Residential property
24 Jan 2019 Publications

Relinquishment of Secure Tenancies

It is expected that new “relinquishment” rules, allowing secure agricultural tenants to sell back their tenancies to the landlord will come into force in early 2019.  At the time of writing, the exact date has not been announced.  

The relinquishment rules have been introduced with the aim of enabling tenants who are unable to pass the tenancy on to a successor to give up their tenancy, and obtain some value for doing so.  The hope is that this, in turn, will free up land and tenanting opportunities to new entrants in farming.  

The procedure for relinquishing the tenancy is as follows:  The tenant serves a notice of intention to relinquish on the landlord with a copy being sent to the Tenant Farming Commissioner. The Tenant Farming Commissioner then appoints a valuer who will provide an assessment of the value calculated in accordance with the methodology set out in the 2016 Act.  In brief, 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.  Crucially the value takes account of when the landlord might otherwise expect to obtain vacant possession of the holding.  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.  If the landlord or tenant disagree with the valuation, either party can appeal to the Lands Tribunal, or the tenant can decide to withdraw his notice of intention to relinquish up to 35 days after the valuer’s assessment is served. 

Assuming neither party objects to the valuer’s assessment, the landlord has the option to either a) accept the relinquishment, and pay the sum stated in the valuation to the tenant in return for the tenant quitting the tenancy, or b) decline the relinquishment.  If the landlord serves a notice of declinature, or fails to serve a notice of acceptance within the required timescale (within 28 days from the end of the 35 day period within which the tenant can withdraw his notice of intention to relinquish), then the tenant can assign the lease within 1 year to an individual who is a new entrant or progressing in farming. 

The landlord can withhold his consent to the assignation if the individual is not a new entrant or an individual progressing in farming, or he has reasonable grounds to believe the proposed incoming tenant a) would not have the ability to pay the rent or b) does not have the necessary skills and experience to farm the holding in accordance with the rules of good husbandry.  The latter ground for withholding consent cannot be used if the proposed assignee undertakes to begin a course of training in agriculture within 6 months (for example, at SRUC), which training will be completed within 4 years.  He must also make arrangements to secure that the holding is farmed with reasonable efficiency until the course is completed.    

How the relinquishment rules will be used in practice remains to be seen.  One result may be that we begin to see payments being made for the assignation of secure tenancies, giving tenants access to a capital sum they would not otherwise have to fund their retirement.  For landlords, the introduction of the new rules may come as a welcome development allowing them to take the land back into their control.  There may be tax consequences for both parties which will need to be considered when deciding which route to go down. Seeking relevant professional advice is therefore advised. 

For more information, please contact Jennifer Munro or a member of the land and rural business team.

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