“Sustainability” is a well established vein running through the rules and practices which have developed in relation to agricultural tenancies in Scotland.
One of the key principles of the Agricultural Holdings legislation is that tenant farmers should be able to run their farms as viable units and endeavour to build their businesses, whilst also preserving and improving the land for future generations. It is normal for the terms of an agricultural lease to state that the holding will be farmed in line with the rules of good husbandry. There are potential claims landlords can make on termination of a tenancy for under-application of lime and fertiliser and, if there is a record of conditions, landlords may also be able to make claims for dilapidations.
These are just some of the mechanisms used to ensure that tenant farmers are responsible for nurturing the condition of the farm in the long term. Compensation for tenants for improvements made during the tenancy are a positive means of reaching the same goal, aiming to encourage tenant farmers to make long term investments to the holding so that both they and the landlord benefit. For example, a tenant farmer knows a new shed would help them to build their business and work more efficiently. The shed has the short term potential to increase profit, but the tenant will also need to have some incentive to outlay such a large capital expenditure for the longer term good. If the tenancy ends whilst the shed is still in working order and of value to an incoming tenant, the tenant can make a claim against the landlord for the improvement made.
The rights available to a tenant on termination of an agricultural tenancy are governed by a combination of the Agricultural Holdings Acts, the lease and to some extent, local farming practice and custom.
For example, with “New” improvements made after 1/11/1948 detailed in Schedule 5 of the Agricultural Holdings (Scotland) Act 1991, there are three main categories for which compensation can be sought.
These are:
- improvements for which the landlord’s prior consent is required;
- those for which the landlord must be given prior notice, and;
- improvements for which neither consent nor notice is required.
Written notice of any claim for compensation for improvements must be served on the landlord at least two months before the termination of the tenancy. Whilst it will always be tempting to rely on a gentleman’s agreement, for the purposes of these provisions it is not prudent to do so. It is an unfortunate fact that often claims on termination of a tenancy are set in the midst of a deteriorating relationship between landlord and tenant. There could also be changes in characters, for example if the land is sold or a new factor is introduced, and it is for the tenant to show that proper procedure was followed.
Tenants should, therefore, always make sure that their position is preserved by keeping copies of any written consent, or service of prior notice on the landlord in relation to improvements. This is a complex and wide ranging area and the rights available to both parties differ depending on the type and age of tenancy. The particular circumstances of each case, and the specific terms of the lease must always be considered. If you would like to discuss any of the issues raised in this article, please get in touch with our Rural Services team.