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An opportunity to retire with a pension pot

Bob McIntosh

In February 2021 the Scottish Government introduced the Relinquishment and Assignation Provisions. These apply to tenants with 1991 Act (secure) tenancies and are intended to help existing tenants wishing to retire, or quit the tenancy, to do so and to help provide new opportunities for young people to get a foothold in agriculture. It was felt that there are a good number of secure tenants, often without successors interested in taking on the tenancy, who may wish to retire but may feel that they cannot afford to do so. The Relinquishment and Assignation provisions allow a tenant in this position to offer to sell the tenancy back to the landlord in return for a payment based on a valuation methodology set out in the legislation and if the landlord does not wish to buy back the tenancy, the tenant can seek to sell the tenancy on the open market to a new entrant or progressing farmer.

Many secure tenants are taking advantage of this opportunity to retire with dignity. It is only available to tenants with a 91 Act (secure) tenancy and is not available to tenants with fixed duration tenancies or who are in a Limited Partnership arrangement. The tenant must submit a Notice of Intention to Relinquish to the landlord, with a copy to the Tenant Farming Commissioner (TFC). The TFC will appoint a valuer to carry out the assessment of the amount that the landlord would have to pay to the tenant to acquire the tenancy. Landlord and tenant are encouraged to agree on a valuer in advance but if this is not possible the TFC will appoint one from a panel of approved valuers. The valuer has 8 weeks in which to carry out the valuations involved and will seek representations from landlord and tenant. The cost of the valuation is met by the tenant. The amount payable by the landlord is calculated by taking half of the difference between the open market value of the holding and the value with a tenant in place and adjusting that figure by adding the value of any eligible tenant’s improvements and deducting any legitimate dilapidations due to the landlord. The valuer is not able to take account of succession so the age of the tenant has a material impact on the value. Clearly, if the tenant is aged 90 then the landlord might reasonably expect that he would gain vacant possession quite soon but in the case of a 50 year old tenant the value of the holding with a tenant in place will be much less so the compensation available to the tenant will be greater.

Each situation will be different so there is no simple way of arriving at the amount payable by the landlord. In the relinquishments that have gone though the formal valuation process to date, the amount payable by the landlord has varied from 26% to 45% of the open market value of the holding. The landlord can choose not to acquire the tenancy, in which case the tenant has 12 months in which to seek to assign the tenancy to a new entrant or progressing farmer. These are defined in the legislation and are designed to exclude anyone who already owns land or has existing tenancies so prospective acquirers of a tenancy that becomes available under the relinquishment and assignation provisions should ensure that they qualify. There is no prescribed method of valuing a tenancy which is available for assignation. It is for the tenant to obtain the best deal possible but, since secure tenancies are rarely if ever offered nowadays, the opportunity to acquire one by this route will be eagerly sought and should attract a significant value. The landlord has the ability to object to the proposed assignee if it is felt that they don’t have the knowledge, experience and resources to farm the holding efficiently, but otherwise, the assignee will take over the tenancy at the current rent and under the existing terms. Using the statutory methodology is one route, but most landlords and tenants are finding that a negotiated settlement, based on the provisions set out in the legislation, is preferable as it provides more scope for negotiation and avoids the set timescales.

This is a valuable opportunity for a secure tenant wishing to retire. Professional help should be sought to ensure that a fair settlement is arrived at and it is always worth beginning with an informal discussion with the landlord to ascertain their position and to see if there is scope for a negotiated settlement that suits both parties.