Jul 20 2016
STFA URGES CAUTION IN END OF TENANCY PLANNING
Scottish Tenant Farmers Association
News Release
21st June 2016
STFA URGES CAUTION IN END OF TENANCY PLANNING
The Scottish Tenant Farmers Association (STFA) is urging all tenant farmers to exercise caution and take good independent advice from experts on tenancy law when planning for retirement. When it becomes live, the new Land Reform Act of 2016 will provide a tenant wishing to retire from farming a range of options allowing him to receive realistic and fair compensation for not only the improvements he has carried out during his tenancy, but also for the value of his interest in the lease.
As at present, a tenant leaving his tenancy is only bound to receive compensation for agreed improvements he has made to the unit, on top of traditional compensation for crops in the ground, residual manurial values and so on. In many cases this represents a paltry sum and is no incentive for a tenant to retire early and make way for the next generation.
The new Act changes all this. A tenant wishing to retire can now take advantage of the amnesty on tenant’s improvements and make sure that he is compensated for improvements he has made without the proper paperwork. He can also take advantage of the new section which allows him to assign his tenancy to a limited group of new entrants and progressing farmers, if the landlord does not wish to pre-empt the assignation by buying out the tenant’s interest in the lease, to be calculated by an independent valuer appointed by the Tenant Farming Commissioner. Finally, the tenant also has the option of passing on his tenancy to a much wider class of relative than at present.
However, it is important to note that the Act is not yet active and will be implemented in stages over the next couple of years. Most of the new provisions which do not require secondary legislation should be implemented by the end of this year, but some such as the section of Relinquishing and Assignation of 1991 Tenancies are not expected to be live till next year and the new rent review section will not be available until 2018.
STFA Director Angus McCall comments: “STFA is urging tenants not to jump the gun in trying to use the new Act. There are a number of tenants who are keen to retire and pass the farm on, but they should be patient and wait a few months until various parts of the Act are active before taking action. Although the principle of compensating a tenant for transferring his interest in the lease back to his landlord has been agreed, the valuation process is still to be finalised. It is thought the tenant’s share of the value of the tenancy may be about 25% of the open market value of the farm, but this will vary according to the individual’s circumstances.
“It is also vitally important that informed expert advice is sought. Tenancy law becomes more complicated with every act of parliament and there is a lot of misunderstanding and misinformation on the go. Even some professional advisers seem to be confused. Not even the so-called experts get it right, if a recent presentation on rent reviews at law conference is anything to go by! Rather than being enlightening, the confused and inaccurate talk on the new rent system saw many of his colleagues equally at sea with the new laws.
“The Interim Adviser on Tenant Farming, Andrew Thin has just issued an “Interim Code on Determining Compensation at Way-Go”, but it must be emphasised this this code relates to the law as it stands and anyone contemplating quitting a holding should note that the Land Reform Act offers alternative ways of realising the value in a secure 1991 Act tenancy once those provisions come into effect. STFA strongly recommends that independent professional advice is sought before agreeing any way-go valuation in order to fully assess the different options that may be available. Tenant farmers should take advantage of the show season to speak to representative organisations. STFA is fully up to speed with the new Act and has the added advantage of a free legal helpline provided by Hamish Lean who was a member of the AHLRG.
“These are important decisions which can be irreversible so tenants must make sure they get them right!”