Opportunities for new farm tenants

The Scottish Government’s recent announcement that it was to make more than 1,000 ha of public land available for lease to up to 50 new farmers is a very welcome opportunity for new entrants to the industry.

Details are scarce at the moment about the precise letting arrangements. However, the Scottish Government has an ideal opportunity to lead by example by using its new Modern Limited Duration Tenancy introduced by the Land Reform (Scotland) Act 2016.

The essential features of an MLDT are that it must be for a minimum period of 10 years.

It must specify the fixed equipment that the landlord will provide at the start of the tenancy which must be sufficient for the tenant to farm with reasonable efficiency during the period of the tenancy.

The parties are then free to agree their own bargain with regard to who is responsible for the repair and renewal of the fixed equipment.

The parties are also free to make their own bargain about how the rent is to be reviewed so long as the rent review mechanism within the lease provides for both landlord and tenant initiated reviews and for the rent review formula being capable of allowing the rent to go down as well as up.

Where there are no contrary provisions in the lease the tenant will have to repair the fixed equipment but the landlord will have to replace it when it has worn out through wear and tear.

Likewise if there are no arrangements within the lease about rent review then the rent will be calculated in accordance with the current open market test and then by the new productive capacity test when it comes into force, possibly at the end of this year.

Given that the Scottish Government’s proposals are designed to assist new farmers it is likely that the new MLDTs will provide, as is permitted in the 2016 Act when the lease is in favour of a new entrant, to have a break clause at the end of year five of the tenancy.

This can be activated by the landlord if the tenant is breaching his or her obligations under the lease or is not farming in accordance with the rules of good husbandry.

It can be activated by the tenant for any reason. Accordingly, it provides an escape route for those new entrants who discover that they have bitten off more than they can chew.

The 2016 Act also provided for repairing tenancies where the tenant, in return for receiving a tenancy for a minimum period of 35 years, has to carry out an agreed schedule of repairs and renewals to the fixed equipment on the holding within a set timescale.

The landlord has no fixed equipment obligations whatsoever during this period and the rent must reflect the state of the holding as originally provided by the landlord.

The rules about repairing tenancies are not yet in force.

However, even if they were, it seems unlikely that such a tenancy would be granted in favour of a tenant on one of the starter units because they are intended to allow new entrants to establish themselves before moving on to a longer term tenancy elsewhere.

Presumably, Scottish Government will be providing a modern limited duration tenancy agreement for the new lets and it will be interesting to see what those draft leases will say about the tenant’s fixed equipment obligations and in relation to rent review.

If the aim of Government is to provide opportunities for new entrants to build up successful enterprises that will allow them to move on to more permanent arrangements then it is to be hoped that the tenant’s obligations will be imposed with a light touch.