TFC Guidance on Relinquishment and Assignation
In his latest blog, the Tenant Farming Commissioner, Bob McIntosh, provides guidance relating to the new legislation on relinquishment and assignation.
New legislation that affects anyone who has a secure farming tenancy came into force at the end of February.
The new arrangements will enable tenants to realise the value in a secure 1991 Act tenancy when they relinquish or assign it, providing a new opportunity for any tenant wishing to retire or quit the holding.
In instances where a landlord does not wish to buy back the relinquished tenancy, the tenant can assign it for value to a new or progressing farmer. The legislation is therefore dual purpose in that it may provide opportunities for incoming tenants as well as those looking to leave the industry.
The new provisions allow a tenant to offer to sell a tenancy to their landlord at a price that is determined by means of a formula set out in the legislation. The relinquishing tenant will receive half of the difference between the vacant possession value of the holding and the value with a tenant in place, plus compensation for any eligible tenant’s improvements, minus any compensation due to the landlord for dilapidations.
However, if the landlord chooses not to buy the tenancy, the tenant can assign the tenancy for value to someone who qualifies as a new entrant to farming or as someone who is progressing within the sector. The price of the assigned tenancy will be a matter for negotiation and the incoming tenant will take on the tenancy on the existing terms and at the same rent.
The Tenant Farming Commissioner has a specific role in the statutory process in that I have to appoint a valuer to calculate the amount payable by the landlord to the tenant for the relinquishment of the tenancy. The valuer must be independent of both the landlord and tenant and be suitably experienced and qualified to carry out the valuations required to reach the final figure.
Tenants and landlords will be invited to nominate their preferred valuer and, subject to checks for independence and suitable knowledge and experience, the norm will be for me to appoint that valuer.
However, if the tenant does not name a preferred valuer on their notice of intention to relinquish, I shall appoint a valuer from a panel of experienced valuers that I have recently established. These valuers have been assessed for their understanding of how the valuations are to be conducted along with their knowledge and experience of carrying out similar valuations.
It is in the tenant’s interests to provide as much information as possible that is relevant to the valuation process and to assemble this before submitting a notice of intention to relinquish. This includes appropriate maps and plans, agreed tenant’s improvements, a copy of the lease and information on rent. The valuer only has eight weeks to carry out the valuation once appointed so information needs to be provided at the outset and not during the valuation period. I shall be declining notices of intention to relinquish that do not contain the required information and I may also request further information that would enable the valuer to conduct the valuation.
There are procedures in place that enable the relinquishment process to proceed or to be halted. A landlord can issue a notice of acceptance or a tenant can withdraw the notice of intention to relinquish, but both are subject to specified time periods. If the landlord is clear from the start that there is no intention to buy the tenancy, early issue of a notice of declinature will avoid the need for a valuation to take place and will enable the tenant to move straight to the assignation possibility.
Before starting these procedures it’s essential that a tenant considers whether, in their particular circumstances, the relinquishment and assignation process is likely to deliver an outcome that is better that their existing rights to give up the tenancy or to assign it for value to one of a potentially wide range of family members.
Once a notice to relinquish has been submitted it generates a sequence of time limited procedures – a valuation process (paid for by the tenant), the likelihood of bills for professional advice and possibly a tax liability. In circumstances where the landlord wishes to buy back the tenancy, if things progress smoothly, and all timescales set out in the legislation are adhered to, the tenancy will normally come to an end within a year of the process being initiated.
I recommend that a tenant considering relinquishment and assignation begins with an informal discussion with their landlord to establish whether the landlord is likely to want to buy back the tenancy or is content for the tenant for the tenant to try and assign the tenancy for value. An understanding of the preferred outcome for both landlord and tenant can speed up formalities and limit the costs involved. It may be that such a discussion leads to an agreement that respects the principles set out in the legislation but avoids the need to follow the prescribed procedures and their associated costs and timetable.
Further information on the procedures can be found in my new Guide to the Relinquishment and Assignation of 1991 Act Tenancies. You can find the guide and more information about the panel of valuers on our website: landcommission.gov.scot/tenant-farming.