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CHAPTER SIX PROPERTY AND LAND TENURE

Tenancy reform

Introduction

6.1 The Land Reform Policy Group established very broad objectives for the Scottish Parliament's land reform programme. For the tenancy reform arena, the main elements in this vision were:

• More scope for diversity of agricultural tenancy arrangements
• Simpler and cheaper tenancy dispute resolution
• Wider opportunities for tenants to diversify
• Protection for those who build property on leased land
• Fostering a wider range of activity rather than just agriculture

6.2 In addition, other elements in the LRPG's vision, covering the expansion of fragile rural communities, more smallholdings and better information, are pertinent for tenancy reform.

6.3 In discussing tenancy reform with stakeholders, including the Tenant Farming Forum ⁷ there are strong priorities related to the vibrancy of the agricultural sector and opportunities for new entrants. This latter has become an important policy objective for the new Parliament. There has been a steady long term decrease in the area of rented land in Scotland. Meeting the objectives listed above could involve a reversal or at least cessation of this trend.

History

6.4 Prior to the Agricultural Holdings Act 2003, ⁸ the tenancy market was dominated by so called "traditional tenancies" which provided security of tenure for life and to inheritors. Very few landlords were willing to let new tenancies on this basis and so a Limited Partnership Tenancy mechanism had evolved whereby the tenant and owner were, in law, partners. In simple terms, if the landlord withdrew from the partnership then in Scots Law the tenancy ended, thereby avoiding security of tenure. This was a complex legal mechanism, but nevertheless was adopted widely and allowed for the creation of new tenancies. The only other major option for landlords was the annual let (one year grass and crop lets which avoided the security of tenure rules). Over time the number of tenancies has been declining and the area of land under leases falling sharply (Figure 6.1).

Figure 6.1 Land Under Agricultural Rental in Scotland

( SEERAD Annual Rent Survey 2004)

6.5 Tenants have steadily bought their farms from landlords at sitting tenant values and landlords have increasingly avoided letting vacant farms and instead farmed in-hand or adopted contract farming or annual let arrangements.

Reform

6.6 The major thrust of tenancy reform has therefore been to create more flexible tenancy types. The outcome of much negotiation between government and the landlord and farmer representative organisations was two new tenancy mechanisms: Short Limited Duration Tenancies ( SLDTs) which can last for up to five years and Limited Duration Tenancies ( LDTs) for a term of fifteen years or longer. This created short and long term options which at the very least gave both tenants and landlords confidence in a clear legal structure.

6.7 Additional legislation has covered diversification, compensation for investment in tenanted units and simpler dispute resolution, but the second major facet of the reforms has been the introduction of a pre-emptive right to buy. Under this tenants can register an interest in owning their land and if the landlord decides to sell the tenant must be given the first opportunity to buy (at market value). Initial discussions during policy development included the possibility of an absolute right to buy ( i.e. tenants could by right buy their land from the landlord whether or not they wanted to sell). This option was not adopted.

Methods

6.8 The desk-based element of the project involved collation of statistical data on land tenure and review of reports and articles. An aim of the desk research literature was to get a handle on the uptake of new tenancy forms and to identify the gaps in the data collection system.

6.9 Stakeholder interviews were an important part of the research, covering farming, tenant and landowner representatives (National Farmers Union of Scotland, Scottish Rural Property and Business Association, Scottish Tenant Farmers Association, Royal Institute of Chartered Surveyors) as well as advisers, solicitors, farmers, estate owners and tenants. Discussions with Scottish Government staff centred on data sources and the June Agricultural Census and Annual Rent surveys. A session with all the members of the Tenant Farming Forum provided both new input on the impact of tenancy reform and feedback on initial research conclusions. Interviews covered three headings:

• What is happening in terms of the operation of land in Scotland?
• Information/data/examples
• What is success?

6.10 The success of the land tenure legislation is heavily dependent on the actions of traditional landowners. To get a feel for the trends in this sector, a study region was selected and the mechanisms used by estate owners within that region to manage their land over the last twenty years were analysed. This region is not representative of Scotland as a whole, but it gives an indication of the direction of change and the drivers of landowner's actions.

6.11 The stakeholder workshop covering all aspects of land reform provided additional feedback and a broader perspective on potential tenancy reform impacts.

Findings

6.12 At an early stage the research suggested that any assessment of the impact of tenancy reform needed to be within the firm context of an understanding of the land market and the changing structure of Scottish agriculture. The following results are therefore presented as a review of the tenancy market followed by a discussion of other impacts.

Baseline study

6.13 As a first step in assessing the response to the reforms and to provide a baseline against which future studies could measure change, the then Scottish Executive commissioned a report on Initial Impressions of the Tenanted Agricultural Sector following the Passing of the Agricultural Holdings (Scotland) Act 2003 (Thomas and Burr 2004). This was based on interviews with tenants, landowners and professional advisers and covered attitudes to all the main aspects of the Act. All parties welcomed the aims of the Act, but in summary tenants liked the provisions of the Act while landlords did not. Landlords and advisers welcomed the clear structure of the two new tenancy types, but had major reservations over what they saw as the cumbersome five and fifteen year periods. For example, a five-year tenancy if carried on beyond that term becomes an LDT and to avoid this there must be a one year break between the end of one five year period and the letting of the land for another five years to the same person. Of greater concern to landowners was the pre-emptive right to buy. While the absolute right to buy option was not adopted, the fear was that this possibility would have a fundamental impact on perceptions of risk amongst those considering letting out land and that they would avoid formal lets for this reason. Although the right to buy did not apply to the new tenancies, landlords feared a future extension of its coverage. The fixed equipment and improvements aspects of the new legislation were also viewed as potentially serious disincentives by landowners. Other aspects were welcomed by all parties, including flexibility to diversify. The report concluded that "the evidence suggests that the proportion of land under tenancy will continue to decline and this may limit new entrants to the agricultural industry through that route". To test this conclusion the report recommended tracking of the number of SLDTs, LDTs and all tenancies, plus time series data on the age structure of farming and the new entrance of young people.

Statistics

6.14 Since 2004 the Scottish Government June Agricultural Census has asked specifically about all the land tenancy options (short term lets, full tenancies, partnerships, SLDTs, LDTs, croft lets and others) and as a result gives a good indication of the uptake of new tenancy forms and the areas involved.

Table 6.1. Numbers of Tenancies by Type 2004 to 2006

Agricultural Census data for 2004

6.15 To relate tenancy types to age of occupier and to get a feel for the total area farmed under the new tenancies and trends in terms of lengths and holding sizes data from the June census, from 2003 to 2006, were examined. The raw data perhaps suggest that farmers have not fully completed the forms. For example different numbers of tenancies appear in the totals answering the length of agreement and age questions. The following tables, derived from this data, cannot be regarded as accurate, but attempt to understand what is happening. The age of those operating new tenancies, the total area under the new forms, the length of term being offered and the individual farm sizes being let could all be an indication of the success of the reforms. The results presented in tables 6.3 to 6.6 should not be interpreted as firm indicators of what is actually happening. They are presented to show the difficulties with the existing data (discussed below), and to depict the type of analysis which could be used to measure the success of the tenure legislation in future.

Table 6.2. Percentage of Tenants under 55 Years Operating Each Tenancy Type

Table 6.3. Area Farmed Under SLDTs and LDTs

Table 6.4. Average Length of Term Stated for each Tenancy Type (years)

Table 6.5. Average Area of Rented Holding (Ha)

6.16 Interviewees for this study raised concerns that farmers are not clear on the definitions when responding to the census. Other mechanisms for a "hands-off" management of land (contract arrangements) are not measured in the Census.

6.17 In addition to the June census, the Scottish Government conducts an Annual Rent Survey. This now covers much more than simply rents. It asks about the individual tenancy types and, for each agreement, its term, rent review history, responsibility for repairs, landowner investment, non-agricultural activities. There is also a question on contract lets and management agreements and any other arrangement. Unfortunately, the data from this survey for 2005 and 2006 had not been published in time for this study. Its sample of around 1,000 farms comprises around 10% of those entering rented land in their census form, but this may skew the sample away from those using contract farming agreements (in fact the large contract farming businesses often have no tenancies and are presumably totally missed by this survey). The 2004 Rent Survey found only 1.1% of land within Contract Farming Agreements ( CFAs). Anecdotal evidence (see case below) suggests that CFAs cover a larger proportion of the farmed area, but reliable data do not exist. A survey of Moray agriculture by SAC in 1999 found around 2% of the total land area, not just of the tenanted area, was under these contract deals. The explanation of contract agreements is not clear in the Annual Rent Survey and a contractor in one of these arrangements may not feel this question is relevant to them. The complexity of informal contracts ( e.g. "you grow the crop and keep the proceeds, I will collect the single farm payment") is difficult to capture (in the 2004 survey out of 700 responses more than 100 were discarded, including some because they had zero rent deals). Winter grazing arrangements are not well accommodated on the reposne form and lets of hill land simply to cover single farm payment entitlements may provide a distortion post-2005. Therefore, there may be a serious question over the ability to measure the complexity of the operation of land in a postal survey, especially in a period of new and unfamiliar tenancy forms. Farmers are asked to fill in many forms and one which does not impact on income may not receive the attention it requires for accuracy.

6.18 The Royal Institution of Chartered Surveyors in Scotland does not hold central data on tenancy types though their members would individually have good local knowledge of uptake. Interviewees felt that if the top ten companies were interviewed then this would capture the majority of tenancy formations and land sales and at least give a good feeling for trends. The Scottish Rural Property and Business Association likewise do not collate data, but did at one time carry out a private sample survey (unpublished) of members' use of SLDTs and LDTs.

6.19 Registers of Scotland maintain the details of all those tenants who have registered an interest in the pre-emptive right to buy their tenanted holding. A search undertaken on 25 ^th July 2007 showed that 1,012 tenants had done so (personal communication with Registers of Scotland Customer Services Centre).

6.20 Given the difficulties with formal data sources, a study region was selected and the trends in land use mechanisms employed by landowners analysed. Location and estate names have been anonymised.

Case study region

6.21 The aim of thos element of the study was to understand how landowners have been changing their systems so as to identify better measures of change and policy impact. The following is a listing of some estates within one Scottish region with a description of their previous land operating system and their current system. This "previous" and "current" categorisation is extremely rough, but probably represents in most cases how they have changed over the last 10 to 15 years.

Tentative conclusions?

• Major shift has been out of unprofitable in hand farming to CFAs
• Uptake of SLDT/ LDT forms is where there has been no recent history of in hand farming and so no change in perceived status (tax, risk, control of houses) by shifting from Partnerships to the new forms.
• The real measure of success here, if the aim were to create new tenancies for new entrants/ developers, would be a shift out of CFAs to SLDTs/ LDTs. This very limited case analysis suggests this is not happening yet, in this area at least.
• The CFA area in this case region is large. Is this being captured by the statistics?
• CFAs suit arable farming, so the picture may be very different where cropping is not an option.
• Most of these CFAs are with large farming companies or a small number of large farms.
• With the correct incentives there is a large pool of land for new tenancies, in this region at least.

6.22 The case study and interviews suggest we need to beware of a concentration on formal tenancies. Anecdotal evidence suggests that a large area of land in Scotland is "let" informally on an annual/seasonal basis, but the same party occupies the land year after year. Non-rent deals also exist where a farmer grows a crop, receives the sale income and maintains the land in GAEC (Good Agricultural and Environmental Condition) while the landowner collects the Single Farm Payment. In others there is a small payment or the landowner keeps the straw. Also formal Contract Farming Agreements ( CFAs) are not a type of tenancy, but in effect are a mechanism which gives the owner a fixed income without actually doing the farming - it substitutes for a tenancy where the legal or tax imperative is to avoid a tenancy. CFAs have been growing in importance, especially in arable areas. A number of traditional landowners and retiring farmers have also taken up "stubble to stubble" contracts where a contractor does all the work including most of the management in return for a contract charge. This is not a tenancy, but it is an alternative for a landowner. Any measurement of tenancy types needs to try to capture these other forms. As one interviewee put it, we do not just need to measure how many formal SLDTs/ LDTs have been set up, but we need to measure how much land is not actively farmed by the owner (and then understand how it is operated).

The broader context

6.23 Measuring the impact of tenancy reform legislation is greatly complicated by the wide range of other factors which are driving the tenancy market:

• The profitability of farming. A complex relationship with tenancy demand and rents. Farm profitability should drive demand, but good profits also encourage owners to farm in their own right or adopt mechanisms to share profits.
• The tax system. Being classed as an active farmer gives a range of tax benefits, both in terms of allowable costs for income tax and relief on inheritance and capital gains taxes. This makes letting a poor option for many landowners.
• The subsidy regime. Generally "farmers", not landlords, get subsidy rights.
• Innovation. Relatively new mechanisms such as Contract Farming Agreements preserve farmer's tax status and may give a better sharing of risk and return. Other contracting arrangements ( e.g. stubble to stubble contracts, land for Single Farm Payment swaps) allow landowners to earn an income from their land without actively farming it.
• Speed of change. In a rapidly changing farming and general business environment landlords will be naturally wary of long term agreements. This will especially be the case if they involve investments in fixed equipment for enterprises with volatile or uncertain returns ( e.g. dairy and pigs). The higher the perceived risk in any longer term agreement, the more owners are likely to seek higher and shorter term returns.
• Changing nature of land ownership. Traditional "landlords" are being joined by business people, retiring and diversifying farmers, urban "down-shifters" and single interest environmental organisations. Within the traditional landowning sector there is the widespread use of trusts and agents all of which influence the willingness to take risks. The objectives of landowners are therefore diverse. Some interviewees suggest that trustees and land agents are heavily influenced by their duty to protect assets and therefore are fearful of long term tenancy commitments in an environment where absolute right to buy is still discussed.
• Property values. Even remote farm buildings and farmhouses have high values in the current property boom and these dwarf returns from farming. Housing a new tenant and family and supplying them with a set of buildings has a huge opportunity cost in comparison to a contract agreement on the land alone with a well established neighbouring farmer.

6.24 It needs to be recognised that some of these factors are more important than tenancy legislation in driving the willingness to let land. It also needs to be recognised that even within Scotland there are major regional variations in the importance of each of these factors.

Comparison with England

6.25 Tenancy reform took place much earlier in England and resulted in the Farm Business Tenancy model which is effectively a freedom of contract system. Clearly this is a very different system to that envisaged by the Scottish reforms. In England it may have resulted in lots of short lets (two to three years), while in Scotland tenancy reform aims to create longer terms and more security. However, the FBT model operates within the same external pressures noted above and therefore could give an indication of the impact of the legislation alone. A very brief look at English trends suggests that over a comparable timescale the English reforms have drawn more land into the tenanted sector, or at least halted the decline. The comparison with England raises an important question. Is there a trade-off between security/ length of term and the amount of land which is let (and hence the number of opportunities for new entrants and expanding farmers)?

Figure 6.2 Land under agricultural rental in England ( DEFRA census data)

Confidence

6.26 In almost every interview the issue of sectoral confidence was raised. To tie up a very high value property asset in, for instance, in a fifteen-year LDT requires a high degree of confidence that the asset will be safe and that it will generate a decent return. Most of the tenants and landlords interviewed agree that the creation of new tenancy types was well meaning and could have allowed an expansion of the tenanted sector, but that the possibility of an absolute right to buy, even although it was not enacted, has severely dented confidence in creating new long term lets for years to come. This view was strongly expressed by some landowners and land agents, but is also accepted by some tenants. For example, in the workshop a break-out group on tenancy reform, consisting of landowner and tenant representatives, there was consensus that the new tenancy forms were welcome, but that the possibility of absolute right to buy - even although it did not relate to the new forms - had undermined confidence in granting new long term leases. Issues such as the possible conversion of Limited Partnerships, which had been served dissolution notices, into 1991 Act tenancies under the provisions of section 72 of the 2003 Act added to uncertainty and distrust. Some interviewees, especially land agents, called for a statement by all industry parties that they would never support an absolute right to buy in future. They felt this might allow a degree of confidence to return to the letting market.

6.27 On the other hand there is some indication that the "threatening" atmosphere has led some landlords with many long term lets to put more effort into their relationship with their tenants. This creates a degree of polarisation; traditional landlords with lots of long standing tenants putting effort into good relations, while those landowners who could let more land avoid tenancies at all cost.

6.28 The confidence of some tenants was also raised. In poorer upland situations it is reported that the children of some tenants are not keen to take on the tenancy, whatever their level of security, because returns are poor and part-time livestock farming is difficult. However, there are large numbers of other farmers who would gladly and profitably take on that land as an addition to their existing operation. This may not illustrate any point about the tenancy system - it illustrates the economics of smaller remote farms and the inevitability of consolidation.

6.29 The key point for assessing the impact of Scotland's tenancy reform is that confidence must be measured, especially the confidence of all those who might let land across all the methods of doing so.

6.30 It is worth noting that while this loss of confidence in long term lets due to the threat of right to buy is expressed very strongly by some, others point out that the business environment may have prevented any expansion of the formal tenancy sector anyway. The shift to short term lets and contract arrangements has been largely driven by the economics of property, tax and the higher marginal rents that can be paid by well established farmers looking to expand.

6.31 It is also noted that the operation of the Tenant Farming Forum (and for example its "Guide to Good Relations between Landlord and Tenants") has had a major impact on developing good relations between the parties and will itself in time contribute to building confidence.

Perceived cost

6.32 Landowners and tenants are strongly influenced by the actual and perceived costs of different methods of operating land. Important concerns, especially as voiced by landowners and agents, include:

• the requirement in the new legislation to let equipped units which are "fit for purpose"
• the compensation on way-go provisions
• dispute resolution costs and procedures
• legal costs in setting up the agreement
• the need for another arrangement at the end of a five-year SLDT if an automatic fifteen-year LDT is to be avoided (though this of course is intended, so as to create an incentive for the adoption of the longer term LDT)
• the technical simplicity/ complexity of the arrangement for both parties
• uncertainty over how new legislation will work in practice and hence over the cost implications

6.33 Landlords have welcomed many of the simplifications of the SLDT/ LDT framework over the partnership tenancy, but express fears over the costs of equipping units, way-go provisions and how to deal with the end of an SLDT. In contrast tenants see reduced costs in the new forms (though some pointed out that the simpler dispute resolution is still costly) and welcome the limit of SLDTs if it results in more LDTs. However, on the ground, both parties, especially landowners, seem to be increasingly drawn to the simplicity and freedoms of contract law, avoiding the rigidities of tenancy law.

6.34 However, the attraction of formal Contract Farming Agreements should not be over emphasised. While this is a favoured route for arable farming with its annual cycle, it is less common in the livestock sector partly due to the complexity of building in breeding stock. The switch to contract farming by estates has often been accompanied by the disposal of breeding stock. It is in mixed farming/upland areas that the lack of attractive long term letting or contract arrangements could have negative impacts on the Scottish agricultural industry. Some suggest that in some overseas industries this sector is kept vibrant by freedom of contract let regimes and share farming structures. Share farming may be very complex where there is a subsidy regime tied to headage and hectares, but may be simpler in the new decoupled regime.

Timescale

6.35 The tenancy reforms have only had four years to take effect. The period since introduction of the reforms has been characterised by very few land transactions of any type as owners and farmers have waited for the implementation of the CAP mid-term review reforms. It could be argued that it is only now that the ownership of entitlements has been settled that the land market is freeing up, and we will begin to see the real response to the 2003 Act.

Diversification in the tenanted sector

6.36 Diversification was a clear aim of the tenancy reform legislation. The Annual Rent Survey includes a question on non-agricultural activities and the Farm Accounts Scheme Survey may provide some data on diversification income which could be related to the tenanted farms in their sample. Farm Business Development Scheme diversification data held by the Scottish Government might highlight uptake of the grant scheme amongst tenants. Interviewees point out that while all parties welcome the diversification freedoms built in to the legislation the real determinant of whether or not tenants start new enterprises is their interest, skills, capital, market opportunity and location. A number of estates actively supported diversification under the old regime and it was felt that many tenants already operated some sort of diversification quietly and successfully, though some landlords did prevent developments. Interviewees felt it would be very difficult to measure the impact of the legislation on diversification by tenants, especially without pre-reform baseline data and given the range of factors influencing diversification decisions. However, the diversification measures in the reforms were widely welcomed.

Rural economy and community impacts

6.37 The findings from this study suggest that stakeholders would find it difficult to identify the contribution of tenancy reform to impacts on the rural economy and the community. Most discussion has been anecdotal rather than evidence-based, and case-based with the debate revolving around what I would describe as two opinions or visions. The first is that the tenancy legislation provides new entrants and existing tenants with a solid base in farming where they can invest, raise families which contribute to the community, diversify where appropriate and maintain the long term investment, especially in livestock, which feed the value adding chain of processors and suppliers. Central to this vision is the need for security and clarity for tenants, a tenancy "ladder" and hence formal tenancy types. The second vision or opinion is that the agricultural sector and the rural economy are changing very rapidly (especially as it opens up to world competition) and a wide range of means of operating land are required, to allow businesses to expand/contract/change enterprises/redeploy capital in timescales which were previously impossible. Farm businesses will get larger and will adopt innovative means to do this, which will bypass traditional structures. If this is not allowed to happen then Scottish agriculture will not be competitive and the value adding chain will diminish or disappear. In this vision landowners and users need maximum freedom to decide how to operate land and the rural economy benefits from a competitive industry and the freeing up of surplus assets such as property for use in areas of economic activity with much better returns than farming.

6.38 The estate examples in the case study region discussed above might suggest that the second vision is happening on the ground. One traditional estate with a long term commitment to letting land and no in-hand farming or short term lets went through a strategy review process which considered two routes; create starter/part-time units from a number of tenancies which were soon to become vacant or split these vacant units between existing tenants to ensure their long term viability. The estate had real concerns over its contribution to the local economy and built this in to its aims. The estate adopted the latter route. Its view was that the reallocation of the vacant land improved the long term viability of the remaining tenants. The release of a couple of steadings allowed development for let including one conversion to office units. This provided an income stream to the estate ensuring it could maintain farm infrastructure and brought new businesses to the area, which would have a more important impact on the rural economy than maintaining more smaller farms. The possible sale of surplus houses would also release capital for investment in a local renewable energy scheme.

Environment

6.39 This study concentrates on economic and social impacts, but interviews have thrown up a number of environmental questions. The desire to avoid formal lets and inheritance tax has driven even marginal arable estates toward all-cropping Contract Farming Agreements which could be argued by some to reduce biodiversity and certainly do not lend themselves to organic systems. Short term lets and indeed short term agreements in general make uptake of environmental schemes with their five year commitments less likely. Formal information on the environmental impacts of different farming structures has been difficult to find.

Feudal tenure reform

Introduction

6.40 Feedback from interviewees suggests that feudal tenure reform is not a major issue for the rural economy. Therefore this area is only covered briefly and an indicator table using the SRL model has not been produced.

6.41 The Abolition of Feudal Tenure etc. (Scotland) Act 2000 aimed to remove the right of feudal superiors to enforce conditions on properties in which they had no real interest other than extracting payments for granting waivers. A modern system of burdens and conditions on properties was established under the Title Conditions (Scotland) Act 2003. The thrust of the reform is not to abolish burdens and conditions on properties, but to ensure that those who have and exercise these rights have a legitimate interest.

Impacts

6.42 There were in the past a number of well publicised cases in Scotland where individuals exploited the feudal superior system to generate revenue. ⁹ The reforms remove this financial exploitation. Interviewees in the legal profession and landowning bodies suggested that this was not a noticeable drag on development in most of Scotland, other than in the well publicised cases. However, individuals did have the extra cost and delay of seeking feudal superior waivers of title conditions where these existed.

6.43 Generally this is perceived to be an urban issue, with some rural implications. For example, SRPBA get very few queries from landowners and solicitors report dealing mainly with urban or housing development issues. Most rural landowner queries in the period immediately after implementation were about the formula for compensating for loss of annual feu duties. The period for claiming feu duty compensation has now expired.

6.44 It is important to note that where the feudal superior had rights of enforcement of burdens and conditions on property which had been sold and third parties (co-owners within the same housing development for example) also had rights of enforcement, the right of the superior has been abolished, but the rights of the co-owners or neighbours within the housing development remain. A rural example might be where a farmer developing four houses for sale from an old steading may impose a condition on sale of each house that no commercial vehicles can be parked or stored on the site. Once all four houses are sold the exercise of the condition passes to the four households (rather than staying with the "superior") and each individual owner can exercise their legal right if they object to one of the home owners parking their lorry on the site. This poses little in the way of a drag on development. Any issues are likely to be post-development.

6.45 As a last resort disputes go to the Lands Tribunal for Scotland. Where individuals have sought freedom from an obligation the Tribunal has granted a discharge in more than 70% of cases. The point was made that title conditions (the exercise of private rights over property) have much less economic impact in the countryside than does the planning system (the public regulation of land and property).

Summary and conclusions

Results

• The mechanisms by which farmers and landowners occupy and operate land are increasingly complex and may not be captured by the existing data gathering methods
• Understanding how tenancy reform impacts on the rural economy first needs an understanding of the land market and the forces shaping farming structures.
• Tenancy reform may have only a minor influence on letting decisions and even less on the diversity of the rural economy and what is happening to rural communities
• The census and rent surveys are a strong base for building a picture of the market, but they may not be sampling the correct people, they may not be asking all the correct questions and the ability to capture complexity via only postal techniques must be investigated. Information on wider impacts (rural economy, social, environment, etc) is especially lacking.
• Confidence and perceived risk are emerging as critical factors in letting decisions. These need to be measured.
• There are aims, but no targets or perhaps more importantly, benchmarks. These help measure the impact of legislation despite the complexity of so many factors influencing decisions. This relates closely to the next bullet point.
• The role of this study is not to question aims, but there is disagreement over the existing aims of the legislation. For example is it more tenanted land or just a more "vibrant" tenanted sector? To develop sensible measures, legislators and bodies such as the TFF (representing all stakeholders) need to develop a shared vision of the outcome they seek.
• The reforms were introduced at a time of major CAP reform, which had the effect of freezing the land market. It may be in the next few years that the real response to the 2003 Act will become apparent.
• While mindful of all the points above, early analysis suggests that the new tenancy forms are gradually being adopted by landlords already committed to long term lets. However, there is less indication that those landlords who have moved to Contracts and other non-lease forms of land management are attracted to the new tenancies.

Indicators

6.46 The large list of indicators presented in Appendix Five represent the ideal framework. The key areas are:

• Confidence/Trust: The improvement in confidence in formal lets is critical for the development of the tenanted sector and the success of the existing legislation. Confidence of both landlords and tenants needs to be measured.
• Perceived risk and cost: Faced with a wide range of means of operating land, the owner's and tenant's view of cost, complexity and risk is critical.
• The role of outside factors on the operation of land (tax, property values, etc): Tracking and understanding these drivers must be critical as they may have much more impact on letting decisions than any legislative reform.
• Breakdown of how all non owner occupied land is managed: There is poor understanding of what is happening on the ground and until this is understood the role of tenancy reform cannot be fully understood. This includes greatly improving the accuracy of recording the numbers of formal tenancies.
• How new entrants get established and the role of the tenanted sector: This is a key policy concern and one underlying driver for the 2003 reforms.
• Non farming income levels: Is the tenanted sector accommodating the need to diversify income sources and allowing a broader contribution to the rural economy?

Potential methodology for monitoring and assessing impacts

6.47 The aim of this scoping study has been to partially assess impact and to identify indicators for assessing trends and effects. How this might then be pulled together into a methodology for cost effectively measuring progress of land reform must lie with the implementing bodies. However, discussions have thrown up the following potential structure which has two main activities.

1. Tracking

This is the annual gathering of data to help describe and model the land market and farm business structures. The census provides the basic tool, but could be linked to an annual TFF/stakeholder session to interrogate the data and to help explain what is happening and why. A simple survey of leading land agents and advisers to understand trends in the land market and the numbers and type of new tenancies could be added to improve the quality of understanding of the way land is operated. The aim is to share understanding and build a "model" of what is really happening in the industry.

2. Periodic Attitude and Impacts Study

Every second or third year a more detailed survey would measure two key areas which are difficult to capture in an annual survey. The first is "Attitudes and Intentions" (How do landowners rate all the means of operating land in terms of asset risk, operating cost and income? What is driving this rating? How do tax and property factors influence decisions? What are their letting intentions and why?). The second area is "Impacts" (diversification, investment, disputes, wider rural economy/ social/environmental impacts?). This could replace the annual rent survey, though a much simpler annual rental survey may be required to build a grossed up rent figure for industry accounts. The format could be postal, but backed up by a proportion of face to face interviews to develop understanding which aids the analysis of the whole sample. This detailed periodic survey could tackle other areas of land reform at the same time ( e.g. access).

What are we trying to measure?

6.48 The aims outlined in the introduction to this chapter suggest that we are not only trying to measure the uptake of SLDTs and LDTs, but broader outcomes such as diversity in tenancy agreements, innovation in the mechanisms used, new entrants, new economic activity on tenanted farms, speed of change to suit changing economic conditions, confidence and co-operation between tenants and landlords. Tenancies are part of the operating structure of Scottish agriculture, so overall we need to measure structural change at the farm business level. This is a challenge. By definition, change does not fit historic measurement categories.

6.49 Using the SRL model gives us the framework outlined in Appendix Five, incorporating the six capitals plus context and institutional responses. A broad range of indicators are outlined. In the final column of the tables, each indicator is classified into one of these three elements so that they can be rearranged under these three headings if required.

References

Cook, P. (2002) Land Tenure Options. A study for HIE. Unpublished.

Cook, P. (1999) Moray Farming Study. A survey and report for the Moray Council. Unpublished.

DEFRA (1995) Guide to the Agricultural Tenancies Act 1995

http://www.defra.goc.uk/corporate/regulat/forms/tenancy/ataguide/index.htm

DEFRA Statistics Tenanted land data at:

http://www.defra.gov.uk/esg/work_htm/publications/cs/farmstats_web/

MacRae, D. (2005) An Analysis of the Scottish Agricultural Industry. Lloyds TSB Economic Bulletin 70

MacRae, D. (2007) An Analysis of the Scottish Agricultural Industry. Lloyds TSB Economic Bulletin 70

MacRae, D. (2007) The Lloyds TSB Scotland Scottish Agricultural Survey 2007.

Registers of Scotland http://www.ros.gov.uk

SEERAD (2004) Survey of Tenanted Land in Scotland.

http://www.scotland.gov.uk/Topics/Statistics/TenantedLand2004/TenantedLand2004

Also personal communication with Neil White and Louise Ross SEERAD Pentland House.

Strutt & Parker (2007) Land Business publication. http://www.struttandparker.com

Tenancy Reform Industry Group (English counterpart of TFF)

Via DEFRA at http://www.defra.gov.uk/farm/working/tenancies/index.htm

Tenant Farming Forum http://www.tenatfarmingforum.org.uk

or via secretariat; Kate Scott, NFUSkate.scott@nfus.org.uk

TFF (2007) Guide to Good Relations Between Landlord and Tenants

http://www.tenatfarmingforum.org.uk

TFF (2004) Tenant Farming Forum Guide to the Agricultural Holdings (Scotland) Act 2003

http://www.tenatfarmingforum.org.uk

Thomas, P. & Burr, M. (2004) Initial Impressions of the Tenanted Agricultural Sector Following the Passing of the Agricultural Holdings (Scotland) Act 2003. Study for SEERAD Land Use and Rural Policy Division. Unpublished.

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