Renewables and the agricultural tenant

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The current rush to renewables has created many opportunities for landowners.

What, then, of the opportunities in renewables for agricultural tenants?

For agricultural tenants with leases under the Agricultural Holdings (Scotland) Act 1991 or Limited Duration Tenancies under the Agricultural Holdings (Scotland) Act 2003 there are possibilities for the generation of renewable energy.

The Borders is understood to be one of the areas of Scotland with the highest proportion of let land, and there are many tenants in the area whose leases have the potential to allow them to take advantage of renewables.

For tenants whose leases may permit such development, there are two ways of approaching the issue, either as an improvement or as diversification.

The Agricultural Holdings Acts allow tenants with eligible leases to ‘provide or lay on generating equipment’ as an improvement, subject to obtaining landlord’s consent. The test for improvements is that they must be reasonable and desirable on agricultural grounds for the efficient management of the farm. It follows that even if there is an existing mains electricity supply, a cheaper source of renewable energy will mean greater efficiency, and so the test (may) be met.

For renewable development to constitute an improvement, the greater part of the electricity produced must be used on the farm.

There are several consequences of tenants installing a renewable energy scheme as an improvement (i.e. with proper consent), one is that improvements are not rentable, and the other is that they can be compensatable at waygo. Landlords are likely to want to see such improvements classed as tenant’s fixed equipment to avoid compensation being an issue.

The alternative to viewing renewables as improvements is to treat them as diversification.

The 2003 Act introduced a right to diversify let farms to non-agricultural use (subject to notice provisions being complied with) to those with 1991 Act tenancies or Limited Duration Tenancies. This is undoubtedly the more suitable option where there is to be a significant element of exportation of energy from such a scheme. Tenants must remember that diversified activities can be rented with regard to the increased rental value of the land arising from non-agricultural use.

While there is no fixed rule about when the proportion of energy exported would convert a renewable scheme from an improvement to diversification, the principle of the matter would seem to be self-evident.

Tenants are faced with a number of other issues around renewable developments, such as difficulties in leasing turbine sites to limited companies and the possible need to seek landlord’s consent to wayleaves (which the landlord is in no way beholden to grant) where grid connection is not on land occupied by the tenant. This can lead to problems with funding and the ring fencing of risk.

Given the sums involved and the difference renewables schemes can make to the economics of farming, we are likely to see significant development of renewable schemes by agricultural tenants. There are many limitations on how such tenants can proceed with such schemes, but if these can be overcome then the rewards are there for the taking.

If you would like advice on any of the topics covered contact Andrew Linehan on 01835 862 391 or andrewlinehan@lindsays.co.uk.