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When is a 91 Act tenancy not a 91 Act tenancy?

Peter MacDougall

I want to draw attention to an issue that I don’t believe is widely known and it is something that is hugely important for both landlords and tenants to understand regarding the creation of a new lease under the provisions of the 1991 Act

When I was assigned my 1991 Act tenancy the first thing my factor did was to offer me a new written lease. We had never had a written lease and though we had always been assured this was not a matter for concern it has always been a cause of uncertainty, therefore, I could see the benefit of having things written down. I was wary about doing anything that would bring to an end the existing lease as it had endured since 1901 and I didn’t want to do anything rash.

I was assured the new lease would be written in such away as to be governed by the 1991 Act and therefore offer all the benefits of a 1991 Act tenancy and security of tenure would be retained. I declined the offer because I was cautious of there being unintended consequences. It was only a few years later I discovered that signing a new lease would have improved the inheritance tax reliefs available to the landlord, Agricultural Property Relief would change from 50% to 100%. It wasn’t an unreasonable or uncommon request to make. I discussed the issue with legal counsel who were of the opinion that there were pros and cons of both options and it was mainly a matter of choice how to proceed.

It was encouraging to discover that this was a completely reasonable and legally robust reason behind such an approach but there was one sizable pitfall that could potentially cause a lot of trouble further down the line.

In my situation I was already in the farm when I was approached about the new lease therefore, I would have thought it sensible to write up the new lease with my actual date of entry which had already passed. But, at the very beginning of the 2003 Act (Section 1 (2)) it details the method for creating a 1991 Act tenancy:

(2) where subsection (1) applies, the 1991 Act does not apply in relation to the tenancy (except in so far as this Act applies any provision of that Act to short limited duration tenancies or limited duration tenancies) unless the lease-

(a) is entered into in writing prior to the commencement of; and

(b) expressly states that the 1991 Act is to apply in relation to;

The tenancy

What this means is it is not enough to just state that the 1991 Act applies to the new tenancy, the written lease must be signed by everyone “prior to the commencement of the tenancy”, i.e. before the Date of Entry specified in the lease. Failure to do this will mean the tenancy is not governed by the 1991 Act.

If you are creating a 1991 Act tenancy it is vital that the Date of Entry is in the future and not a date that has already passed. Failure to attend to this point could mean that although you have a lease that looks like a 1991 Act tenancy, that clearly states it is a 1991 Act tenancy and is written with the provisions of a 1991 Act tenancy, it is not a 1991 Act tenancy. From a legal perspective the new lease is actually governed by the 2003 Act, there could be some debate as to which of the modern tenancies the agreement will default to, but ultimately the protections of the 1991 Act, and crucially security of tenure, will be lost.

This highlights the importance of having good legal representation when dealing with tenancy issues and it is always recommended that before altering your tenancy that legal advice is sought to ensure that a course of action that seems sensible and reasonable today does not result in unintended consequences in the future.

A tenant who is asked to agree to a replacement lease needs to consider 3 key things:

  1. The tenant is not required to agree to a replacement lease and is quite at liberty to decline.
  2. Where the tenant agrees, he/she must be careful to scrutinise the draft lease to ensure that it does not provide less advantageous terms than the current lease.
  3. Since there is a considerable financial advantage to the landlord, it would be reasonable for the tenant to ask for something in return.

If you have issues with any aspect of managing an agricultural tenancy, don’t ignore the problem, contact us today at the Tenant Farming Helpline number 01463 423 300 and leave a message to receive a call back, email tfc@landcommission.gov.scot, or find out more at https://www.landcommission.gov.scot.