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Scottish Relinquishment – Is the process working?

14th February 2023

The long-awaited Relinquishment procedure formally came of age in February 2021. The procedure itself had been much talked about prior to this, with some forwarding thinking landlords actually acting upon it whilst others remained in denial.

Since the process was formalised, has much changed?

In line with advice from the Tenant Farming Commissioner, any parties considering the Relinquishment process are actively encouraged to engage and talk, when opening up discussions with landlord’s agents, or indeed with landlords themselves. Reactions have been quite varied.

It is encouraging to see that a number of parties are fully aware of the situation, quite aware of what is involved and take a pro-active stance in all discussions. The freeing up of a 1991 Act tenancy allows significant advantages to the landlord including greater flexibility, the ability to re-let (if desired), considerable release of asset value to balance sheet and potential tax advantages. Not all of these advantages apply to every situation, a lot depending on how the asset is held. Active engagement with landlords of this nature, have proven quite productive and some negotiations have proven to be quite swift. In one situation discussions opened in June, agreement was reached by August with exit by November.

Other situations have been remarkably different, with the initial approach being met with complete denial about the process itself. Some landlords have stated the process does not apply to them; this leads on to representatives coming up with their own completely different method of valuation, despite industry guidance, and leads to quite a degree of frustration. One of the common points made is that the relinquishment valuation does not apply as the landlord is not looking to relet the farm, therefore the situation is different - this is quite simply not the case. In this situation, and often as part of the discussion, the ability to revert to the formal process is raised.

Whilst we are encouraged to do everything discussion, and indeed intend to do so, the formal process should not be treated with fear. Whilst undoubtedly there is going to be a cost, it does start to put matters down firmly and within a relatively strict timetable so things can get moving. There has already been one Relinquishment undertaken using the formal process so, quite simply, the system does work.

It is understood there are now more applications being made to the TFC, however extreme care needs to be used when going down this route to ensure the correct information is provided at the start.

A further option that has been explored and enacted is one whereby landlord consent has been given for the open assignation of a secure tenancy without the need to go through the formal process. In order to do this, there obviously needs to be written consent of a landlord to undertake this, but it potentially alleviates the need for extensive valuation advice and discussion and furthermore, there is potential for the landlord to have some form of involvement in the process. If the landlord considers they are in the game of long-term letting of land and they don’t want to make a consideration personal outlay but do want involvement in who their tenant is this could be considered an interesting option.

With open assignation the question is then raised as to who wants to become the tenant. The answer is a very wide range of people. With land values the way they are it is often difficult to raise the capital to purchase with a further limiting factor being interest rates going the way they have been recently. By becoming a tenant of a farm worth say, £3m, for an annual rent of say, £20,000, then simply looking at the numbers tells a story. There are many keen parties out there. This, therefore, creates a further viable alternative.

So, to answer the question – Relinquishment, is the process working? I would say the answer is most certainly a yes and I really feel that going forward this will become more so. Having undertaken approximately 30 completed discussions over the past 3 years myself, it is clear there is significant movement in the industry.

Tom Oates
07785 926 306