Land Reform (Scotland) Act 2025: New Transactional Risks (Part 4)

Overview

This series on the Land Reform (Scotland) Act 2025 has so far considered the new concept of large land holdings (LLHs) and the community engagement obligations imposed on their owners (Part 1), the community buy-out and lotting regimes that may delay or prevent transfers of LLHs (Part 2) and the framework governing land management plans (LMPs) (Part 3). In this fourth instalment, we look at the same regimes through a Scots law conveyancing lens, examining the practical transactional risks they introduce for landowners, purchasers, lenders and their advisers.

As earlier articles have flagged, much of the Act remains subject to commencement (i.e. the provisions being brought into force by ministerial order) and secondary legislation. Significant uncertainty also persists around the practical scope of key concepts, particularly what constitutes an LLH and who falls within the “connected persons” aggregation rules. Even so, the broad architecture of the regime is now sufficiently clear for parties to begin factoring the new risks into deal strategy, while keeping their analysis under review as further detail emerges.

Risks to title and the real right of ownership

The most fundamental change is that the Act directly affects whether a real right of ownership (the legally recognised right of ownership in the land that is enforceable against the world at large) can pass on a transfer. A disposition in breach of the prohibitions in section 46B or 46F (community buy-out) or sections 67C or 67D (lotting) is expressly “of no effect”. The Keeper of the Registers of Scotland would be expected to reject any application for registration, and the purported transferee would acquire neither a real right of ownership nor the capacity to grant a valid standard security. The transferee would be exposed to immediate funding default, and any lender that had advanced funds against the purported security would find itself effectively unsecured.

These risks are exacerbated by the difficulty of correctly identifying land as constituting an LLH. The aggregation rules for “connected persons” and the anti-fragmentation rule (capturing transfers of more than 50 hectares forming part of a larger holding where related transfers exceed 1,000 hectares) make this a non-trivial exercise, particularly for trust, partnership and corporate group structures. The new prescribed declarations under sections 46J and 67E (and the section 67F exempt-transfer declaration) must be incorporated into the deed by the transferor, who will need to satisfy themselves that the underlying compliance position is sound before doing so. Given the unresolved scope of LLH status, the breadth of the “connected persons” rules and the absence (for now) of detailed secondary legislation and guidance, that is likely to be a meaningful ask. Transferors may understandably be reluctant to give a clean declaration in finely balanced cases, and may require additional due diligence, fuller factual analysis or formal legal advice before signing the deed. That, in turn, has the potential to slow transactions and increase cost, particularly while market practice is still developing.

Risks to deal execution and timetable

The community buy-out regime introduces a multi-stage timetable that overlays any LLH disposal. The owner cannot transfer or take any action with a view to a transfer until the Scottish Ministers lift the section 46B prohibition; that lifting notice may take up to 60 days from discharge of the Scottish Ministers’ publicity duty, and once given the lifted prohibition runs for only up to two years before the cycle must begin again. A community body’s note of intention to register an interest within the 30-day publicity window can trigger a further 70-day prohibition. Long-stop dates, exclusivity periods and any rights to resile from missives if the prohibition is not lifted (or if a community interest is registered) within an agreed period will need to be drafted with the new statutory timetable specifically in mind, rather than carried over from existing precedents.

Lotting adds a further timing layer. The Scottish Ministers have up to six months to determine a lotting application, lotting decisions remain in effect for five years, can only be reviewed after one year and are appealable to the Court of Session within 28 days. For any LLH disposal strategy spanning multiple parcels, this materially affects deal certainty.

Pre-contract activity is also caught. As noted above, the prohibitions on “taking any action with a view to a transfer” can extend to marketing, heads of terms, exclusivity arrangements, options and rights of pre-emption entered into before the section 46B prohibition is lifted. Standard pre-contract steps that would currently be regarded as innocuous may themselves breach the Act.

Risks to confidentiality and competitive process

Off-market transactions are particularly affected. The Scottish Ministers’ publicity duty requires prescribed information about the proposed transfer to be made publicly available on a website and notified to community councils, local authorities, National Park authorities and every person on the watchlist of those who have asked to be notified about possible transfers in the area. For privately negotiated sales, sale-and-leaseback arrangements, joint ventures and corporate-led disposals where confidentiality is commercially material, this represents a step change in transparency that may itself influence whether and how a transaction proceeds.

Risks for lenders and secured creditors

The prohibitions are not confined to owners: they expressly apply to any creditor in a standard security with a right to sell. Calling-up, enforcement and forced-sale timetables for LLH security must therefore absorb the full publicity and prohibition regime, with an initial delay potentially running to several months while the Scottish Ministers’ publicity duty is discharged, the 30-day community window expires and any further 70-day prohibition under section 46F runs its course. There is also a separate “shelf-life” risk: a section 46E lifting notice ceases to have effect if no transfer has taken place within two years, requiring the creditor to re-engage the publicity and prohibition cycle before completing an enforcement sale. Existing facility documentation should be reviewed for representations and undertakings as to capacity to dispose, mandatory prepayment triggers and loan-to-value undertakings (which require the borrower to keep the loan amount within an agreed proportion of the value of the secured property) that may not have been drafted with these timetables in mind.

For new lending secured over potentially in-scope land, lenders will need positive comfort on LLH status, the absence of any registered community interest and any extant or expired lotting decision before drawdown. Reports on title and certificates of title to lenders will need updated qualifications until the prescribed forms, secondary legislation and the registration practice of the Keeper of the Registers of Scotland are settled.

Risks to deal economics and pricing

A lotting decision may force a fragmented sale that is worth less in aggregate than a single-line disposal. The Scottish Ministers’ fallback remedy under section 67U, an offer to acquire lots at a price determined by an independent valuer (with appeal to the Lands Tribunal), is unlikely to reflect strategic or hope value. Compensation for compliance cost or loss arising from the lotting process is left to secondary legislation and to determination by the Scottish Ministers (or, on appeal, the Lands Tribunal), so cannot today be confidently reflected in pricing or in how risk is allocated between buyer and seller. Separately, an LMP that publicly commits land to particular uses may deter prospective buyers and depress price where the committed uses do not align with a buyer’s plans for the land.

Mitigation strategies

Front-loading LLH and connected-persons analysis at the instruction stage is essential, including aggregation across trusts, partnerships and group companies. Misidentifying land as in-scope, or as out of scope, can derail a transaction or generate unnecessary regulatory engagement, cost and delay. That said, this is easier said than done in current conditions: the scope of LLH status and the breadth of the “connected persons” rules remain uncertain pending commencement of the relevant provisions, secondary legislation and Scottish Government guidance, so even careful upfront analysis may need to be revisited as the regime beds in. In finely balanced cases, parties may need to make working assumptions and document the basis for them, keeping their position under review as the legislative picture develops.

Once the in-scope analysis is complete, enhanced due diligence will be required as a matter of course, including review of community engagement history, any registered community interest, any extant or expired lotting decision, the position of any standard security creditor and the content of any LMP affecting the subjects. The implied warrandice and the prescribed statutory declarations are useful disclosure mechanisms but are not, and should not be presented as, a cure for void title.

How can we help?

These changes mark a clear shift in the Scots law conveyancing landscape for LLH transactions. Landowners, purchasers and lenders will need to factor additional strategic, regulatory and timing considerations into any disposal, acquisition or financing involving in-scope land.

If you are considering buying, selling or financing a landholding, or have any questions about the Land Reform (Scotland) Act 2025, please contact Darren Thomson or another member of our Estates and Land team.

This article was written by Darren Thomson and Bryn Davies.