Land Reform Bill #3 - compulsory lotting of sales over 1,000ha

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.)

               

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

 

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.

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.