Complexities of tenancies

From the tenants’ amnesty, rent review and other Land Reform changes, to protecting against unintended tax implications and property devaluations – the subject of tenancies in the rural sector is particularly complex, with a hefty price tag for getting it wrong. The Land Reform agenda With further changes to come in 2018, the Land Reform agenda is ongoing with some significant changes brought in this year, including the three-year tenants’ amnesty.

Until June 2020, landlords and tenants will be able to use the amnesty to have improvements, which have not previously been recorded, agreed and ultimately considered in the way going agreement at the end of the tenancy.

Taking advantage of this amnesty period is to be encouraged for both landlords and tenants.

While offering more security to those exiting, it is also a matter for debate as to whether newly-agreed tenants’ improvements will have an impact on the rent review process, which is to be based on the productive capacity of a unit.

It is argued that if any of a tenant’s agreed improvements are responsible for the increase in productive capacity of a unit, then the rent set should not take those improvements into account and should instead reflect the capacity of the unit without these works.

Whether tenants can successfully argue this point is unclear, but an open discussion around such issues must be seen as a positive step by both parties. Agricultural tenancies There remains complexity around types of agricultural tenancy with six main types in common use here in Scotland.

These range from 1991 Act Secure Agricultural Tenancies and 1907 Act Limited Partnership Tenancies, to the new Modern Limited Duration Tenancies (MLDTs), created by the Land Reform (Scotland) Act 2016, which come into use in a matter of days.

While LDTs will no longer be created, SLDTs – which run for no longer than five years – will still exist and will automatically become an MLDT if the tenant occupies the land after the expiry of the five-year period with the landlord’s consent.

Grazing agreements are commonplace, and likewise it is imperative to keep an eye on the lease agreement dates so there are no unintended consequences of these rolling into an SLDT.

In addition, there is a broad range of contract farming, licensing agreements and agistment arrangements that exist. These arrangements will become more common as farming practices change, and the industry adapts to a post-Brexit landscape.

Importantly too, the implications of what sort of tenancy is created has far-reaching consequences both for the tax treatments of the various vehicles, and the potential right to claim subsidy entitlements. Residential tenancies Private Residential Tenancy (PRT) provisions come into force from December 1, creating a new form of residential tenancies with no set duration and different grounds for removal.

In a change from the current regime, Short Assured Tenancies (SATs) will no longer be able to be created – although existing SATs will continue on a rolling basis. PRTs will be a substitute for the SATs as well as Assured and pre-1989 Regulated Tenancies.

There will be no requirement for pre-tenancy notices similar to the AT5, but landlords will still have to provide written terms to their tenants before the lease starts.

Whether tenants can successfully argue this point is unclear, but an open discussion around such issues must be seen as a positive step by both parties

Tied accommodation While the offer of rent-free accommodation as part of an employment package is often considered fundamental to attracting skilled individuals to specific rural posts, providing tied housing without appropriate agreements in place presents a substantial risk for farm businesses, and owners need to take care that unintended tenancies are not established.

Where a property has been let without a written agreement prior to December 1 this year, it should be noted that an often unintended assured tenancy may be created.

After that date, all new residential tenancies will be regulated by the terms of the Private Residential Tenancies (Scotland) Act 2016.

The Land Reform agenda will see more changes next year.