Land Reform Bill - definitions of "large holdings of land"

Three of the provisions of the Land Reform Bill introduced on 13 March 2024 – community engagement obligations, enhanced opportunities for communities to buy land and compulsory lotting on sale – apply only to those larger estates which the bill calls “large holdings of land” (LHLs). I hope to come back soon with analyses of these three provisions but this note deals solely for now with the exact definition in the bill of an LHL to which they apply. [EDIT 28 April 2024 - Since I wrote this, I've studied the section of the bill dealing with compulsory lotting on sale in more detail and written about it: see this post. In fact, the lotting provisions don't apply to LHLs, they apply simply to "land that exceeds 1,000ha in area" (s.67G(2)). That said, LHLs do have a brief 'cameo role' in lotting (s.67G(3)) explained in the linked post.]

Basically, for the community engagement provision, it’s land over 3,000 hectares (ha) (s.44D(2)) or over 1,000ha when that would be more than 25% of the area of a permanently inhabited island (s.44D(3)). For the community right to buy (CRTB) and lotting provisions, it’s land over 1,000ha in all cases with no specialties related to islands (s.46K(2) & 67G(2)).

This looks relatively straightforward but nevertheless requires closer examination due to the bill trying to catch the commonly occurring situation of large estates in which ownership is divided between, for example, an individual and trusts for the benefit of members of his family. The bill calls these “composite holdings” in contrast to “single holdings” which are owned by one person (or more than one person jointly, for example spouses). There is also an issue even with single holdings.

Example
Thus, 800ha belonging to A (a single holding) plus a contiguous 400ha belonging to a family trust (also a single holding) can – though, as we shall see, not always – add up to a composite LHL to which the new CRTB and lotting provisions of the bill will apply. From hereon, I’m going to continue to use only the example of 800ha and 400ha exceeding the 1,000ha threshold but the same principles apply to, for example, 2,500ha and 1,000ha, exceeding the 3,000ha threshold for mainland community engagement. (And they also apply equally when more than two contiguous single holdings exceed the 1,000ha/3,000ha thresholds.)

Executive summary
The way the bill defines the terms “single” and “composite” “large holdings of land” means that many big  estates would not be covered its community engagement obligations, enhanced opportunities for communities to buy land and compulsory lotting on sale provisions. I expect to see these definitions change as the bill progresses through Parliament.

From here, those less interested in the technical detail can skip to the paragraph below headed ‘Comment’ or even right to the Case Study at the end.

Structure of the bill
Before getting into that detail, the structure of the bill so far as relating to community engagement, CRTB and lotting is not to create a new freestanding Act of Parliament. Rather, it amends the Land Reform (Scotland) Act 2003 (LRA03) and the Land Reform (Scotland) Act 2016 (LRA16) by inserting new sections (clauses) into them: these are sections (ss.) 44A-44M into LRA16 for community engagement and ss.39ZA and 46A to 46L into LRA03 for CRTB and ss.67C to 67Y also into LRA03 for lotting. All these new sections are found in sections 1 to 4 between pages 1 and 25 of the bill. Each of the three sets of new sections contains its own definition of the “large holdings of land” they relate to but these three definitions are identical (except for the island speciality in relation to community engagement) so from hereon I’m only going to reference the relevant new section of LRA03 for CRTB because you can take it that its wording will be identical to that for community engagement and lotting.

Land registers
I’m also going to assume from hereon that land is registered in the Land Register (LR) but exactly the same principles apply to land still registered in the old Register of Sasines (which is very common amongst privately owned large rural estates).    

The detail: connected persons
Now for the detail. Looking back to the example of 800ha belonging to A and a contiguous 400ha belonging to B, it’s only a “large holding of land” (LHL) if A and B are “connected” to each other or if A and B are not connected to each other but both are connected to the same third party (who needn’t necessarily own any land in the vicinity – for example A and B each hold the land as trustees for non-landowning C).  

“Connected” is defined in ss.46K(5) and there are two categories. The first is companies in the same group as defined by 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 through the medium of more than one company should be on the alert. But subject to that caveat, 800ha belonging to A Ltd and contiguous 400ha belonging to B Ltd make up an LHL if one is a subsidiary of the other or both are subsidiaries of C Ltd (even if C Ltd doesn’t own any land).    

The second category of connected persons is those one of whom has a “controlling interest” in another (s.46K(5)(a)(ii) & (iii)). That’s defined (s.46K(5)(c)) by reference to 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 (for example a trustee of a landowning trust when his name does not appear on the LR due to a change in the trustees since the trust’s title was registered). The RCI Regs are not an easy read and I’ve not studied them in massive detail but the following consequences seem to emerge:-

1. It doesn’t cover family relationships. Thus 800ha belonging to a person and contiguous 400ha belonging to his wife, child, sibling etc. isn’t an LHL (unless one has an agreement with the other saying that he holds his/her land as nominee for the other).

2. It doesn’t cover the relationship between UK companies and their shareholders or directors. Thus 800ha belonging to A and contiguous 400ha belonging to A Ltd in which A is the only shareholder and director isn’t an LHL either. This is because the RCI Regs don’t require registration of a director/shareholder’s control over a landowning company to be disclosed in the RCI to avoid the duplication with this already being subject to disclosure at Companies House. My conclusion on this is tentative, though, because, as I’ve said, the RCI Regs are very hard to follow and I can’t rule out the possibility there’s some subtlety in them which embraces company/director/shareholder connections albeit ultimately relieves them from registration in the RCI. Exactly the same comments apply to LLPs (limited liability partnerships) and their members (partners).

3. It does cover the relationship between offshore companies and anyone who (whatever the precise legal relationship) does, as a matter of fact, control or direct them. Thus, 800ha belonging to A and contiguous 400ha belonging to A (Virgin Islands) Ltd which, as a matter of fact, always does A’s bidding is an LHL.

4. Trusts: the RCI regs are such that 800ha belonging to A and contiguous 400ha belonging to a trust for members of his family doesn’t necessarily give rise to an LHL. Without getting into all the detail (which you can find in Part 3 of Schedule 1 to the RCI Regs), A merely being the truster (person who set up the trust) or a beneficiary of the trust wouldn’t create an LHL in this example so long as A doesn’t have any powers over the trust reserved in the deed creating it or, as a matter of fact irrespective of legal right, control or direct the trust. Nor even in all circumstances would his even being a trustee of the trust owning the 400ha create an LHL – I’ll touch on that again later.

5. Partnerships (not LLPs): compared with individuals, companies (UK and offshore) and trusts, ownership of large areas of rural land by partnerships is rare. But if you had 800ha belonging to A and contiguous 400ha belonging to AB & Co in which A is a partner it doesn’t necessarily follow that this is an LHL. The position with partnerships is similar to trusts and I’ll touch on it later too.

There are other circumstances in which the RCI Regs give rise to a “connection” for the purposes of LHLs but the above are the most commonly encountered.

Contiguity
As I’ve already mentioned, it’s only an LHL when the ownership is divided amongst “single holdings” belonging group companies or connected persons if the single holdings are contiguous (s.46K(4)(a)), that is their boundaries touch each other at at least one point. But 800ha belonging to A and 400ha belonging to B who is someone connected to him for the purposes of the RCI regs are not an LHL if they are separated, by however short a distance, by land in third party ‘unconnected’ ownership.

The same is also true of single holdings (all in the same ownership). They too must be contiguous (s.46(3)(a)). Thus, a 1,200ha estate all belonging to A is not an LHL if it consists of two blocks of 800ha and 400ha separated by land in third party unconnected ownership.

picture credit Brian Cairns

Comment
There appear to me to be two main criticisms of these definitions of “large holding of land” (LHL) to which the new community engagement, community right to buy (CRTB) and lotting provisions of the bill will apply.

Connected persons: the RCI Regs
The first is linking the definition of “connected” persons to the RCI Regs. It looks superficially like a convenient way of borrowing a definition to avoid having to reinvent a wheel but it seems to result in some connections being missed out: relationships between family members (who may not necessarily be “connected” in this sense, of course, but often are) and (if I’m right about the RCI Regs) the relationship between UK companies and their directors and shareholders (who must surely almost invariably be connected in this sense).

Here's another consequence of linking the definition of “connection” to the RCI regs: imagine again 800ha belonging to A and contiguous 400ha belonging to a trust for members of his family and in which A is a trustee. That’s very likely to be what most people would regard as a single estate of 1,200ha but the link to the RCI Regs means that it will not necessarily be an LHL (a composite one) to which the CRTB and lotting provisions of the bill will apply.

The reason is that (and non-lawyers can skip this and the next paragraph (dealing with partnerships) and go straight to the one after it beginning “Generally, the pattern emerging …”), for technical conveyancing reasons, A may be named in the Land Register (LR) as one of the trustees owning the 400ha but may not be. If he’s not, then his involvement as trustee will require to be disclosed in the RCI and that has the consequence that he is connected to the trust for the purposes of the bill and therefore this is an LHL. But if A is named as trustee in the LR (which is very common) he does not require to be registered in the RCI (because his involvement with the land is already disclosed in the LR) but the consequence is he’s not a “connected” person for the purposes of the bill and thus this is not an LHL.  

Similar anomalies can arise with partnerships (not LLPs). That’s because partnerships almost invariably register their titles to land in the LR in the names of the partners as trustees for the partnership. But subsequent changes in the partners (retirement, assumption of new partners) can lead to the registered title and the current partners getting out of synch. Thus, imagine 800ha belonging to A and contiguous 400ha registered in the LR in name of A and B as trustees for the partnership of A&B. Here, there is no requirement under the RCI regs additionally to register in the RCI and therefore this isn’t an LHL. But then imagine that A and B retire as partners and C and D come in in their place but the LR title isn’t updated (it doesn’t have to be: it’s convenient to have the current partners as trustees but it's not necessary. That’s because, unlike in a normal trust, a trustee for a partnership who is not a current partner has no say over the control of, or responsibility for, the property technically still vested in his name: he is merely a place-holder whose only job is to sign a conveyance of it when the current partners want to dispose of it.) So it may be the case that there’s no real connection between A on the one hand and C and D on the other but this situation does nevertheless give rise to C and D requiring to register in the RCI (because they’re the people now in control of the 400ha) and thus this creates an LHL for the purposes of the bill when it might not be one in reality. Or the only connection between A, C and D might be a family relationship which, as we’ve seen, doesn’t ordinarily give rise to an LHL.

Generally, the pattern emerging is that accidents of choice of landowning structure and vehicle and an estate’s conveyancing history can dictate whether or not what is (or is not) an LHL in reality is one for the purposes of the bill. That’s a consequence of linking the definition of “composite” (multiple ownership) LHLs to the RCI Regs. And the reason for the disconnect is that the focus of the RCI regs is only on connections which are not disclosed on the Land Register or at Companies House whereas the focus of the bill is (or should be) on all connections (except for merely formal ones like the ex-partner trustee).

I repeat the caveat that I hope I’ve read the RCI regs correctly but if I were an MSP scrutinising the bill as it goes through Parliament, I would be questioning whether the link to them is enough? Do the draftsmen need to add to some extra “connections” beyond those flowing from the RCI regs? Do they need to remove some? Or do they need to abandon the RCI Regs link altogether and devise some more ‘holistic’ definition of composite LHL? For example one that, irrespective of its ownership structure, is, as a matter of fact, managed as a whole. This might be suggested by indicators such as single family, single manager (factor), single branding etc. The downside of that is that it gives rise to more grey areas but enough for now.   

Contiguity
My second main criticism of the definition of “large holding of land” (LHL) for the purposes of the bill is the requirement that it be contiguous. This applies whether the land is a single holding (all in the same ownership) or a composite one (ownership divided amongst different but “connected” people).

Estates consisting of discontiguous blocks of land are very common. Think of an estate consisting of 400ha of low ground separated from its 800ha of hill ground by a quarter of a mile wide of plantations sold off by a previous owner to the Forestry Commission: it’s not an LHL. Think of one assembled by separate acquisitions (by purchase or inheritance) of discontiguous blocks none of which exceed 1,000ha. Or think of a 1,200 ha estate bisected by a railway: that’s not an LHL either due to the discontiguity, albeit very narrow, caused by the ownership of Railtrack (unless it’s not so much bisected as clipped such that, say, 1,100ha is on one side and 100ha on the other resulting in the former being an LHL but not the latter). Even a road built or realigned within the last 75 years or so could create a discontiguity. (That’s because roads built/realigned within that period are usually on land conveyed to local or central government for the purpose. That’s not usually the case with minor public roads that have never been widened or realigned, though.)   

One could think of other examples of discontiguities so I expect to see the requirement for contiguity discarded as the bill progresses through Parliament and perhaps replaced with a formula such as “contiguous or linked; meaning separated by not more than X kilometres”.

Case study
A 2,800ha (almost 7,000 acres) estate consists of three blocks of low ground arable land and a grouse moor. Two of the blocks of arable, of 800ha and 400ha separated by a motorway, belong to Lord Blackacres. The third block, 700ha and contiguous with the 400ha, belongs to Lord B’s son and heir. The grouse moor, contiguous with the 800ha block of arable, is 900ha and belongs to a trust for Lord B’s grandchildren: he is a trustee, his name appearing as such in the trust’s title in the Land Register (LR). The whole is branded as ‘the Blackacres Estates’ and managed by upper crust estate agents Sadlers, Stritch & Pankhurst. They are the ‘gate-keepers’ of the estate, their local office its point of contact. Despite their wealth on paper, the family is chronically short of cash due to the exorbitant costs of maintaining Blackacres Castle. SS&P have an exceedingly attractive private offer for the whole estate minus the castle and its 20ha policies (Scottish word for the grounds of a big house) from a Singapore hedge fund manager. They strongly recommend acceptance  before a local steering group gets its act together sufficiently to be able to invoke statutory community right to buy (CRTB) procedures which might derail any future exposure of the estate to the market.

Blackacres is not a “large holding of land” for the purposes of the CRTB and lotting provisions of the bill because of a discontiguity in ownership (the motorway running through it belonging to the Scotgov) and the fact that the definition of “connected” owner the bill employs (reference to the RCI Regs) does not catch the relationships between its three different owners.