www.brodies.com LAND REFORM Land Reform Review Group The Land Reform Review Group ( LRRG ) published its Report on 23 rd May 2014. The LRRG was appointed by the Scottish Ministers to identify how land reform will:- Enable more people in rural and urban Scotland to have a stake in the ownership, governance, management and use of land which will lead to a greater diversity of land ownership, and ownership types, in Scotland; Assist with the acquisition and management of land (and also land assets) by communities to make stronger, more resilient, and independent communities which have an even greater stake in their development; Generate, support, promote, and deliver new relationships between land, people, economy and environment in Scotland. The Report runs to 262 pages and makes 63 recommendations, a summary of the principal recommendations are listed below. LRRG recommendations: 1. Increase the rate of registration of land in the Land Register and target a completion date for all land to be so registered; 2. Make it incompetent for any non-eu legal entity to be allowed to register title to land in Scotland, to improve traceability and accountability in the public interest; 3. Include heritable property (presently only moveable property is covered) within the legal rights which a spouse and children can claim on a deceased s estate irrespective of the provisions of the Will; 4. Identify and safeguard surviving examples of commonties, common land and Common Good lands; 5. Modernise the system of compulsory purchase; 6. Introduce a right for the Scottish Government and local authorities to register a statutory preemptive right over land where in the public interest; 7. Provide for a publicly accessible online property register of land owned by the Scottish government, local authorities and other public bodies;
2 8. Terminate the Crown Estate Commissioners involvement in Scotland with their statutory responsibilities being devolved to the Scottish Parliament and further significant reductions in Crown property rights in Scotland; 9. Acquire more land to increase the National Forest Estate to deliver multiple public interest policy objectives; 10. Relax the criteria for an appropriate community body and simplify the procedure for setting up same; 11. More than double the amount of land in community ownership to one million acres by 2020; 12. Extend the existing community right to buy provisions by giving rights to communities to buy land which is not for sale where judged to be in the public interest with the Scottish Ministers being able to compulsorily purchase land for the community if required; 13. Provide local authorities with the right to exercise a Compulsory Sale Order over vacant or derelict land; 14. Provide an integrated legislative and financial support framework to assist communities in purchasing and developing land and buildings and an agency to advise; 15. Provide a clear policy on the disposal of public property to appropriate local community bodies by the Government and associated public bodies including disposals at below open market value where in the public interest; 16. Introduce a new form of tenancy agreement for the private rented sector providing for longer tenancies with increased security of tenure; 17. Implement the Government s Land Use Strategy across Scotland which promotes land use decisions by owners and occupiers that are in line with the public interest; 18. Introduce a ceiling on the total amount of land that can be held by a private landowner or single beneficial interest; 19. Re-introduce, on a phased basis, non-domestic rates on agriculture, forestry and other land based businesses; 20. Review the current exemptions from sporting rates and re-introduce same in relation to wild animals (salmon, deer and grouse) as a means of encouraging appropriate species management; 21. Undertake a detailed study of the scope and practicalities of introducing Land Value Taxation as an alternative to local government taxation; 22. Review the existing exemptions and reliefs for agricultural and forestry land in local and national taxation to ensure there is a transparent public interest justification for such exemptions and reliefs;
3 23. Reduce the complexity of crofting legislation and allow Small Landholders to have a statutory right to buy their holdings; 24. Remove the need for secure agricultural tenants to register their pre-emptive right to buy; 25. Consider introducing an absolute right to buy for secure agricultural tenants; 26. Continue to improve implementation of public rights of access; 27. Review and reform the rights of landowners to freshwater resources adjoining their land; 28. Abolish District Salmon Fishery Boards and put in place an improved statutory framework to ensure sustainable management of freshwater fish stocks in the public interest; 29. Abolish the Crown interest in salmon fishings and extinguish the right to create salmon fishings as a new heritable tenement separate from the land; 30. Improve the statutory framework governing the stalking of deer to ensure appropriate culling is carried out to protect the public interest; 31. Establish a Scottish Land and Property Commission responsible for understanding and monitoring the system governing the ownership and management of land and making recommendations in the public interest. Land Reform Bill The Scottish Government state that the Land Reform Bill will take forward radical land reform and ensure Scotland s land reform debate focusses on how Scotland s land can be best managed in the public interest to ensure it is of benefit to all of the people of Scotland. In addition they are proposing changes to succession law and in their announcement they say that these changes will be an important aspect of their series of measures in respect of Land Reform. In particular the proposal is to abolish the distinction between moveable and heritable property for legal rights purposes on succession. This will have a potentially major impact on succession to farms and estates. The Scottish Government held a Consultation which ran until 10 th February 2015 to which we responded. On 15 th May 2015 the Scottish Government published its analysis of the 1,269 responses to the Consultation and we were pleased to note that our response was quoted in the report. The Land Reform Bill is expected to be brought forward in June 2015 and the detail is eagerly awaited.
4 European Convention on Human Rights In considering the proposals and the actual detail of the Land Reform Bill, it is important to bear in mind the context of Article 1 of the European Convention on Human Rights First Protocol which may be relevant where a landowner s enjoyment of his property is infringed:- Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. It is difficult to predict at this stage if such an argument will be deployed as it will very much depend on a balancing of interests and the nature and detail of the reform itself.
5 LAND REFORM Agricultural Holdings Legislation Review The Agricultural Holdings Legislation Review Group ( AHLRG ), chaired by the Cabinet Secretary, spent 18 months meeting, debating, researching, studying and travelling around Scotland gathering evidence from stakeholders, landowners, tenants and members of the public prior to publication of its Final Report on 27 th January 2015. The AHLRG s stated aim was to deliver a comprehensive package of recommendations for legislative change, fiscal and policy measures to achieve the Scottish Government s vision of a vibrant and sustainable tenant farming sector. The tenanted sector is vital to Scottish agriculture representing 23% of all agricultural land and offering a route for new entrants and/or those without the available capital to purchase land. The last significant reform of agricultural holdings legislation was in 2003 yet tenanted land continues to decline (by 42% since 1982) despite, or on a different view, in part because of such reform and the continued threat of further legislative change. The AHLRG have produced 3 overarching aims for the sector:- productive relationships between tenants and landlords based on mutual trust, respect and confidence ensuring older tenants are able to retire with dignity whilst facilitating opportunities for new entrants the provision of a framework for letting vehicles fit for the 21 st century In order to achieve these aims, 49 recommendations have been made. Some of the headline recommendations are as follows:- Productive relationships Scottish Government support for industry initiatives to improve landlord/tenant relationships new office of Tenant Farming Commissioner to promote and secure effective landlord/tenant relationships rent assessment for 1991 Act tenancies to be primarily based on the productive capacity of the holding and industry bodies to maintain voluntary rent register pre-emptive right to buy to be automatic enforced sale in the case of bad landlords absolute right to buy not in the long term interest of the tenanted sector Enabling retirement
6 extending succession rights for 1991 Act tenancies and LDTs to parents or any living descendant of a parent or spouse or civil partner of any living descendant of a parent of the tenant or the tenant s spouse or civil partner extended right of assignation for 1991 Act tenancies right to convert a 1991 Act tenancy to a 35 year LDT and assign for value registering of 1991 Act tenancies in the Land Register 3 year amnesty during which tenants may serve written notice on the landlord specifying items as tenant s improvements right for tenants to object to a landlord s proposed improvements where these do not meet the needs of the holding amendments to improvements which qualify for compensation Letting vehicles modern LDT with 10 year term and 5 year break where new entrant new form of full repairing LDT where 35 year term and statutory rent review new short leases 1 year term for grazing, mowing or cropping conversion of limited partnerships to LDTs to be encouraged and supported Note: There remains ongoing debate about a number of the proposals with, for example, certain sectors of the industry pressing for free assignation of 1991 Act tenancies despite this being rejected by the AHLRG who noted that any significant widening of the class of persons who can succeed to or be assigned a tenancy may impact negatively on the landlord s property right and have ECHR implications. It is clear that the AHLRG s proposals will be brought forward in the Land Reform Bill and not in separate legislation.
7 LAND REFORM Land Registration (Scotland) Act 2012 Another aspect of the wider land reform agenda is the completion of the Land Register of Scotland. Although the 10 year timetable for getting the whole of Scotland on the Land Register was announced over a year ago, when the Scottish Government first imposed the 2024 deadline on Registers of Scotland, it is only now that the implications are becoming widely known. Landowners should be aware that, save for public bodies, registration is voluntary, not compulsory. It is important that message is not lost: unless they are public sector bodies, land and property owners are not obliged to register their land unless they do something which would "trigger" registration (such as a transfer or the grant of a lease of over 20 years). So why consider voluntary registration? There are distinct advantages for owners of Scottish property in having a title registered in the map based Land Register, as opposed to the outdated deeds based Sasine Register. When registered correctly, land on the Land Register benefits from accurately mapped boundaries on the Ordnance Survey map, giving certainty over the extent of ownership and, in most cases, a state backed warranty from Registers of Scotland. This can offer greater clarity in day to day management and also in land transactions, since properties have more readily ascertainable boundaries and rights. This could be of particular advantage where the property involved is sizeable (either in terms of extent or the number of properties within an individual portfolio), especially where the boundaries with neighbours are currently uncertain. This is common in the case of many rural properties which are currently unmapped. Another reason for registration is the threat of "Keeper Induced Registration" or "KIR" (this is basically the power of Registers of Scotland to go ahead and register land, without any requirement for the owner s consent). It has been suggested that KIR may lead to a "race to the register" by landowners who would rather deal with registration themselves, to ensure it is done correctly. At this point, the implications of KIR are still unknown. A consultation document from the Registers of Scotland is expected shortly which should clarify how this power is likely to be used. In summary, all land and property owners should consider voluntary registration, bearing in mind their individual circumstances. If registration is considered a good idea, or further guidance about the pros and cons of registration is required, we can discuss how our specialist registration team can help you.
8 LAND REFORM Community Empowerment (Scotland) Bill This Bill was introduced to the Scottish Parliament on 11 June 2014 and is presently going through the Stage 3 process of debate. It may therefore be subject to further amendment however it would be unlikely that the underlying principles are altered at this stage. The Bill deals with a wide range of matters but the proposed extension of the community right to buy is as follows:- Registrable Land Urban land and commercial property will be eligible for registration by a Community Body. If, in an urban development context, a developer has to acquire land from different ownerships in order to allow the project to proceed, and the Community are opposed to the project, then an application to register an interest in the Community Right to Buy would only need to be directed at one of those ownerships in order to threaten the viability of the entire project. Salmon fishings and mineral rights which are owned separately from the land in which they are exercised will now be subject to the Community Right to Buy. If the community wish to stop a sand and gravel quarry, or the local angling association wish to take over the local salmon fishings if they come up for sale, then they will be able to register their interest to do so, with ministerial approval. Abandoned and Neglected Land The Bill proposes a new Community Right to Buy, with its own register, the Register of Community Interests in Abandoned or Neglected Land. This new right to buy will have many features similar to current Community Right to Buy. There has to be a Community Body, although it has to be a company registered by guarantee and current Community Bodies could not exercise the right without incorporating additional provisions into their articles of association. The Community Body has to demonstrate sufficient community support, as well as showing that sufficient members of the defined community have a connection with the land, and obtain the approval of Ministers that, in the discretion of Ministers, the purchase of the land is in the public interest and compatible with furthering the achievement of sustainable development in relation to that land. The aspect of this new right to buy which is concerning to landowners is that the requirement for an owner to take action with a view to transfer of the land to a third party does not apply before a right to buy can be exercised. In short, there is no requirement for the seller to be willing to sell. Indeed, in order to apply to Ministers to exercise the right to buy, the Community Body must have already tried and failed to buy the land. Subject to very few exclusions, relating to an individual s home, crofts and land vested in the Crown as bona vacantia, the Bill does not propose to tell us what land will be eligible to be acquired from an unwilling seller. What we are told is that Land is eligible for the purposes of this Part if in the opinion of Ministers it is wholly or mainly abandoned or neglected. The only restriction on this general discretion is that in determining whether land is
9 eligible, Ministers must have regard to prescribed matters. We will not know what these criteria are until the Bill is passed and Ministers prescribe same in subsequent Statutory Instruments. There are many reasons why a landowner may leave land in a condition which might appear either abandoned or neglected for several very good reasons. The appearance of abandonment or neglect is, in these circumstances, different from the truth. In the rural context, there are sound environmental reasons for allowing some land to return to nature and government agencies in many cases provide grants or subsidies as incentives to leave land in that condition. In the urban setting, simply because land does not have a current use, the owner may have a significant future use in mind. There are also consequences that flow from the creation of an absolute right to buy, which the Bill recognises but for which it offers little or no remedy. For instance, the land being bought may be subject to a standard security in favour of a creditor. The owner of the land may be subject to negative equity or the statutory valuation may produce a price for the land which is less than the amount owing to the creditor. In the normal course of events, a prudent landowner might choose not to sell his land at that price, because the effect is to crystallise his loss and require full payment to the creditor and, instead, wait for the value of the land to rise. Equally, the unwilling seller may realise an unplanned capital gain which will be subject to taxation. Where the owner can be compelled to sell, the action of forcing a sale imposes the crystallisation of the negative equity or tax liability on the owner. The Bill does make provision for the owner who has incurred loss or expense in complying with the Bill s provisions to recover those losses and expenses from the Ministers. However, attempts to exercise similar provisions in relation to the current right to buy have usually failed in the face of strong opposition.
10 LAND REFORM Scottish Private Rented Tenancy The Scottish Government has launched a second Consultation on a new private tenancy for Scotland, the Scottish Private Rented Tenancy ( SPRT ). This second Consultation gives more colour to the broad principles set out in last year s consultation and contains some new proposals. These are the headlines:- There will be one private tenancy in Scotland the SPRT for all Private Rented Sector ( PRS ) lets. A model tenancy agreement containing both discretionary and mandatory clauses will be provided with accompanying guidance. If a tenant finds that his tenancy agreement does not contain any of the mandatory clauses, he would be entitled to refer the matter to the First-tier Tribunal who could then produce a tenancy agreement including the missing clauses. The current ability to roll over a tenancy from month to month would be removed. Generally, the initial period to be offered by the landlord will be a minimum of six months. The landlord and tenant would be entitled to negotiate a longer period and the tenant could request a shorter initial period. During the initial period, both parties will be locked into the tenancy unless one of the grounds for terminating on 28 days notice is established (see further below). After the initial period, the tenancy would continue indefinitely, rather than renewing for a specific period. The only way to terminate the new tenancy will be by establishing one of the new grounds, as follows:- 1. The landlord is selling the home. 2. The mortgage lender is selling the home. 3. The landlord or a family member of the landlord wants to move into the property. 4. Refurbishment. 5. Change of business use. 6. The tenant failed to pay the full rent for three consecutive months. 7. Antisocial behaviour. 8. The tenant has otherwise breached the tenancy agreement. 9. Abandonment. 10. The tenant is no longer employed by the landlord. 11. The property is required to house a full-time religious worker.
11 The proposal is to reduce the grounds for seeking repossession to the above, which do not include the current no fault ground. This would mean that Scottish residential tenancies would no longer have an expiry date at which the landlords will automatically be entitled to recover their properties. Despite a clear message from landlord led organisations and representatives that its removal could have an adverse impact on investment in the PRS, the Scottish Government is committed to removing the no fault ground in the interests of improving tenants security of tenure. The process for bringing a tenancy to an end on the basis of the above grounds is to be streamlined. There will be no need for pre-tenancy notices, and the current notice to quit and notice of proceedings (AT6) will be combined. One notice to leave will be introduced with new notice periods as follows:- For landlords serving a notice to leave, if the tenancy has lasted for six months or less, four weeks notice will be needed; if it lasted for any longer than six months, 12 weeks notice will be needed. Similarly, for tenants serving a notice to leave, four weeks notice will be needed to bring a tenancy lasting six months or less to an end, but only eight weeks notice will be needed if the tenancy has lasted for more than six months. However, grounds 7 (anti-social behaviour) and 8 (tenant breach) above will enable the landlord to end the tenancy on 28 days notice, no matter how long the tenancy has lasted. Where non-payment of rent (ground 6) is involved, the landlord can give notice to leave after the tenant has been in arrears for two consecutive months, warning the tenant of the arrears and that failure to pay the amount due by the end of the next month will result in repossession of the property. This notice will have to include information on available sources of financial information and advice. If the tenant fails to pay, no further notice will be required and the landlord may seek repossession. Recovery of possession would be pursued through the new First-tier Tribunal. The grounds will be mandatory, except grounds 6, 7, and 8 where the tribunal will have an element of discretion in deciding whether an order for possession should be granted; for example, ground 7 will be mandatory where the tenant has a relevant conviction but, otherwise, it will be discretionary. The Scottish Government had previously sought views on the introduction of rent controls. In this second Consultation they have taken on board the warnings that such rent controls could have an adverse effect on the investment in housing for rent and have confirmed that they will not be introducing controls across the board. They have, however, floated the idea of introducing some types of controls in hot-spots by allowing local authorities to apply to Ministers for an affected area to be designated as a rent pressure area. The Business and Regulatory Impact Assessment in the Consultation hints that there may a back stop date by which all residential tenancies in Scotland would have to comply with the new proposals. It suggests that the back stop date will be so far in the future that most tenancy agreements will have been updated through the natural turnover of tenants. However, if such a date were set, it would certainly mean that some existing tenancies will have to be revised to comply with the new rules.