Last week the Land Reform (Scotland) Bill was passed by the Scottish Parliament. It has generated vociferous debate over several years and an unprecedented number of amendments were lodged (nearly 400 in all) before the final vote. The Scottish Government has targeted landholdings over 1,000 hectares as a priority of their Land Reform policy, with the stated aim to increase transparency, deliver public interest and empower communities. This is a framework policy with more detailed secondary legislation to follow. As the Land Reform debate continues it is important to consider how this Bill may impact rural business and indeed the wider property market.

For the purposes of the Bill, a large landholding is an area over 1,000 hectares. Contrary to earlier versions of the Bill, the definition of a large landholding is now not strictly linked to a contiguous landholding but also a composite landholding aggregating to over the 1,000 hectare threshold – providing two of the holdings are contiguous with one another (or at least within 250 metres). The Bill also encompasses that the separate holdings are not required to be in the ownership of one individual but ‘connected persons’ would qualify as a large landholder. Therefore, if an individual has an interest in multiple areas of land in Scotland, each below the 1,000 hectares threshold, these will be aggregated to provide a total. It is also worth noting that the land in question may be in an urban or rural area.

The objective of the ‘connected persons’ is, in all likelihood, to prevent landowners from splitting their land into different entities to avoid the implications of the Bill. However, there is concern among a wide range of professionals in various industry sectors that this aspect of the legislation is undeliverable, given its complexity. It does also give rise to a number of anomalies which are against the broad aims of the legislation and conflicts with other government policies.

All purchasers of land or property in Scotland will, once the legislation is enacted, have to satisfy themselves that the seller is not a large landholder according to the provisions of the Bill. Of course, property purchasers should always conduct due diligence but the land reform legislation will make it extremely difficult to ascertain whether the proper procedures have been followed.

A large landholder will be obliged to notify ministers of their intention to sell any area of land from the holding. A small area of land intended to be sold for a house plot, or even selling a neighbour a small area of land to extend their garden will be captured by the extents of the Bill. This additional hurdle will most likely dissuade landholders from progressing with the sale, or if they do decide to proceed, will undoubtedly add huge complexity and delay the sale, which seems to be completely counterintuitive to the intention.

On notification of intention to sell, Scottish Ministers will be able to take the decision to split the land into lots for sale, subject to a public interest test. As a Firm we are selling farms and estates on an almost daily basis, and it is clear that the impact of this intervention will be significant in terms of the length of time and complexity involved to conclude a transaction, and it may also reduce the value of the sale. There is still a large amount of detail to be thrashed out on this point. Rural business organisation Scottish Land & Estates is considering whether there may be a legal basis to challenge this aspect of the legislation.

Large landholders will also be required to produce a Land Management Plan (LMP) which will be made publicly available, detailing any ownership structures in place, the owners’ long-term objectives for the land, how they have engaged with their local community and the environmental and social impact of their land management. This places an additional bureaucratic burden on landowners and there is concern that any sanction imposed for not delivering on the long-term objective stated in the LMP will ultimately hinder any form of proactive investment to deliver public goods such as affordable housing, commercial premises, or renewable energy schemes.

A Lands and Communities Commissioner will be appointed, who will be involved in the implementation of, and compliance with, the legislation. The Scottish Government will have the power to fine landholders up to £40,000 for non-compliance and thus, it has never been more important to take advice before creating a LMP or, indeed, embarking on a new project.

Much of the outcry against this Bill, particularly from professional bodies and advisers, is centred around the fact that the Bill in its current guise appears unworkable. The Scottish Government has confirmed that much of the detail will be delivered through secondary legislation, thus generating further uncertainty. All those involved in any kind of rural business are conscious that the details of the legislation will be under review for a considerable period of time after the Bill receives Royal Assent.

The implications of the new legislation and the uncertainty created will likely have a major impact on the land market, with greater bureaucracy and uncertainty potentially deterring buyers. There is concern that there will also be a negative impact on house building, renewable energy provision, data storage facilities, and all manner of other developments which are important to the future of Scotland. Any impact on land values provides challenges to existing or future securities for lending purposes with resultant consequences for investment in rural areas.

The sometimes forgotten Part 2 of the Bill will provide increased compensation to tenants following resumption of a farming tenancy, although any uplift in the capital value of the land will be excluded. Given that the Bill will affect secure 1991 Act Tenancies, but also Limited Duration tenancies, there is concern that such retrospective legislation will further disincentives the letting of land for agricultural purposes.

As a final point to note, the Scottish Government made clear that a review of Part 1 will be required five years after the enactment of the legislation. This review will include an examination of any loopholes identified, along with unintended negative consequences, a view on whether increased transparency has been achieved and a review of whether the minimum threshold used to define a large landholding is sufficient.