Realising the value of your tenancy — a new option for succession planning
Welcome peace of mind for those who want to move on but feel they cannot.
That’s how rural economy secretary Fergus Ewing described legislation that will implement changes made to the agricultural holdings rules by the Land Reform (Scotland) Act 2016.
The new rules will see Scottish tenant farmers have more options for what they can do with their tenancies when approaching retirement, or even when they’re looking to move out of farming altogether.
Once in force, the Agricultural Holdings (Relinquishment and Assignation)(Scotland) Regulations 2020 will allow tenants to give up their tenancy to the landlord for compensation.
If the landlord doesn’t want to “buy out” the tenant, the tenant can assign the tenancy on the open market for its market value — but only to a “new entrant” or someone “progressing in the industry”.
The new regulations contain some important detail on who is a “new entrant” or a “progressing farmer” — those who are entitled to buy a tenancy from a retiring tenant farmer.
In brief, if a person owns three hectares of land, is a crofter or smallholder, or has held a tenancy within the last five years (other than a tenancy with a duration of less than three years), then they cannot be a new entrant.
Similar constraints apply to someone seeking to be treated as “progressing” in farming – though they will qualify even if they already hold one tenancy or own one area of land. Any more than that will exclude them from being eligible to buy a tenancy under the new rules.
Set to come into force by 28 February 2021, many will welcome the implementation of the new rules. But there’s a care warning for tenants. The legislation will be untested, and, like much else in agricultural tenancies, it’s particularly prescriptive in terms of its requirements.
Getting that wrong can have huge consequences.
On a positive note, the changes provide tenants with another option when considering their succession and retirement plans — whilst at the same time potentially making a dent in the tenancy logjam by stimulating more opportunities for new entrants.
It will be of particular benefit to those tenants who do not have an obvious successor to the farming business.
We know the consequences of a lack of succession planning can prove devastating — from significant claims that threaten the very existence of a farm business to an irretrievable breakdown in even the closest of relationships.
There’s no one-size-fits all answer either.
If nothing else, we’d expect these proposed changes to act as something of a stimulus for farming families to get round the table and discuss what the future looks like for that enterprise.
Involvement across the generations — drawing on people’s varying perspectives, ideas and expertise — can be crucial when it comes to building a business that will thrive, rather than just survive.
The ultimate end goal of succession should be to inform the business growth plan, with preparation for the exit — and re-entry — of members being considered: avoiding a situation where the business is negatively impacted by inadequate planning and resultant family disputes.
The key message is to think ahead; to play the long game; and seek specialist advice.
Solicitors offer expert advice on the best approach, given the type of tenancy, to hand it on to the next generation, both to avoid the tenancy being lost, and to ensure that the family considers all of the options available, including relinquishment or assignation under the new rules, as well as making sure clients see the best possible relinquishment value.
Time will tell how these new proposals will impact the sector, but they could well provide a valuable exit route, successfully providing for retirement with dignity and ensuring a sustainable future for the industry.
This article previously appeared in The Courier on Saturday, 9 January, 2021.