Consultation published on new community right to buy land to further sustainable development.
The Scottish Government has published a consultation on secondary legislation proposals relating to Part 5 of the Land Reform (Scotland) Act 2016 (the 2016 Act). This concerns the new community right to buy land to further sustainable development (Part 5 Right to Buy) which is expected to be introduced before the end of 2020 (date yet to be confirmed). Where it is successfully invoked, the Part 5 Right to Buy will lead to community ownership of land irrespective of whether the owner is willing to sell. In other words, a community body (CB) that successfully exercises their Part 5 Right to Buy will have an absolute right to buy the land.
The purpose of the consultation is to explain the Scottish Government's proposals in respect of a number of matters relating to the Part 5 Right to Buy, to present a broad outline of how the Part 5 Right to Buy will operate once it is in force and to give stakeholders the opportunity to put forward their views on the provisional legislation created for the Part 5 Right to Buy. The Scottish Ministers are inviting responses to the consultation by 18 September 2019. The purpose of this article is to review the proposed legal mechanisms for the Part 5 Right to Buy, whilst also placing the Part 5 Right to Buy in the context of the existing community rights to buy in Scotland.
Background and context
The Part 5 Right to Buy is the latest in a range of opportunities created by Holyrood legislation for CB's to acquire land. The precursors to the Part 5 Right to Buy are (in chronological order):
- The community right to buy under the Land Reform (Scotland) Act 2003 (the 2003 Act) - Referred to as the "original" community right the buy, the 2003 Act rights - which remain available to communities today - were the first of their kind in Scotland. The 2003 Act - as varied by the Community Empowerment (Scotland) Act 2015 (the 2015 Act) - allows CBs to apply to the Scottish Ministers to register their interest in land. If and when that land is put up for sale by the owner, the CB have a right of first refusal (ie a pre-emptive right, rather than an absolute right) to buy the land. To successfully exercise this right, the CB must first demonstrate: (a) that the land will be used for sustainable development; (b) that the purchase is in the public interest; (c) that a significant number of members of the community have a connection with the land; and (d) that there is sufficient support from the community as a whole (as opposed to from the CB itself) for the purchase.
- The crofting community right to buy under the 2003 Act - The 2003 Act (as varied by the 2015 Act) also created separate rights allowing crofting communities the right to buy land which is subject to a croft. If exercised successfully, the crofting community right to buy is an absolute right to buy (ie as with the Part 5 Right to Buy, it does not require a willing seller).
- Asset transfer requests under the 2015 Act - Since 23 January 2017, eligible CB's have a right to apply to purchase, rent, manage or use land, buildings or other structures (eg bridges) from public bodies, including: local authorities, national park authorities, health boards, the Crofting Commission, the Scottish Environmental Protection Agency (SEPA), Scottish Water and the Police, Fire and Rescue services. The 2015 Act also requires these authorities to publish a public register of the land they own or lease. When applying, the CB must set out what it plans to do with the land and what benefits owning the land will bring to its community. During its evaluation of an application, the relevant public body must consider, amongst other things, whether the proposals will improve the economic development, regeneration, health, or social or environmental wellbeing of, or reduce inequalities within, the community referred to in the application. The benefits of the CB's proposals must be compared to the benefits of any other plans associated with the land, including continuing the current use of the land or its sale on the open market. There is a presumption in favour of the community proposal unless there are reasonable grounds for refusal.
- The community right to buy abandoned or neglected land under the 2015 Act - As of 27 June 2018, communities are entitled under the 2015 Act to apply to buy land which is abandoned, neglected or causing harm to the environmental wellbeing of the community. If invoked successfully, the community's right to buy is absolute. To achieve this the community must demonstrate: (a) that its plans for the land are compatible with sustainable development in relation to the land; (b) that sustainable development would be unlikely to be furthered if the existing owner of the land continued to own; (c) that its purchase is in the public interest; (d) that a significant number of members of the community as a whole, (as distinct from the CB), have a connection with the land; and (e) that there is sufficient support from the community as a whole, (as distinct from the CB), for the purchase.
The rights to buy held by agricultural tenants under Agricultural Holdings (Scotland) Act 1991 secure tenancies are individual, rather than community, rights to buy, and are therefore outside of the scope of this article.
The new community right to buy land to further sustainable development
The Scottish Government's consultation on the Part 5 Right to Buy sets out the Government's proposal for how the right should operate in practice. This takes the form of an 12 stage process which can be summarised as follows:
Stage 1 - Local community identifies suitable land and community project
The CB will identify land - or a tenant's interest in land - which they believe would further sustainable development in relation to the local community, and which it is in the public interest for the local community to own. The CB will not be allowed to apply for the transfer of any land: (a) on which there is a building or other structure which is an individual's home, unless that home is occupied under a tenancy; (b) that is croft land; or (c) which is owned or occupied by the Crown by virtue of its having vested as bona vacantia in the Crown, or its having fallen to the Crown as ultimus haeres. Otherwise, applications can be made in respect of all land in Scotland, as well as structures, inland waters, canals, the foreshore, salmon fishings and mineral rights.
The Scottish Ministers will be unable to consent to any Part 5 Right to Buy application unless they are satisfied that: (a) a number of prescribed sustainable development conditions have been met; and (b) the procedural requirements of the application process (described below) have been adhered to.
In order to satisfy the prescribed sustainable development conditions, the CB will need to show that:
- the transfer of the land is likely to further the sustainable development of the land;
- the transfer of the land is in the public interest;
- the transfer of land is likely to result in significant benefit to the relevant community;
- the transfer of land is the only practicable, or the most practicable, way of achieving that significant benefit; and
- not granting consent to the transfer of land is likely to result in harm to that community, including to the economic development, regeneration, public health, social wellbeing and / or environmental wellbeing of the community.
Stage 2 - Incorporation of community body
Once sustainable land has been identified, the CB must incorporate itself. The CB must become one of the following: (a) a company limited by guarantee; (b) a Scottish charitable incorporated organisation (SCIO); (c) a community benefit society; or (d) a body corporate. There is no minimum membership requirement. Importantly, a CB will not be deemed to have been properly constituted unless the Scottish Ministers have given written confirmation that they are satisfied that the main purpose of the CB is consistent with furthering the achievement of sustainable development.
Stage 3 - Nomination of third party purchaser
The CB may elect to nominate a third party (eg a funder) to exercise the Part 5 Right to Buy on their behalf.
Stage 4 - Identification of land owner(s), tenant(s) and creditor(s)
The CB must then identify the owner of the land they seek to purchase - or the tenant whose interest they are looking to acquire - and any creditor in a standard security over the land (or interest). This will involve reviewing the title deeds or lease documents held by Registers of Scotland. The CB must also identify other rights (eg rights of access) or interests in the land known to them, as the parties that benefit from these rights may be entitled to compensation if the CB's application is granted.
Stage 5 - Writing to the land owner or tenant
Having been officially constituted, the CB must then write to the land owner or tenant seeking the transfer of the land or the tenant's interest. Statutory template forms will be available for CB's to use for these requests. Wherever possible, land owners, tenants and CBs are encouraged to work together in negotiating a deal which is acceptable to both parties.
Stage 6 - Land owner's or tenant's response (or lack thereof)
The land owner may respond to the request from the CB, or they may choose not to. Template response forms will be available for land owners and tenants to use.
If the owner agrees to transfer the land at a price and on terms agreeable to the CB, or comes up with another proposal acceptable to the CB, then the transfer of land becomes a private matter between the land owner and the CB. In other words, in those circumstances the transfer would proceed outside of the scope of the 2016 Act.
The consultation paper clarifies that there will be no automatic correlation between a land owner's or tenant's response, or lack of response, to a request, and the success or failure of any subsequent Part 5 application by the CB. The Scottish Ministers will consider each CB application on its own merits, according to the conditions and requirements set out in the 2016 Act.
Stage 7 - The community ballot
Before submitting a Part 5 Right to Buy application to the Scottish Ministers, the CB must seek the approval of the members of its community via a ballot. The ballot must take place within the 6 months immediately preceding the Part 5 Right to Buy application, otherwise the application will be rejected by the Scottish Ministers. The ballot will take the form of a secret ballot of all people within the community which the CB have identified as their relevant community. The consultation paper proposes that these may include: (a) an electoral ward; (b) the area of a community council; (c) a postcode area, district or sector; (d) an island; or (e) a settlement delineated on the maps included in the Population Estimates for Settlements and Localities in Scotland, Mid-2016 published on 12 March 2018.
Stage 8 - Part 5 application to Scottish Ministers
The CB is entitled to make an application so long as the ballot referred to in Stage 7 supports the application and the owner or tenant has either: (a) not responded to the CB's request; (b) responded, but not agreed to the request; or (c) indicated they are open to negotiation, but the parties have then been unable to reach agreement. Timings will be important; the CB's application must be submitted more than six months after the request to the land owner referred and less than six months after the ballot.
Template forms will be available for the application. The CB will need to set out in these: (a) the reasons the CB considers its proposals meet the sustainable development conditions; (b) the locations and boundaries of the land over which the CB is seeking to exercise the right to buy (including, where relevant, any tenant's interest); (c) all rights and interests in the land known to the CB; and (d) the proposed use, development and management of the land.
There is no maximum time limit as to how long a CB may wait before submitting a formal application to the Scottish Ministers. However, the consultation advises that common sense should be applied. Given that circumstances relating to land and people can change over time, in practice it is sensible to not have a long delay between submitting a written request to the land owner and making an application to the Scottish Ministers (although there may be circumstances where a delay is warranted).
Stage 9 - Consideration of application by Scottish Ministers and registration of application on the register of applications by community bodies to buy land (the RoACBL)
If accepted for consideration by the Scottish Ministers, the application is registered by Registers of Scotland on the RoACBL while it is pending. This has three primary effects:
- Prohibition on transfers - The land owner or tenant whose land or interest is the subject of the application will be prohibited from transferring or otherwise dealing with their land or interest, unless they have concluded missives to do so prior to the registration of the application on the RoACBL.
- Invitation to comment - On receipt of the application, the Scottish Ministers will invite various people, including the land owner or tenant, any creditor in a standard security over the land and the proposed third party purchaser (if applicable), to send them their views on the application within 60 days of the invitation to do so. Scottish Ministers must also take reasonable steps to invite neighbouring owners of the land for which the application relates to send their views on the application within the 60-day period. The Ministers must send copies of all such requests to the CB.
- Public notice of application - On receipt of the application, the Scottish Ministers must also give public notice of the application as soon as reasonably practicable. They will invite interested parties to submit their views within 60 days from publication of the date on which the notice is registered by Registers of Scotland on the RoACBL.
Stage 10 - Ministerial decision
Taking account of all of the information available to them, the Scottish Ministers will make a decision on the application based on whether: (a) the sustainable development conditions; and (b) the procedural requirements referred to above, have been met.
Stage 11 - Approval of transfer and completion of community purchase
If Scottish Ministers approve the transfer, they may make their consent subject to conditions. In any event, within seven days of approval of the application, the Scottish Ministers will appoint a valuer. Within eight weeks of the date of their appointment (or such longer period specified by the Ministers on application by the valuer), the valuer will provide a valuation of the land. The valuer also settles the allocation of rents and any other rights and obligations in respect of the tenant's interest where necessary.
The owner, CB, tenant and / or third party purchaser may appeal to the Lands Tribunal about the valuation of the land and allocation of rents. The CB and, where applicable, the third party purchaser, have 21 days from receipt of the valuation to confirm to the Scottish Ministers, the owner of the land and, where applicable, the tenant, whether or not they wish to proceed with the purchase.
The process for completion of the purchase or transfer is set out in the 2016 Act. It is for the CB or third party purchaser to secure the expeditious exercise of its Part 5 Right to Buy, including the preparation of all documents necessary to effect the transfer.
Stage 12 - Appeals
Interested parties may appeal to the sheriff against the Scottish Ministers' decision in respect of the application. Where the application is approved, interested parties may include the land owner or tenant affected, any member of the community to which the application relates and / or a creditor in a standard security registered over the relevant land or interest. Where the application is rejected, the CB is entitled to appeal. The CB's appeal must be lodged with the sheriff in whose sheriffdom the relevant land (or any part of it) is situated within 28 days of the date of the Scottish Ministers' decision.
Analysis - Key considerations for local communities
Of particular interest to local communities will be the provisions of Part 5 relating to the sustainable development requirements. Neither the 2016 Act nor the consultation paper define this term, other than to set out the conditions which will be used to assess whether the requirement has been met (see Stage 1 above). Although the requirement to evidence sustainable development has been a prerequisite of previous rights to buy (eg the 2003 Act right to buy (as amended by the 2015 Act) and the right to buy abandoned or neglected land under the 2016 Act), the Part 5 Right to Buy introduces new considerations regarding the benefit that the granting of a proposal, and the harm that the rejection of that proposal, would have on the community. Whilst the assessment of a proposal's benefits is straightforward, evidencing that the rejection of a proposal would cause harm to a community may prove more challenging for applicants. As the CB will, at the date of their application, most likely not have enjoyed the use of the relevant land, it may be hard for them to argue that their community's position would worsen if their proposal is not granted. This would apply particularly to communities that already suffer from poor socio-economic circumstances. Will these communities be able to show that - notwithstanding the status quo is that the community is not entitled to use the asset - their situation will deteriorate if their proposal is not granted?
CBs considering an application under the 2016 Act will also pay close attention to the secondary legislation proposed in respect of the funding of applications. The 2016 Act anticipates that CBs will seek third party funding to pay for the initial capital expenditure required to purchase the land. It is for this reason that CBs can elect to have title to the land registered in the name of a nominated third party (see Stage 3 above). However, it is unclear whether and to what extent the title of that third party would be restricted so as to ensure that the land in question is used for the benefit of the community. What protection would the CB have if, for example, the third party decided to use the land for purposes outside of the scope of the CB's application, or to sell the land? It may be that CBs would have preferred a right to lease the land from the land owner in the first instance, an option which is not currently available under the 2016 Act (although a CB can acquire the tenant's interest under an existing lease). That structure would have allowed the CBs to occupy and use the land for a lower initial capital outlay, placing less onus on them identifying third party funders to meet the large-scale upfront expenditure. Over time, the CB could have been granted a right of ownership (eg after 20 years of lease the land).
Analysis - Key considerations for land owners and tenants
Land owners and tenants will have a vested interest in the secondary legislation that is produced in respect of the completion of the CB's purchase. Although land owners and tenants must adhere to strict timeframes when supplying the CBs with title deeds and, ultimately, transferring their land or interest to the CB, the CBs themselves - who are granted full control over the completion process by the 2016 Act - are not bound by any such timeframes in terms of completing the transaction following the approval of their application by the Scottish Ministers. One could conceive of a situation where the CB may need to delay completion so as to ensure their funding arrangements are in place. This may lead to a period of uncertainty for the land owner or tenant affected by the application.
Land owners and tenants may also be interested in the legal ramifications of what happens to the property in the event of the CB or third party no longer using the land (eg because their proposed project has failed) or using the land for purposes out with the scope of their original application. Neither the 2016 Act nor the consultation are clear on what happens in these circumstances. It may be that the Scottish Ministers would impose title conditions on the CB's ownership of the land to ensure they use the property for the purposes authorised by the Ministers. Land owners and tenants will feel that - if the land is not used, or not used properly, by the CB - the land or tenant's interest should revert to them. That process would have been easily achieved by a structure whereby the CB occupied the land under a lease (as referred to above). If the CB breached the terms of the lease regarding use of the property, the land owner could have, by application to the Scottish Ministers, sought to terminate the CB's lease and reacquire the land. Under the current proposal, it is unclear whether the affected land owners or tenants will have any reversionary rights to the land following a successful application.
Stakeholders may wish to use the consultation process as an opportunity to seek clarification from the Scottish Government on these points, and on any others relevant to the implementation of the Part 5 Right to Buy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.