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| Picture credit: Scottish Borders Council |
In essence, this section of the bill requires that, unless the Scottish Ministers (SMs) agree otherwise, sales of land over 1,000ha must be in lots (parts) decided by the SMs. And that no two (or more) of the lots may be bought by the same person or by persons who are “connected” to each other.
The detail of this is inevitably pretty dry and technical so, if you don’t fancy it, you could safely fast forward to paragraph 14. “Comment” below.
1. Structure of the bill
For anyone
wanting to ‘follow along’ the detail of the procedures I’m about to describe,
the relevant section of the bill is section 4 (pages 15-25) which amends the Land Reform (Scotland) Act 2003 (LRA03) by inserting into it a
new Part 2A with 23 new sections (ss.67C-67Y). Except where otherwise noted,
references hereafter to sections are to these new sections being inserted into
LRA03 rather than to sections of the bill.
2. Sales affected #1: sales over 1,000ha
The new
lotting provisions of the bill apply to all sales of land over 1,000ha
(s.67G(2)) whether that is the whole or only part of an estate. Thus, imagine a
1,500ha estate: the lotting provisions will not apply if the owner is selling
only 800ha but they will if he is selling 1,200ha (or the whole).
3. Sales affected #2: sales over 50ha
Under
s.67G(3), the sale of land over 50ha is also subject to compulsory lotting when
it forms part of a “large holding of land” (LHL: basically land over 1,000ha
but see here for the exact definition) other
parts of which of a size such that the >50ha area plus these other parts
exceed 1,000ha are already on the market. Thus, imagine an LHL of 1,500ha of
which 800ha is already on the market (which wouldn’t have involved lotting) and
the owner then decides to sell a further 300ha: the sale of the 300ha will be
subject to the lotting provisions.
Although the explanatory notes to the bill don’t say so, I think this is an anti-avoidance measure to prevent the sale of more than 1,000ha to the same person being achieved by two staggered sales to him, each of less than 1,000ha which would not otherwise be caught by the new lotting provisions. Except it doesn’t look to me from the wording of s.67G(3) like the original 800ha in the example would be retrospectively brought into lotting so I wonder how effective it really is as an anti-avoidance provision.
And there’s another issue here, I think. S.67G(3) doesn’t actually mention other land belonging to the same owner already being on the market, it refers (s.67G(3)(c)) to other land in respect of which a “notice of intention to transfer” (NITT) has been given under s.46C of LRA03. An NITT is the notice the owner of an LHL has to give the SMs when he wants to sell part (or the whole) of it – it sets in motion the new community right to buy opportunities in s.2 of the bill which I wrote about here. Now consider the following scenario: Mr A, the owner of a 1,500ha LHL, wants to avoid having to sell it in lots so he gifts 501ha to his wife. That gift doesn’t require an NITT because it’s an exempt transfer (s.46H(2)(b) on page 12 of the bill cross referring to s.40(4) of LRA03). Therefore, s.67G(3) will not apply – no lotting is required, in other words – when Mr A markets his remaining 999ha jointly with his wife’s 501ha with the intention that both parts be bought by the same person. (There would be a similar result if the 1,500ha LHL belonged to A Ltd and 501ha was first transferred to group company B Ltd. That's because transfers between group companies are also exempt under s.40(4)(e) of LRA03.)
4. Contiguity required?
In my
article on the definition of >1,000ha “large holdings of land” (here), I pointed out that it’s not an
LHL for the purposes of the new community right to buy (CRTB) opportunities in
the bill (discussed here) if it’s composed of discontiguous
blocks of less than 1,000ha separated by land (however narrow: could be a
railway or motorway) in third party ‘unconnected’ ownership. Does that also
apply to the lotting provisions? I don’t think it does. S.67G(2) simply says
“land that exceeds 1,000 hectares in area”. Absent any mention of contiguity, I
think we must assume it’s not required. Thus, imagine a 1,200ha estate composed
of two discontiguous blocks of 800ha and 400ha. It’s not an LHL for the
purposes of the new CRTB provisions in the bill but (if I’m right about
contiguity) it will be covered by the lotting provisions if the owner is
planning to sell the whole.
But then go back to s.67G(3), the >50ha thing discussed above. Discontiguity may not disapply lotting but it may open up a lotting avoidance route. Using the last example again, the seller sells the 800ha block: the estate isn’t an LHL so the CRTB provisions aren’t triggered and thus he doesn’t need to give the “notice of intention to transfer” under s.46C referred to in s.67G(3)(c) & (4) (an NITT under s.48 is only when there’s already a community interest registered; let’s assume there’s not). Therefore, one of the requirements of s.67(3) (the >50ha thing) is not present with the consequence that there would seem to be nothing stopping the seller later selling the 400ha block to the same person who bought the 800ha which might, of course, have been pre-arranged.
I may be wrong about all this but if I were an MSP scrutinising the bill as it passes through Parliament, I’d make a point of quizzing the Scotgov officials about what exactly s.67G(3) is trying to achieve? And if it’s trying to close avoidance loopholes, whether it does that effectively or leaves open the avoidance scenarios I’ve described in this and paragraph 3. above.
From hereon, I’m going to assume the simple case of an owner wishing to sell a single, contiguous block of more than 1,000ha. It doesn’t matter whether that is the whole or just a part of his estate.
5. Transactions not affected: “exempt transfers”
There are
some transactions with >1,000ha areas which are not affected by the lotting
provisions of the bill.
These are called “exempt transfers” (s.67C(b)) and are defined in s.67J. That in turn 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). The most significant of these are:
5.1 transfers “otherwise than for value”, That includes gifts. But a transaction where no money changes hands may still be affected: for example, exchanges of land (‘excambions’ in Scottish legal parlance) or transfer to a company in exchange for shares. That’s because the land received in exchange or the shares are both “value”. This exemption also includes transfers upon inheritance.
5.2 Sales to statutory undertakers and sales by agreement which could have been achieved by compulsory purchase. These are normally of small areas far less than 1,000ha which wouldn’t engage the lotting provisions anyway such as plots for road widening or other public utilities. But it could be relevant in the >1,000ha stakes. I’m grateful to Andy Wightman’s blog (here) for drawing my attention to the recent purchase by Forestry and Land Scotland (the new name for the Forestry Commission in Scotland) of 6,680ha Glen Prosen Estate in Angus: because it could have been achieved by compulsory purchase (Forestry and Land Management (Scotland) Act s.19), that sale would not have been subject to lotting had it taken place after the bill comes into force.
5.3 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 (s.46K(5)(a)(i) & (b)). 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 land over 1,000ha through the medium of a UK company should be on the alert.
5.4 Transfers consequent upon changes in partnership or trusteeship.
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.67E.
So you couldn’t sidestep lotting by gifting the land to the ‘purchaser’ and
selling him a pencil for £5 million. (Note that I don't believe this would prevent either of the two potential avoidance scenarios I described in paragraphs 3. and 4. above. That's because the initial transfer of 501ha to Mrs A (or A Ltd) in the scenario in para. 3 and the sale of the first 800ha block in the scenario in para. 4 are both permissable, not because they're exempt, but because they're both less than 1,000ha.)
6. “Lotting decisions”
Going back
to the simple example of an owner wishing to sell an area greater than 1,000ha
(whether it’s the whole or a part of his estate), under s.67C, he may not do so
without first having obtained a “lotting decision” from the Scottish Ministers
(SMs).
These are governed by s.67N and are a decision that the land may be sold as a whole or must be sold in lots and, if the latter, what the lots are to be. Note that, although it tends to suggest the latter, the expression “lotting decision” in the bill applies equally to a decision that the land may be sold as a whole as it does to a decision that it be sold in lots. However, although these are not terms found in the bill, I’m going to refer when desirable for clarity to ‘no lot decisions’ and ‘multi-lot decisions’. But if I just say “lotting decision” (LD), you can take it the point applies to either type.
Miscellaneous points about lotting decisions:-
6.1 the SMs may only make a multi-lot decision (MLD) if
they are satisfied that ownership of the land … would be more likely to lead to its being used (in whole or in part) in ways that might make a community more sustainable than would be the case if all of the land were transferred to the same person. (s.67N(1))
Neither the bill nor – I think – LRA03 (remembering that the bill consists of amendments to it) defines “community” so the implication is that the community the likely greater sustainability of which militates in favour of an MLD need not necessarily live on the land: it could be somewhere else. Note also the considerations in s.67N(5) the SMs must have particular regard to in deciding to make an MLD (frequency of land coming on the market in the community’s vicinity and concentration of landownership there).
6.2 Under s.67N(4), the SMs may not make a lotting decision without first receiving and taking into account a report from the Land and Communities Commissioner (LCC). This is a new member of the Scottish Land Commission being created under s.6 of the bill (page 25) analogous to the existing Tenant Farming Commissioner. His principal function will be to police the new community engagement obligations in section 1 of the bill. These LCC reports are covered in s.67O and, although it doesn’t say so in terms, presumably they will cover issues such as local community sustainability, land turnover and concentration of ownership etc.
6.3 Under s.67U, the owner can appeal to the Court of Session against a multi-lot decision (MLD) on the basis that the SMs have laboured under an error of fact (for example, about local community sustainability, land turnover and concentration etc.), an error of law (can’t think of an example of that) or that the MLD is “unreasonable”. I think an appeal would be allowable here about either it being a multi-lot decision as opposed to a no lot decision or about the lots decided by the SMs in an MLD. If the CoS upholds the appeal, it’s sent back to the SMs to redecide: the court can’t substitute its own alternative decision.
6.4 A lotting decision lasts for for five years (s.67F(4)(b) & (5)(b)). That’s the owner’s window within which to sell the land failing which he has to apply for a new LD. They also cease to have effect when the land they relate to (or a part of it) is sold within the five years (s.67F(4)(a). Thus, suppose there is a no lot decision (NLD) for 1,200ha and it’s sold as a whole in year one: the purchaser can’t use the original NLD to sell the land as a whole again within the remainder of its five years: he has to apply for a new LD (which involves the possibility that the new one might be a multi-lot decision this time).
6.5 Under s.67M, the SMs may (note, not must) make a no lot decision (NLD) if satisfied that the owner wants to sell the land to avoid or alleviate financial hardship and that having to wait for a lotting decision in normal course under s.67N. would cause or worsen the hardship. In this case a report from the Land and Communities Commissioner is not required. S.67M is headed “Expedited lotting decision where owner facing hardship” and no doubt these NLDs will be produced quicker as there’s no need to wait for the LCC report or ponder over lots etc. But s.67M doesn’t contain any time limit within which the SMs must produce a hardship NLD (nor does s.67N for a standard ‘non-hardship’ lotting decision of either type). An s.67M hardship NLD lasts only one year (s.67F(4)(b) & (5)(a)). In the event of the SMs not agreeing to a hardship NLD, the owner may nevertheless still be entitled to compensation from them under s.67V for losses caused (see paragraph 12. below).
7. I have a no
lot decision – can I sell in lots anyway?
Yes. That’s
because the wording employed in the bill for NLDs is that the land it applies
to “need not be lotted” (e.g. s.67F(1)(b)) or “need not be transferred in lots”
(e.g. s.67M(1), 67N(3) and 67R(4)(b)). So the owner can sell in lots chosen by
him if he wants.
8. Procedure
following multi lot decision
The key
section here is s.67D. Unless it’s an “exempt transfer” (see above), the owner
can’t sell the land except in the lots specified in the MLD. Nor can he sell a
part of a lot (s.67D(1)(i)) unless the SMs otherwise agree (s.67D(2)).
Moreover, no two (or more) lots can be sold to the same person or to “connected
persons” (no provision for SMs waiver of that).
9. “Connected
persons”
This is
defined in s.67I. There are two categories: group companies as defined by s.170 of the Taxation of Chargeable
Gains Act 1992 and persons one of whom has a “controlling interest” in another
(s.67I(2)(b)) as defined in the The Land Reform (Scotland) Act
2016 (Register of Persons Holding a Controlled Interest in Land) Regulations
2021 (RCI Regs).
These are the regulations that set up the Register of Persons Holding a
Controlled Interest in Land (known as the RCI for short: see here) of people requiring to be
disclosed as having a hidden degree of control over the people registered as
owners of land in the Land Register. These are the same definitions of “connected
persons” as are employed in other parts of the bill which I discussed and
critiqued here (scroll down to the heading “The
detail: connected persons”). A few points from there which are of particular
relevance to lotting are:-
9.1 Spouses and family members are not “connected” solely by virtue of their marriage/relationship. Therefore, it’s tempting to think that a person wanting to buy the whole of an estate lotted in three could buy one lot himself and have his wife and brother buy the other two lots. But if there was any sort of pre-arrangement between them – even if not in writing – that wife and brother were buying solely as his nominees then that would be caught by Part 1 of Schedule 1 of the RCI Regs and thus they would be deemed to be “connected” by their arrangement rather than their relationship.
9.2 If I’ve read the RCI Regs correctly (and they’re not an easy read even for lawyers), the relationship between a UK company and its shareholders and directors is not a “connection”. Therefore, there seems to me to be nothing to prevent lotting of an estate into two being sidestepped by Mr A buying one lot and A Ltd in which he is the sole shareholder and director buying the other. (And the same for an estate lotted into more than two being bought by Mr A and A Ltd, B Ltd, C Ltd etc. in which he is sole shareholder and director.)
10. Review of lotting
decision
Under s.67P,
the owner may request the SMs to review a lotting decision after a year (and
then, if the owner so wishes, at yearly intervals thereafter: s.67P(3)(c)).
No new report from the Land and Communities Commissioner is required at review but the SMs must seek the advice of “a person who appears to them to be suitably qualified, independent and to have knowledge and experience of the transfer of land of a kind which is similar to the land to which the lotting decision would relate” (s.67R(7))
It’s possible to request review of a no lot decision (NLD) although why an owner in possession of an NLD, which, as we’ve seen, gives him complete freedom of action, would want to do that is not clear. Presumably the most likely scenario for requesting a review is when an owner feels that a multi-lot decision (MLD) is blighting the sale of his property. The SMs could replace it with an NLD or an MLD with different lots (s.67R(4)) but they’re not obliged to do either of these things. Note the potential for the owner to claim compensation from the SMs for loss caused by an MLD in the event of their not budging on one at review (s.67V(1)(c) – see below).
11. The SMs’ power to
offer for the land at review
Under ss.67P(2)(b),
67S and 67T, the SMs have power at a review to offer to buy at valuation any of
the lots if (and only if) they are satisfied that
it is likely that the fact
that the land [to be offered for] has not been transferred since the lotting
decision was made is attributable to the land being less commercially
attractive than it would have been had the lotting decision not prevented its
being transferred along with other land.
However, as there’s nothing in these sections obliging the SMs to buy any blighted lots, I’m not going to dwell on this further.
12. Compensation
Under s.67V,
an owner is entitled to compensation from the SMs for loss and expense:
12.1 incurred in complying with the procedural requirements of lotting (s.67V(1)(a)). I’m not sure if that would include extra loan interest racked up while waiting for a lotting decision;
12.2 attributable to a potential sale of the land being thwarted by the need first to obtain a lotting decision and the delay inherent in so doing (s.67V(1)(b). Presumably that would cover a very attractive offer from someone in a hurry who couldn’t wait; and
12.3 attributable to a multi lot decision (s.67V(1)(c)). This should cover the cases of an estate where the value of the whole is greater than the sum of its parts or, in the case of one likely to have been sold in lots anyway, the lots determined by the SMs are not those which would have maximised value.
13. Heritable
creditors
Apart from
the fact that they can’t apply for a s.67M hardship no lot decision, all of
this applies as much to heritable creditors (mortgagees) selling land as it
does to the owners. This is a point tending to the marketability of land over
1,000ha which will have to be reported to lenders effective today.
14. Comment
The
following are a number of comments about the lotting provisions of the bill.
These are in no particular order of importance and some of them I’ve already
touched on:-
14.1 S.67G(3) and lotting of areas over 50ha (as opposed to the usual 1,000ha). See paragraph 3. above. Is this an anti-avoidance measure to prevent the sale of more than 1,000ha to the same person being achieved by two staggered sales to him, each of less than 1,000ha which would not otherwise be caught by the new lotting provisions? And if it is, is it the intention that the first such sale of less than 1,000ha is not retrospectively brought into lotting? And does it prevent the lotting provisions being sidestepped by the owner of >1,000ha first dividing it up into <1,000ha blocks by way of exempt transfer(s) to family member(s) or group company(ies) and then jointly marketing the whole? And see next paragraph.
14.2 Do the more than 1,000 hectares
the sale of which triggers lotting have to be contiguous? And if not, does that
re-open the staggered <1,000ha sales avoidance route s.67G(3) may be trying
to close? (See paragraph 4. above.)
14.3 Although there is a criterion for deciding whether to issue a multi lot decision (MLD) as opposed to a no lot decision (greater likelihood of community sustainability: see 6.1 above), in the event the Scottish Ministers (SMs) have decided an MLD is appropriate, there is no criterion in the bill for what the number and layout of the lots should be. Presumably it’s intended to be that most likely to conduce to greater community sustainability but that really needs to be said explicitly in the bill.
14.4 When deciding upon a community interest registration, the land owner is to be invited to give his views on the application and the SMs are required to take these views into account (s.37(5)(b) & (10) of LRA03). And when land is being valued for the purposes of a community right to buy, the owner and the community body are to be invited to make representations to the valuer who is obliged to consider them (s.60(1) of LRA03). But there's no provision in the bill for the owner or the community to be able to make representations to the SMs or the Land & Communities Commissioner (LCC) in relation to the lotting decision process. So there needs to be, both at the outset of the process and then perhaps for both parties to be able to comment on drafts of the LCC’s report to the SMs and then of a multi lot decision (MLD). The same should apply at review of an MLD (except in that context, for draft LCC report read the independent professional advice the SMs are required to seek: see para. 10 above.) If for no other reason, the suggested owner/community input might protect the SMs against an appeal by an owner to the Court of Session against an MLD (see para. 6.3 above) based on a simple error of fact on the part of the SMs, LCC or independent professional.
14.5 On the subject of
appeals, is it appropriate that the appeal against an MLD is to the Court of
Session (CoS) as opposed to, say, the Lands Tribunal? The draftsman’s
thinking may have been that s.67U (see para. 6.3 above) is effectively
a statutory restatement of the common law right to judicial review (JR) of any
ministerial decision so the CoS is the appropriate forum as it's the court
which entertains common law JRs; and that the owner’s primary protection against
MLDs he doesn’t like is the annual review process. But even so ...
14.6 Although the SMs have power to agree to a lot in a multi lot decision (MLD) being sold in parts (s.67D(2): see para 8 above), there is no corresponding power to agree to two lots being sold together. Imagine the following scenario: included in an estate is a small 20ha farm with its derelict house. The land of the farm is one lot of an MLD and the house another. Now it could be equally conducive to local community sustainability that these two lots are bought by the same person (a new entrant to agriculture or aspiring small holder etc.) as them being bought by different people but the former course is not possible as the bill is presently drafted. Thus, there needs to be a corresponding provision that the SMs can agree to two (or more) lots of an MLD being sold to the same person. Indeed, I would envisage such agreement(s) being issued at the same time as the MLD itself so that the SMs are saying, in effect, that parts of the estate can be sold separately in the lots specified in the MLD or together where either option would be equally conducive to community sustainability.
14.7 In cases where a sale in lots is required, no two (or more) lots can be bought by the same person or by “connected” persons as defined by reference to the RCI Regs. That definition appears to leave an obvious avoidance loophole: see para. 9 above.
14.8 S.67M headed “Expedited lotting decision where owner facing hardship” (see para. 6.5 above) appears to be a tacit admission that obtaining an LD may be a lengthy process.
There are no time limits in the bill but I understand anecdotally that the SMs routinely overshoot the time limits in LRA03 for processing the community right to buy, for example. Perhaps the thinking behind the absence of time limits in the lotting process is that the owner has the right to apply for (but not to receive) an expedited hardship no lot decision and/or the right to compensation for losses incurred in having to submit to the process (s.67V: see para. 12 above). But perhaps experience shows the SMs need a hard deadline by way of a provision to the effect that, if they haven’t issued a lotting decision, either for the first time or at review, within a set period (3-4 months, shorter at review?), they will be deemed to have issued a no lot decision.
14.9 Finally, a small point, and probably an oversight by the draftsman, but it needs to be stated in s.67R(7) that, before deciding upon a review of a lotting decision, the SMs must not only seek the advice of an independent professional but also take the advice received into account. (See para. 10 above.)
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