Residential property
03 Feb 2021 News

Relinquishment

Selling or getting money for a Tenancy?

The relinquishment rules introduced by the Land Reform (Scotland) Act 2016 are being brought into force on 28 February this year.  These rules will enable secure agricultural tenants to offer to sell their tenancy back to the landlord on payment of a sum based on the value of the tenancy.  The landlord is not obliged to accept the relinquishment, in which case the tenant will be entitled to sell the tenancy to a third party who is a new entrant to farming or an individual who is progressing in farming.

Serving a Notice, and what then happens

If a tenant wishes to relinquish, they must serve a notice of intention to relinquish on the landlord and send a copy of the notice to the Tenant Farming Commissioner (the “TFC”).  The TFC then appoints a valuer who will provide an assessment of the value of the tenancy in accordance with the methodology set out in the 2016 Act.  Put simply, the value of the land itself will be calculated as one half of the difference between the value of the land with vacant possession and the value of the land with a secure tenant in place.  The value of the tenant’s improvements will then be added and the value of the landlord’s claim for any dilapidations will be deducted.  Both parties have an opportunity to change their mind after seeing the figures.

Actually selling the Tenancy- who can buy?

If the landlord chooses not to pay the amount stated in the valuation, or fails to serve a notice accepting the relinquishment within the requisite period, then the tenant will be able to sell the lease on the open market within 1 year to a new entrant or a progressing farmer. 

A person is not classed as a new entrant if they hold or have a controlling interest in another agricultural tenancy or are a crofter, a small landholder or own more than 3 hectares in land in total.  Similarly, a person will not be classed as progressing in farming if they hold or have a controlling interest in more than one agricultural tenancies or are a crofter, small landholder or own more than 3 hectares in land in total.   

In addition to the obvious grounds that the incoming tenant is not a new entrant or a progressing farmer, the landlord could withhold their consent to the proposed transfer on the basis of the incoming tenant not having the ability to pay the rent or having the necessary skills and experience to farm the holding in accordance with the rules of good husbandry.  The incoming tenant could get around the latter ground by undertaking to begin a course of training in agriculture within 6 months, to be completed within 4 years.  Arrangements would also need to be made by the incoming tenant to secure that the holding is farmed with reasonable efficiency until the training is completed. 

Interestingly, the legislation allows the general partner in a limited partnership tenancy to seek to relinquish the tenancy, but does not allow them to transfer it for value if the landlord decides not to accept the relinquishment notice.  This makes it unlikely that there will be many relinquishments of these tenancies.

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