Relinquishing Secure 1991 Act Tenancies

Relinquishment - a new option for agricultural tenants

One of the most controversial parts of the Land Reform (Scotland) 2016 Act, concerning agricultural tenancies, is the introduction of provisions for relinquishing and assigning tenancies. When these provisions come into force, on a date still to be determined, they will allow a tenant in a secure tenancy to offer to 'sell back' the tenancy to the landlord. If the landlord decides not to buy, the tenant can sell the tenancy on the open market to a new entrant or a progressing farmer.

Relinquishment

Before being able to assign the tenancy on the open market, the tenant must serve a notice of relinquishment on the landlord, indicating that the tenant will quit the tenancy provided the landlord pays them compensation for doing so.

The tenancy will therefore need to be valued to determine the compensation to be paid, and before any relinquishment notice can be served.

Calculating the compensation

The amount of compensation to be paid is ascertained by calculating one-half of the difference between the value of the land to which the holding relates if sold with vacant possession (ignoring any enhancement attributable to the tenant's improvements, to avoid double-counting); and the value of the land if sold with the tenant still in occupation.

The value of the tenant's improvements are then added, and the value of any claim the landlord may have for dilapidations is deducted.

No account is taken of the tenant's right to transfer the tenancy to a family member by way of a bequest or a lifetime assignation, so the sitting tenant value is calculated according to the life expectancy of the tenant. The older the tenant, the smaller the difference between the two figures will be.

How far landlords will take up the relinquishment offer, and pay the determined value to the tenant, given that some tenancies may carry quite a significant value, is likely to depend on their personal circumstances.

This makes a secure tenancy an attractive asset to a tenant, not least for the benefit of security of tenure, but also for the potential capital that could be generated by relinquishing the lease to the landlord, or selling it on the open market. Lifetime assignations to eligible near-relatives of the tenant farmer for a value are already being carried out, so that both parties can benefit from any subsequent relinquishment by the younger incoming tenant. By carrying out such lifetime assignation for value, any...