Wed 28 Nov 2018

Private Residential Tenancies and the issues for tenants under an Agricultural Lease

The much-heralded introduction of the Private Housing (Tenancies) (Scotland) Act 2016 (2016 Act) saw the creation of a new form of residential lease, the Private Residential Tenancy (PRT). From 1 December 2017 PRTs replaced Short Assured Tenancy arrangements with which many rural landowners and agricultural tenants, who sub-let their spare cottages, are no doubt familiar.

The principal change brought about by PRTs is the removal of a stated lease term, meaning that, generally speaking, provided a tenant under a PRT remains in occupation and pays their rent the lease can, in theory, continue in perpetuity. This change was introduced to provide security, stability and predictability for residential tenants. The trade-off is, however, decreased flexibility for landlords.

A tenant under an agricultural lease (the Agri-tenant) who is renting out surplus farm cottages on the open market can, subject to partial sub-letting being permitted by their agricultural lease, rent out surplus cottages to third parties by means of a PRT. However, at the termination of the Agri-tenant's lease, the Agri-tenant is obliged to provide vacant possession of the holding to their landlord. This means that any PRTs must be ended on or before the day the Agri-tenant has to vacate the holding. Short Assured Tenancies allowed for the quick recovery of the cottages in these circumstances as the termination of the Agri-tenant's lease would also terminate the Short Assured Tenancy.  PRTs have removed that flexibility.

Section 46(2) of the 2016 Act states that where a PRT has been granted by a Agri-tenant, if they cease to be the Agri-tenant of that holding, provided that the sub-tenancy (or PRT) was granted lawfully, a new PRT will be created on the same terms. This new PRT will be deemed to be granted by whoever is entitled to grant such a lease at the date of termination of the Agri-tenant's lease. In other words, on termination of the Agri-tenant's lease, a new PRT will be constituted between the PRT tenant and the landlord.

This has consequences for both landlord and Tenant. Let us look at each in turn.

Implications for the Tenant

In the event that the Agri-tenant fails to provide the landlord with vacant possession on the expiry of their agricultural lease the Landlord will have a claim for compensation (the actual amount being a matter of negotiation as part of the wider waygoing process). The existence of a PRT makes it difficult, if not impossible, for the Agri-tenant to fulfil that requirement for vacant possession.

This problem does not apply to an occupancy arrangement where a farm worker employed by the Agri-tenant is permitted to occupy a farm cottage incidental to that farm worker's employment contract. These types of arrangement are known as Agricultural Occupancy Agreements and do not carry the same protection as PRTs.

Implications for the Landlord

Where an agricultural tenancy is coming to an end, and the Agri-tenant has the ability to sub-let farm cottages, a landlord should seek establish whether any PRTs have been put in place by the Agri-tenant since the landlord will in effect assume the role of landlord to the sub-tenant on expiry of the agricultural lease. It is a legal requirement that any person who is a landlord under a PRT be registered as a landlord with the Local Authority, otherwise they may be fined up to £50,000.

There are grounds for landlords to recover possession of cottages let on PRTs, but these are very restrictive in nature. The full list of grounds for such recovery can be found in the 2016 Act.

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