be black patched or disregarded. The amnesty is simply recording these improvements to protect your position in the future. Start the discussion Once your list is prepared, discussions with your landlord or agent can begin. There may well be some dispute over exactly who has undertaken the various works and a requirement for the tenant to produce evidence. Significantly, at the end of the discussions, there needs to be a formal written document containing the amnesty agreement. Without this, any work undertaken during the amnesty could be lost. If your landlord does not wish to come to the table and discuss matters, then there is the Formal Notice Procedure. This will not be available to you outside of the amnesty period and so it is important to make sure enough time remains to go down this option if required. Three years may seem like a long time; however, it is only the cycle of a rent review, and furthermore, as I write this article, the amnesty has only two years and five months to run I would suggest you get cracking! For further support please contact: Tom Oates (Northumberland & Borders Office) Mike Halliday (Dumfriesshire Office) 05

6 Land Reform (Scotland) Act 2016 what s still to come? Written by Mike Halliday Farm Business Consultant New Rent Formula The Amnesty on Tenants Improvements is not only important for end of tenancy waygo, it is also key for the new rent test, which is expected to be introduced in late The current Open Market rent system, which was heavily criticised following the Moonzie and Roxburgh Mains Land Court cases, will be replaced with the Fair Rent test. The Fair Rent is to be based on the Productive Capacity of the holding, using only the fixed equipment provided by the landlord. Productive Capacity, in relation to the new rent test, can be defined as the volume of production that can be generated using the resources provided by the landlord. An example of this might be a 200 acre dairy farm, where only an old-fashioned byre for 30 cows was provided by the landlord at the start of the lease. The tenant has since provided a modern parlour and cubicle facilities as improvements. The productive capacity of this farm (based on what was provided by the landlord) might be some out-wintered suckler cows and a sheep flock. The old byre will have limited use in modern agriculture and may even be redundant. The new rent test also allows for the landlord to claim rent on any excess residential housing on the holding. The farmhouse cannot be subject to additional rent, but farm workers cottages may be. If the productive 06 capacity of the farm meant that only one labour unit could be justified, but the farm had a farmhouse and two cottages, the cottages could be subject to additional rent. It should be remembered though, the landlord s share would be a percentage of the rent achievable on the cottages in their unimproved state. In many cases farm cottages would be unlettable if the tenants improvements were discounted. The Fair Rent is to be based on the Productive Capacity of the holding. The third factor which will influence rent under the new test is farm diversification. If the landlord s fixed equipment is being used as part of a diversification, then a commercial rent would be payable rather than an agricultural rent. For example, if a shed provided by the landlord was used for commercial storage, then the tenant would be expected to pay more rent. Rent review notices will see significant change under the Fair Rent test. The current process requires no information on the new rent being provided to the other party at the outset. It is still possible (although actively discouraged by the Tenant Farming

7 Commissioner) to delay providing the new rental figure to the other party until the last minute; and threaten referral to the Land Court if no agreement is reached. Under the new test, the party serving the notice will be required to state at the outset what the proposed new rent will be and how the figure was arrived at - using the Productive Capacity of the holding. Rent review dates will also change for the new rent test. Currently rent review notices have to be served against the anniversary of the start of the lease in most cases 28 May or 28 November. Under the Fair Rent test, rent notices can be served against any date as long as there has been a minimum of three clear years since the last review. The amnesty process allows for a discussion to take place between the parties to establish, on a formal basis, what was provided by whom regarding the holding s fixed equipment. This is work that will also need to take place in order to establish a farm s Productive Capacity for the Fair Rent test. As the work needs to be done regardless, common sense suggests that taking advantage of the amnesty and correctly registering improvements is a no-brainer. Assignation & Succession of 1991 Act Tenancies The new rules governing the assignation and succession of 1991 Act tenancies were introduced on 23 December 2016, so are already active. Two classes of relative have been created for the purposes of assignation and succession: a near class and a far class. The far class is very wide ranging and is subject to the landlord s right to withhold consent on any reasonable grounds. Where the assignation or succession is to a near relative (see below), the grounds upon which a landlord can object are: Character; Resources (capital); and Experience. Near relatives for Assignation and Succession of 1991 Act tenancies: A parent of the tenant A spouse or civil partner of the tenant A child of the tenant A grandchild of the tenant A brother or sister of the tenant A spouse or civil partner of such a brother or sister A child of a brother or sister of the tenant A grandchild of a brother or sister of the tenant A brother or sister of the tenant s spouse or civil partner A spouse or civil partner of such a brother or sister A child of such a brother or sister A grandchild of such a brother or sister If an objection is on the grounds of a lack of training or experience, the person receiving the tenancy has six months (from serving the notice that they are to acquire the tenancy) to commence a course of relevant training and a period of four years to satisfactorily complete it. The new legislation abolishes the viable unit test in relation to the unit which is being inherited and importantly it removes the challenge that the successor already has a viable unit else where. Relinquishment & Assignation of 1991 Act Tenancies A tenant who does not have any near relatives will soon be able to take advantage of the Relinquishment and Assignation provisions of the 2016 Act if they wish to assign their secure tenancy. The new regulations will allow the tenancy to be assigned, for value, to an individual who is a new entrant or progressing farmer. There is no set valuation process: the value of the tenancy, including the tenants improvements, would be set by the market. However, before being able to make such an assignation, the tenant is obliged to serve Notice on the landlord, giving the landlord the opportunity to end the tenancy - provided that the tenant is paid compensation. The compensation is calculated by a Valuer appointed by the Tenant Farming Commissioner, using a method laid out in the Act. Broadly speaking, the Valuer will calculate the Open Market value of the farm and the Sitting Tenant value (which will always be lower) and the tenant would be paid 50 per cent of the difference in compensation. The Act is currently written in a way that disregards any successors to the tenant while calculating the Sitting Tenant value this makes the valuation process directly related to the age/life expectancy of the tenant. If the landlord declines the opportunity to buy back the tenancy, it can then be assigned for value to someone meeting the new entrant and progressing farmer criteria (yet to be defined). The Amnesty on Improvements provides a tenant, who might want to consider this option, the opportunity to maximise the potential value of the relinquishment or assignation. If a building, for example, is not registered as an improvement, it will not be taken into account by a Valuer when calculating the Sitting Tenant value of the farm. Likewise, a new entrant or progressing farmer will not offer payment for a building that is not correctly registered. The Tenants Improvements Amnesty offers tenant farmers multiple opportunities to gain value from their tenancy: way-go; the new rent test; and Relinquishment and Assignation. Can a tenant farmer afford not to take advantage of this opportunity? Please contact the Dumfriesshire office on if you d like to discuss anything in relation to tenancy or other land and property related matters. 07

8 News at a glance It has been confirmed that farmers will receive 100 per cent of their 2018 Less Favoured Area Support Scheme (LFASS) grant, rather than the 80 per cent parachute payment that was previously announced. Scottish Government has announced nearly 50 million of funding to 761 businesses across the rural economy through the Agri-Environment Climate Change Scheme (AECS). The 2018 window is now open and will run until the 13th April, with 31 May for collaborative projects, which involve five or more businesses. Young Farmer Start-Up Grants can provide 70,000 to farmers setting up as head of holding of a new farming business for the first time. An application must be submitted no more than 18 months after the setting up process has commenced. The 2018 application window has not been announced yet. The Greening Rules for Basic Payment Scheme (BPS) applications have been revised for 2018, remember, some of the Greening options commenced on 1 January. The LDT was replaced by the Modern LDT (MLDT) on the 30 November 2017 for new lettings. An MLDT has a minimum duration of 10 years. A break clause provision has been introduced, exercisable by either landlord or tenant at year five of the lease. However, this is only possible for tenancies where the tenant is a new entrant. The Private Residential Tenancy (PRT) has replaced the Short-Assured tenancy for all new residential lettings. There is no automatic right to terminate a PRT when it has reached its contractual end date. There are 18 grounds for termination of a PRT, importantly, it should be noted that requiring the property for a farm/estate worker is not one of them. Greening Update 2018 From 1 January 2018, Ecological Focus Areas (EFA) margins (an amalgamation of the previous field margin and buffer strip options) have to be in place. The EFA margins must be clearly identifiable and distinguishable and you must not apply any plant protection products or fertiliser at any time throughout the calendar year (there are some specific exceptions, but guidance must be followed carefully). EFA margin rules allow cutting after 15 July (including for silage and hay) and grazing after 15 July, if the margin does not contain or is not adjacent to a water course. From 15 January 2018, no crop production or grazing can take place on EFA fallow land until 15 July (inclusive). The EFA fallow rules now allow the temporary storage of Farm Yard Manure (FYM) (for that field only) on the option, and you are now able to undertake maintenance of field drains in the period 15 January to 15 March, this is limited to investigation (inspection pits, etc.) and replacement of pipes or tiles where existing bursts have been identified. The 2018 Greening rules have a number of other changes: EFA hedges and EFA agro-forestry are introduced; The introduction of a compulsory ban on Plant Protection Products on EFA fallow, EFA catch crops and EFA green cover takes place; There is a new definition of adjacent when considering EFA features; Changes to EFA catch crop, EFA green cover and EFA nitrogen fixing crops options take place. It is important to consider your Greening requirements now, especially if you are intending to utilise the EFA margin or EFA fallow options. If you would like to discuss your Greening for 2018, please get in touch with either Mike in the Dumfriesshire office on or Helen in Northumberland & Borders office on and they will be able to advise on the area of Greening required and the options available. The Farm Advisory Service (FAS) has released a video of the recent Use It or Lose it - Tenants Improvements Amnesty meetings (featuring Tom Oates of YoungsRPS). Information on the Amnesty can be found at Dumfriesshire Northumberland & Borders