Last week the Scottish Parliament passed the Land Reform (Scotland) Bill (the “Bill”). When in force the Bill will, amongst other things, introduce new rules on land management and community engagement, strengthen and enhance community rights to buy and introduce new controls on transfers of large land holdings. This update summarises the key changes, who is affected, and the practical steps that can be taken to prepare for the new law.
Key definitions
Before looking at the detail of the changes, it’s necessary to explain some of the terminology used in the Bill:
“Large Land Holding” - this is a single or Composite Land Holding exceeding 1,000 hectares. For these purposes an area of land is to be treated as being part of a single land holding if it is contiguous to that area. For the purposes of the Bill contiguous means any part of the area is within 250 metres of any part of the other area.
“Composite Land Holding” - (i) two or more areas of land not owned by the same person or entity but which are owned by persons or entities that are Connected to one another and, were they in single ownership, would form a single Large Land Holding; or (ii) where there are more than two holdings of land and each of the holdings is owned by persons or entities who are connected to one another, including where some of the holdings are owned by the same person or entity, but those holdings do not constitute a single Large Land Holding.
“Connected” - The definition of “connected” is complex but it broadly captures (i) group companies (ii) persons or entities with significant control of registered or unregistered companies (iii) persons or entities with significant control of LLPs (iv) persons or entities with significant control of Scottish partnerships and (v) those who require to be registered in the Register of Persons Holding a Controlled Interest in Land (“RCIL”) as they have a controlling interest over the landowner. This is perhaps one of the most controversial aspects of the Bill, relying as it does on the interpretation of the regulations governing the RCI. Critical commentators have previously flagged that the import of these regulations is unclear in parts which is not assisted by the absence of definitive guidance on their interpretation.
Who is affected?
The new rules principally apply to owners and lenders dealing with Large Landholdings but will also be of importance to estate managers, purchasers and developers.
Key changes
Community Engagement and Land Management Plans
Owners of Large Land Holdings will be subject to new community engagement duties, in particular regarding decisions in relation to land which may affect those communities. These duties will include preparing and maintaining five-yearly Land Management Plans and considering reasonable community requests for the grant of leases. A new Land and Communities Commissioner will oversee compliance, with investigatory powers and the ability to issue fines for non-compliance. These duties will sit alongside the existing Land Rights and Responsibilities Statement. The full detail of these obligations will only become clear when draft regulations are published in due course.
New pre-transfer community engagement process
Owners of Large Land Holdings looking to sell all or part of their land (or a creditor calling up a standard security and seeking to sell) will be subject to a temporary prohibition on sale period and a new pre-transfer process. The landowner will require to notify the Scottish Ministers at least 30 days in advance of their intention to sell and the Scottish Ministers must publicise the intended transfer for a 30-day period, and also notify any person or body who has registered with them for notifications in relation to that Large Land Holding. During that 30-day period, eligible community bodies can apply to register an interest, with an accelerated decision-making process, in tandem with which a further prohibition on the owner’s ability to sell will be triggered. This prohibition will remain in place until a decision is made on any application. As with existing community rights to buy, the community will be entitled to acquire at “market value” and the existing process for determining this remains unchanged. As with current community rights to buy there are limited exemptions, such as intra group transfers, and gifts and transfers between spouses on separation.
New lotting requirements
Where the owner of a Large Land Holding is seeking to sell over 1,000 hectares of their land or over 50 hectares and cumulatively more than 1,000 hectares of that holding are on the market (this is to be determined on the basis that notice of intention to transfer the land has been given under the community right to buy provisions and a contract for sale of the land has not concluded) then the lotting provisions will come into effect. Where these provisions apply, it will not be competent to sell any land until a lotting decision has been made by the Scottish Ministers, and thereafter only in accordance with this decision. Ministers may make a lotting decision providing that the land may only be transferred in lots to unconnected persons, and specifying the size of those lots, but only if they consider that it is in the public interest to do so. The decision can take up to six months and once taken will apply for 5 years (or one year if the expedited process has been used as the landowner meets the financial hardship test). Provision is made for reports to be obtained from the Land and Communities Commissioner, for appeals, annual requests for review and for the Scottish Ministers themselves to buy the land in certain circumstances. A statutory compensation framework will address loss or expense caused by complying with the lotting provisions, the temporary prohibition on sale and the lotting and decision itself. Again, the same limited exemptions apply to the lotting process as relate to the community right to buy.
Model lease for Environmental purposes and model lease for hutting
The Scottish Ministers will be obliged to publish a model lease for letting land so that it can be used (wholly or partly) for an environmental purpose and a model lease designed for letting public land so that it can be used for the purpose of building or occupying huts. They must do so within 2 years and 3 years respectively from when the Bill received Royal Assent and becomes an Act (although for hutting there will need to be subordinate legislation to trigger this timescale). The Bill does not provide that use of these leases will be mandatory, so it will be down to the parties to determine whether they will be used in any particular circumstance.
Changes to the law on small landholdings and agricultural holdings
The Bill also makes reforms to the law on small landholdings and agricultural holdings, including on assignation and succession, diversification rights, compensation frameworks, determination of rent and rules of good husbandry and estate management.
Practical implications of the Bill – what do you need to do?
For owners of Large Land Holdings, sales will require early planning. Advance publicity requirements, potential community registration windows and lotting decisions will extend transaction timetables and sale strategies will require to be adapted. Sellers should consider whether phased sales are appropriate and be ready to engage on the community and sustainability impacts of their plans for their holding. Governance should be strengthened around land management plans and engagement records.
For buyers and developers, transaction documents are likely to require to include protections to address compliance with the Bill and due diligence for large land acquisitions will be likely to require detailed analysis to determine where the seller has a Large Land Holding and whether the sale triggers the provisions in the Bill.
Next steps and timing
Most provisions of the Bill will come into force through phased commencement after Royal Assent, with significant secondary legislation and guidance to follow.
In the meantime, landowners should map their Scottish portfolios against the 1,000 hectare threshold (including aggregation within 250 metres and connected ownership), identify live or upcoming transactions that could trigger the 30-day publicity period and/or a lotting requirement, and review land management plans and engagement policies.
The full text of the Bill can be found here.
For more information, please contact Chris Rae, Mike McColl, Elaine Piggot or Jess Nunes
The information held in this publication is for general purposes and guidance only and does not purport to constitute legal or professional advice.
