Longer leases due shake-up

Limited Duration Tenancies are being replaced this year by Modern Limited Duration Tenancies (MLDT) under the Land Reform (Scotland) Act 2016. After November 30, where landlords and tenants are entering into leases for 10 years and longer, they will have to do so by means of an MLDT. Short Limited Duration Tenancies (LDTS) of five years and less are unaffected.

Broadly speaking, MLDTS are very similar to the LDTS and most farmers will not notice much difference in practice.

MLDTS are created in one of three ways. Firstly, by entering into a written lease; secondly, by landlord and tenant agreeing to convert an SLDT into an MLDT; and lastly, where an SLDT for five years has expired but the tenant continues in occupation with the consent of the landlord.

This creates an MLDT by default for a period of 10 years, with the start of the 10 years backdated to the start date of the original SLDT.

Unless specifically agreed in the lease, subletting is prohibited.

A landlord is obliged to provide fixed equipment to enable the tenant to maintain efficient production and the fixed equipment must be set out in a schedule specifying what the landlord has provided and its physical condition.

Unless the landlord and tenant specifically agree to the contrary, which they are entitled to do, the tenant must then repair the fixed equipment but the landlord is obliged to replace it when it fails as a result of fair wear and tear.

Rent review provisions in respect of MLDTS will remain the same as they were for LBTS so that there is substantial freedom of contract except that parties cannot contract out of the tenant’s ability to initiate a rent review and they cannot provide that a rent review is upwards only.

An MLDT can contain an irritancy clause which allows the landlord to bring the lease to an end if the tenant is in breach of obligations under the tenancy but before being able to do so the landlord must give the tenant at least 12 months notice that the lease will be brought to an end in order to give the tenant an opportunity to put right the breach. An MLDT can also be terminated by agreement between landlord and tenant before the contractual expiry date.

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Most farmers will not notice much difference in practice

Otherwise, in order to bring an MLDT to an end at the agreed term, a landlord must use a double-notice procedure, the first notice to be served not more than three years and not less than two years before the end of the tenancy, the second to be served not more than two years and not less than one year before the end of the tenancy with a gap of 90 days between the two notices.

A tenant can bring an MLDT on notice of not more than two years and less than one year. If nothing is done by landlord or tenant to bring the tenancy to an end it will automatically continue for a further seven years.

A major innovation is the introduction of a “break clause” when an MLDT is granted to a new entrant.

A new entrant is someone who hasn’t been a tenant in the previous five years, or has only held an SLDT for three years or less, and doesn’t own more than three hectares of agricultural land.

A landlord will be entitled to bring an MLDT to a new entrant at the end of the first five years if the tenant is not using the land in accordance with the rules of good husbandry or is otherwise failing to comply with any provision of the lease.

A new entrant tenant can also terminate the tenancy at the end of the first five years but doesn’t have to give a reason to do so.

Hamish Lean is Rural Property and Business partner with Shepherd and Wedderburn LLP