Land Reform Bill #2 - new community right to buy opportunities on large estates

picture credit Caroline Legg

In essence, this section of the bill imposes a pause of up to 70 days on all sales of large estates (greater than 1,000ha) – or of any part of one, no matter how small – to allow local communities to be informed of them and give them a window in which to invoke the statutory community right to buy the land (which has existed since 2004) if they wish.  

Background: the community right to buy
To understand the new procedures, we first need to remind ourselves of some of the detail of the community right to buy (CRTB) which was introduced by Part 2 of the Land Reform (Scotland) Act 2003 (LRA03). If you’re already familiar with this, you can skip to the paragraph below headed “Structure of the bill”.  

A community body (CB) may apply to the Scottish Ministers (SMs) for permission to register their interest in a piece of land (of any extent, however large or small). If the application is approved by the SMs and the interest registered, the owner of the land can’t then sell it without first offering it to the CB at valuation under the procedure in Part 2 of LRA03. (In fact, the owner is prohibited from selling (or even marketing) the land from the moment the application to register the community interest in it is made although that prohibition flies off if the application is subsequently refused: s.37(5)(e))

The CRTB is not, therefore, a right of compulsory purchase – i.e. to buy the land even when the owner doesn’t want to part with it – it’s a statutory right to pre-empt a sale the owner is making anyway but with the important difference from normal rights of pre-emption that the CB’s right is to buy the land at a valuation fixed by a valuer rather than to match the highest price offered in the market.     

“Late applications”
Applying to register a community interest isn’t simply a question of filling in and submitting a form. It involves making a case to the SMs demonstrating why any purchase by the CB would be compatible with sustainable development and that there is sufficient local support for it (s.38(1)(b) & (d). So it could happen that land a CB is interested in has already been sold by the time it has completed (or even begun) the preparatory work necessary before submitting their application to register their interest in it. That doesn’t stop them continuing with their application but the next sale of the land it would give them the right to pre-empt might not be for many years: they’d have missed the boat, in other words. LRA03 anticipated this problem and provided (s.39) for an expedited procedure for what it called “late applications” to register an interest in land already on the market. The Community Empowerment (Scotland) Act 2015 amended s.39 to add a requirement that a CB making a late application must show that there has been some preparatory work towards applying for a registration (or a good reason why not) and that the owner had not offered the land to the CB in the last 12 months (see s.39(3)(a)-(ab), (3A) & (6) of LRA03). When a late application to register is submitted, the land owner must suspend the sale he has embarked upon until the application is decided.    

Whether following a late or ‘timeous’ application, if registration of the CB’s interest in a piece of land is approved by the SMs and the owner then wants to sell it at any time while the community interest registration (CIR) remains in force (5 years, subject to renewal), he must give the SMs a “notice of intention to transfer” under s.48(1). That triggers the CB’s the right to buy the land at valuation. (There are some transactions by the owner with land subject to a CIR which don’t trigger the right to buy: I’ll come to these exceptions presently.)

The existing procedures described above are ‘reactive’ in the sense that the onus is on CBs to act. And in the case of a private sale (one not preceded by a public marketing campaign), the CB may not know a sale of the land they’re interested in is in the offing so even the late application procedure doesn’t help them. The present bill aims to make the process more proactive in the case of large estates (over 1,000ha) by encouraging and providing windows of opportuny for CBs to act in the case of all sales, public or private, of (or from) such estates.

Structure of the bill
For anyone wanting to ‘follow along’, the relevant section of the bill is section 2 (pages 8-14) which amends LRA03 by inserting into it a new Part 2A with thirteen new sections (ss.46A-46L) plus a new s.39ZA into existing Part 2. The detail is as follows (except where otherwise noted, references hereafter to sections are to these new sections being inserted into LRA03 rather than to sections of the bill):

“Large holdings of land”
The first point to note is that the new procedures in the bill apply only to what it calls “large holdings of land” (LHLs). Under s.47K, these are estates over 1,000 hectares (2,471 acres). See here for more detail on that including when a >1,000ha estate is or isn’t an LHL when it’s the aggregate of <1,000ha titles owned by different but “connected” people and when even a >1,000ha estate all owned by the same person is not an LHL.   

The new community interest procedures: prohibition on sale
If you’re not interested in the detail of the new procedures you can skip to the paragraph below headed “Comment”. But if you are interested, let’s assume we’re dealing with a >1,000ha LHL, whether owned by a single person or in parts by connected persons.

The starting point is s.46B (page 10 of the bill): the owner (or any one of the connected owners) is prohibited from selling it or any part of it (for lawyers reading this, that’s due to the words “or forms part of” in s.46K(1)) without permission from the Scottish Ministers (SMs). So the new procedures would apply to the sale of something as small as a house plot out of a 10,000ha estate.

Exceptions to the prohibition
The prohibition applies even when there is no community interest in it already registered and no matter how small a part of the LHL the owner wants to sell. But there are some exceptions, in other words transactions with the LHL (or part of it) which are not prohibited. These are referenced in s.46H(2) which cross refers to s.40(4) of LRA03 which is the list of transactions permitted when there is a community interest registration without triggering the right to buy I mentioned earlier. The most significant of these are:

1. transfers “otherwise than for value”, gifts in other words. But a transaction where no money changes hands may still be prohibited: for example, exchanges of land (‘excambions’ in Scottish legal parlance) or transfers to a company in exchange for shares. That’s because the land received in exchange or the shares are both “value”.

2. Sales to companies in the same group. These are defined (s.41(1) of LRA03) by reference to s.170 of the Taxation of Chargeable Gains Act 1992. I think that includes companies where one is a subsidiary of the other and also companies who are both are subsidiaries of a third but I’d need to speak to a corporate tax lawyer to be sure of that: meanwhile people owning an LHL through the medium of a UK company should be on the alert.  

3. Transfers consequent upon changes in partnership or trusteeship.

4. Sales to statutory undertakers and sales by agreement which could have been achieved by compulsory purchase (sales of land for road works and public utilities etc.).

There are other exemptions of less importance and note that gifts, sales to group companies and partnership/trusteeship changes can’t be used as part of a scheme to avoid the new rules: see the anti-avoidance provision in s.46J(b). So you couldn’t sidestep the prohibition by gifting the land to the ‘purchaser’ and selling him a pencil for £5 million.

(Anyone following the bill really closely might have noted s.46H(2)(a) saying, in effect, that a sale that is not in one of the above exempt categories but is of part of an LHL which is “excluded land” within the meaning of s.33(1) of LRA03 is not affected by the prohibition. I’m not sure I fully understand this exception but am pretty certain it’s of such little practical significance that we can safely pass over it here. If anyone thinks differently, do leave a comment.)  

Lifting the prohibition
Let’s imagine the owner of a “large holding of land” (LHL) wants to sell it, or a part of it (however small), in a transaction that is not exempt.

Before he even “takes any action with a view to its transfer” (defined in s.46H(3) which cross refers to s.40(5) of LRA03: includes advertising it or entering private negotiations with a potential purchaser) he must request the SMs under s.46C to lift the prohibition. Upon receipt of such request, the SMs must (s.46D) publicise on a website the intended sale of the land and how a CB can register an interest to pre-empt it and also send the same information to everyone who has previously asked to be informed about possible sales (note the SMs’ new duty in s.46A in that regard) and to the community council, the local authority and (if applicable) any National Park Authority the land is in.

If, within 30 days of having done that, nobody has submitted to the SMs a “note of intention to register” a community interest in the land (and I’ll come back to what happens if somebody does presently), then the SMs must (no discretion) lift the prohibition (s.46E). The lifting of the prohibition lasts only two years (s.46B(2)(b)): that is the owner’s window within which to complete the contemplated sale failing which the prohibition will drop back into place at the end of the two years and he will have to make a new request to lift it.

“Note of intention to register” (NIR)
If a CB (or someone on behalf of an as yet unincorporated CB: s.46F(3)(b) & (4)(a)) does lodge an NIR within the 30 days, and the SMs are satisfied that it’s likely very shortly to be followed up by an actual application to register a community interest with a reasonable prospect of being approved by them (s.46F(3)(d)) – that it’s credible, in other words – then, under ss.46E & 46F, the SMs must do three things:-

1. lift the prohibition (s.46E(2)), but;

2. immediately impose a new prohibition of 40 days (s.46F(1) & (2)). (The drafting of ss.46E & 46F is exceptionally convoluted and doesn’t make sense until you realise that the general prohibition on sale under s.46B and the 40 day prohibition under s.46F(1) following recipt of an NIR are two different beasts and the latter is not a sort of extension of the former); and

3. invite the CB who lodged the NIR to to make an application to register its interest in the land (s.46G).

If the CB does make an application within the 40 day prohibition, it will be dealt with under new s.39ZA. That is, in effect, the existing expedited procedure for late applications (see above) minus the Community Empowerment Act amendments requiring there to have been some preparatory work towards an application and no previous offer to the CB. Making such an application to register again prohibits the owner from proceding with his proposed sale until it is decided upon by the SMs (that’s not a new type of prohibition introduced under the bill, it already exists under s.37(5)(e) of LRA03). If the application to register the CB’s interest is approved, that immediately triggers their right to buy at valuation (s.39(4)(a) of LRA03 cross referring to s.48(1) which invokes s.47(1)).

If the CB doesn’t apply to register an interest in the land within the 40 days, then the s.46F 40 day prohibition flies off (s.46F(2)(b)) and the owner is back to where he was was with the ‘general’ s.46B prohibition having been lifted by the SMs for two years and so he is free to proceed with his contemplated sale. It’s crucial to note, however, that this doesn’t prevent the CB subsequently interrupting the sale by making a late application to register under the existing procedure in s.39 of LRA03 (which has been a threat to landowners since 2004) but that’s now a race against time for the CB: if the sale has completed before they can pull an application together, they’ll have missed the boat.

Heritable creditors
Note that these procedures apply equally to sales of LHLs (or parts of them) by heritable creditors (mortgagees) as they do to the owners (note the reference to creditors in s.46B(1)). This is a point tending to the marketability of LHLs which will have to be reported to lenders effective today.

Hardship exception
This is unlikely to be of any practical significance, I think, so you can safely skip this paragraph but for completeness, if the owner of the land (but not a heritable creditor) can satisfy the SMs that the proposed sale is to alleviate financial hardship and having to wait for the procedures to play out before proceeding with it would aggravate the hardship, the SMs have power under s.46I to lift the general s.46B prohibition (30 days) or the extra s.46F prohibition (40 days) when a CB submits an NIR within the initial 30 days. Again, however, acceeding to such a request doesn’t prevent the CB making a late application under the existing procedures (although in that circumstance the owner may be entitled to compensation from the SMs under existing s.63 of LRA03).

Comment
The bill’s “prohibitions” on sales of large (>1,000ha) estates, or parts of them, are temporary: they’re pauses, in other words. 

The principal significance of these new procedures is that communities are informed of private sales of (or from) big estates and they are paused to allow them to invoke the community right to buy: no longer will it be possible to slip a private sale under the community’s radar.

But the 30 or possibly 70 day pause doesn’t seem a very long time for a community to react from a standing start. As I’ve said, missing these deadlines doesn’t preclude a community body from subsequently submitting a “late application” to register their interest under the existing procedures if they can manage that in time before the owner’s sale has concluded. But even so, I should have thought that a longer intial pause of, say, three months coupled with an extension of 40 days if they’re nearly there would be more realistic. I expect to see the 30/40 day periods extended as the bill goes through Parliament.

I’ve seen (here) these new procedures described as a “presumptive” community right to buy but I wouldn’t call them that, with respect – they're perhaps a presumptive leading of community horses to water but there’s nothing in the bill that makes them drink.

The new procedures don’t just apply to private sales, of course, they also apply to sales following a public marketing campaign. As regards these, I would regard the new procedures more as a prompt of something which, if it’s going to happen at all, was probably going to happen anyway. And where there’s no latent community interest, a 30 day delay is no great hardship to sellers.

picture credit Histography