Industry bodies representing agricultural landlords and tenants from across Scotland have today launched new guidance to help in situations where a company is to be sold that owns tenanted land subject to a pre-emptive right to buy (PRTB).
The move follows the issuing of other joint guidance by the NFUS, SLE and STFA in relation to limited partnerships, rent reviews, tenants’ improvements, landlords’/tenants’ obligations, succession/assignation, compensation at way-go, game management and late payment of rent.
The guidance is based on existing legislation, and creates a framework for effective dialogue between the landlord and tenant in advance of any sale, the aim being to maintain good landlord/tenant relations and ensure the tenant’s support for the sale.
Although the guidance applies only to secure 1991 Act tenancies where an interest in a PRTB has been registered, the industry bodies also recommend that it is generally good practice for landlords to notify tenants in every situation where a tenanted holding is to be sold, and not just where a PRTB applies.
The guidance establishes a principle whereby ownership of tenanted land through a limited company should not be used as a device purely to circumvent the will of Parliament in giving secure 1991 Act tenants a statutory PRTB. It recognises, however, that title to land may often be held in a limited company for good reasons.
It recommends that where tenanted land is held in a limited company for some other reason and a controlling interest in that company is then transferred to an unconnected party in an arm’s length transaction, the sellers should in advance of the sale consult fully with the tenants concerning a number of key issues.
Welcoming the move, NFUS President Allan Bowie said:
“The Scottish Parliament has given secure 1991 tenants a PRTB in certain circumstances, and it is important that the intention behind this is honoured by all parties. There is no excuse for the deliberate use of a holding company by landlords to evade PRTB”.
“There are all sorts of circumstances where the ownership of land through a limited company can be very helpful however, and we must be careful not to inadvertently discourage these arrangements where they make good business sense”.
SLE Chairman David Johnstone also emphasised his organisation’s support for the guidance. He said:
“Responsible landlords are constantly alive to the possibility that enabling a tenant to buy his farm may be very much in the interest of both parties. Sales to sitting tenants are an ongoing feature rural life”.
“But most tenants operate their business within the context of a collaborative landlord/tenant relationship where both parties work together for mutual gain. Where the landlord decides to sell his interest, whether in a holding company or in title to the land itself, it is essential that full and detailed discussions take place in advance of the sale to ensure that this sense of shared endeavour passes to the new owner”.
STFA Chairman Chris Nicholson also emphasised the theme of maintaining good landlord/tenant relations –
“It is inevitable that many tenants will aspire to be owner occupiers, especially when it is so difficult for a tenant to secure investment in the holding where he has no security to offer against bank borrowing”.
“But where there is good landlord/tenant collaboration based on a sound interpersonal relationship, the tenant will often be better off relying on the landlord to provide fixed capital while focussing his limited resources on things like livestock and machinery”.
“While this guidance has been developed to deal specifically with issues relating to PRTB, the underlying principle of ensuring effective consultation in advance of any sale of a landlord’s interest makes common sense to anyone concerned with maintaining good and productive landlord/tenant relationships”.
The guidance was prepared with support from the Scottish Government’s Independent Adviser on Tenant Farming, Andrew Thin. A copy is available from the NFUS, SLE and STFA, or may be downloaded from www.gov.scot/Topics/farmingrural/Agriculture/agricultural-holdings/Tenant-Farming-Adviser