THE COURT

(Sheriff MacLeod, Mr A Macdonald)

ROSS v CAMPBELL

(Application RN SLC/150/10 – Order of 2 October, 2013)

AGRICULTURAL HOLDINGS - DETERMINATION OF RENT - WHETHER SEASONAL GRAZING LETS VALID COMPARABLES - WHETHER MOONZIE LAID DOWN HIERARCHY OF COMPARABLES SUCH THAT IF SUFFICIENT EVIDENCE AVAILABLE AT ONE LEVEL IMPERMISSIBLE TO CONSIDER OTHER SOURCES FURTHER DOWN HIERARCHY

The landlords of a holding known as Waas Farm, Janetstown, Thurso, applied to the Court to have determined the rent payable for the holding as from Martinmas 2010. At proof the landlords relied, as evidence of rent being paid for comparable land in the locality, on two seasonal grazing lets. The respondent cited as a comparable the rent being paid for an agricultural holding, within the meaning of the Agricultural Holdings (Scotland) Act 1991, some 60 miles distant from the review subjects and argued (a) that it was impermissible to use seasonal lets as comparables for rent review purposes, these not being leases of agricultural holdings within the meaning of the 1991 Act, and (b) that the Court of Session in Morrison-Low v Paterson’s Executors 2012 SC 373 had laid down a hierarchy of comparables such that if sufficient evidence was available at one level of that hierarchy it was impermissible to consider evidence from sources ranked lower. Although the whole of the Court’s decision is appended hereto the case is of wider interest only on these points and parties’ submissions and the Court’s decision on these matters are to be found at paras [325]-[335] and [395]; [359]-[367]; and [415]-[421] of the Note.

HELD that nothing in Morrison-Low v Paterson’s Executors prohibited the use of seasonal grazing lets as comparables where these were lets of subjects very similar to the review subjects and that, where they were of greater similarity to the review subjects than a holding under the 1991 Act, the evidence relating to them could be preferred to the evidence relating to that holding, Morrison-Low v Paterson’s Executors not having prescribed a hierarchy of evidential sources such as contended for by the tenant.

The Note appended to the Court’s Order was as follows:-

INTRODUCTION

The parties

[1] This is an application asking the Court to determine the rent payable for Waas Farm, Janetstown, Thurso, Caithness, as from Martinmas 2010 in terms of section 13 of the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”). The landlords are Findlay George Lee Ross and Mrs Diane Joan Ross. The tenant is John (otherwise Ian) Archibald Cook Campbell.

The lease

[2] The lease is a lease of an agricultural holding in terms of the 1991 Act. It was originally between the Executors of the late David Miller Mackenzie and the tenant. It was dated 30 October and registered in the Books of Council and Session on 17 November 1998 but the date of entry was Martinmas 1990. It was for the period of a year and from year to year thereafter. The rent was £2,300 per annum. That was increased to £2,900 by agreement of the original parties with effect from Martinmas 2002 and has remained unchanged since then. The present landlords purchased the subjects with entry as at 27 March 2003. In this application they ask us to increase the rent to £5,000 per annum.

[3] The lease contains the following provisions relating to liability for fixed equipment.

“FOUR The Landlord shall …provide such fixed equipment … as will enable the Tenant to maintain efficient production as respects both the kind of produce accustomed to be produced on the farm and the quality and quantity thereof, and will during the tenancy effect such replacement or renewals of the fixed equipment as may be rendered necessary by natural decay or by fair wear and tear. … The Tenant shall however be solely responsible for the cost of erection of all fencing on the farm both internal and boundary and thereafter the maintenance, repair and renewal thereof. The Tenant accepts existing such fencing in its present condition.

SIX The tenant accepts the fixed equipment (as defined in the Agricultural Holdings (Scotland) Act 1991) on the farm in its present condition as tenantable and suitable and sufficient to fulfil the Landlord’s obligations relating to the provision of fixed equipment under Section 5 of the Agricultural Holdings (Scotland) Act 1991 (except for fencing for which the Tenant is responsible in terms of Clause FOUR hereof) and the Tenant shall be bound to maintain the same in a good and sufficient state of repair and further undertakes in the case of any fixed equipment provided, improved or renewed by the Landlord during the tenancy to maintain such in as good a state of repair (natural decay and fair wear and tear excepted) as it was in immediately after it was put in repair by the Landlord or in the case of fixed equipment provided, improved, replaced or renewed during the tenancy, immediately after it was so provided, improved, replaced or renewed.”

The hearing

[4] We began hearing the case at Thurso on 29 January 2013 and we heard evidence on that day and the following day, being the two days allocated for a hearing on the basis of parties’ estimates. These estimates proved woefully inaccurate. Mr Murchison, who appeared for the tenant, had other commitments on 31 January so we used that day, as originally scheduled, to inspect the subjects and various comparables suggested by the parties. We completed the evidence at Thurso over the three days of 21, 22 and 23 May and heard submissions at Inverness on 17 July. The landlord applicants were represented by Mr Iain Maclean, advocate, and the tenant respondent by Mr Andrew Murchison, solicitor.

[5] For the applicants we heard evidence from Mrs Ross herself and from Mrs Margaret Mary Brims Gunn or Macdonald, Mrs Isobel Mowat Mackay or Bates and Mr Sinclair Colquhoun Mackintosh FRICS. For the respondent we heard evidence from Mr John Adam Henderson, Mr Angus Cameron McCall, Mr Ronald Henry Duncan and the respondent himself.

Cases

Aberdeen Endowment Trust v Will 1985 SLT (Land Ct.) 23
Borland v Muir 1918 SLCR 22
Buccleuch Estates and Kennedy 1986 SLCR 1
Crown Estate Commissioners v Gunn Land Court RN 4818/61
Davie v Magistrates of Edinburgh 1953 SC 34
Duncan v Shaw 1994 SLT (Sh. Ct.) 24
Gray v University of Edinburgh 1962 SC 157
Guthe v Broach 1956 SC 132
Hainey v HMA [2013] HCJAC 47
Kinnaird Trust and Boyne 1985 SLCR 19
Little v McEwan 1965 SLT (Land Ct) 3
Mackenzie v Laird 1959 SC 266
MacPhee v Westminster (Liverpool) Trust Co Ltd 1962 SLCR 33
Morrison v Nicolson 1913 SLCR 89
Morrison-Low v Paterson’s Executors [2012] CSIH 10 and decision of the Land Court in SLC/233/08 dated 2 June 2010 (hereinafter referred to as “Moonzie”, being the name of the subject farm)

Texts

Agnew, Agricultural Law in Scotland
Agnew, Crofting Law
Hon Lord Gill, The Law of Agricultural Holdings in Scotland, 3rd ed.

EVIDENCE

(i) For the applicants

Mrs Margaret Mary Brims Gunn or Macdonald (75)

[6] Mrs Macdonald had farmed and run a Bed & Breakfast business at Seaview, Hill of Forss, for 53 years. Her father had bought the farm in 1952 and when she had married in 1958 she and her husband had taken it over.

[7] The farm comprised 73 acres of good arable land. They had grown a lot of good crops and reared North Country Cheviot sheep on it. They had also reared calves and the sheep and calves had won prizes.

[8] They had worked the unit along with her father’s place at Upper Dounreay. They had grown barley, turnips, hay, silage and, in the 1950s, oats. Seaview had always been a mixed farm. It carried about 40 cows and 100 sheep.

[9] The buildings on the farm were not much good now. She had kept the cattle in the byre but in modern farming steadings were not used except as workshops.

[10] In 2008 they had let out the land, exclusive of the buildings. She had given up full time farming then. The farm was let to a Mr Charles MacIver of Janetstown. Prior to letting it she had contacted the Aberdeen & Northern Marts office at Quoybrae (hereinafter referred to as “the Mart”) to ask about the value of the land. The auctioneer there was familiar with Seaview. He was also experienced in the letting of land through the Mart. He had told her the best fields were worth £75 an acre, the poorest £20 an acre and in between there were fields worth £45 or £50 an acre. These figures had been worked out in accordance with when the fields had last been cropped.

[11] The auctioneer had not advised her as to the sort of lease she should grant. What had happened was that Mr MacIver had heard that she was retiring and had got in touch with her. She had agreed a seasonal let with him. He grazed the land and had taken hay and silage off it. He had had about 30 cows and 100 sheep on it from time to time. Only the land was let, no buildings were included. There was no fixed equipment except fences. She had seen to the fences before letting out the land and Mr MacIver had agreed to maintain the fences.

[12] There was no written lease. Mr MacIver took his stock off the land for about a month or two months at the start of each year. Mr MacIver received the Single Farm Payment (“SFP”). The rent had been arrived at as follows: 16 acres at £75 an acre; 9.5 acres at £50, 22 acres at £45 and 19 at £20. That had produced a figure of just over £3,000 per annum (£3.045 in fact). The rent agreed had, however, been £3,000 per annum. That had been the rent in 2010 and it was still the rent. She thought she would probably have got more for it if she had put it on the market but she had a very good tenant so she was quite happy.

[13] In terms of work done by the tenant, he had sprayed the rashes last year although he had not caught them at the right time. The year had been very bad for rashes. There were rashes in fields in which there never had been rashes before. That was because of the weather. The weather was getting wetter and the rashes were getting worse.

[14] Seaview was about half a mile from Waas. The farms were very similar. There were several farms in the Hill of Forss area, all very comparable. She listed five or six. The land at Seaview was relatively level. Seaview and Waas had been farmed in exactly the same way. Mr David Mackenzie, who had owned Waas when she had come to Seaview, also produced top lambs and good crops, including oats and barley. He had died in the 1990’s. He had been more into half-bred sheep.

[15] Her own tenant, Mr MacIver, farmed Seaview along with a couple of farms he had at Janetstown, about two miles away. Different farms were often worked together in the area. If someone died a neighbour might get a chance to take his farm over and work the two places together. Equally it was very common for farmers to rent land from neighbours or other people.

[16] In cross-examination Mrs Macdonald agreed that the soil in the area comprised shallow gleys overlying a slate bedrock. It was very shallow and rocky.

[17] She accepted that things had changed over her lifetime in agriculture. Mr Murchison put it to her that practice to do with cropping had changed over the years, with a move away from crops. She was reluctant to accept that, saying that she herself would still be growing crops if she was fit and able. On closer questioning, however, she accepted that many of the crops they had been in the habit of growing had not been grown in years. Not only were oats not being grown any more, they had not grown turnips or barley for some fifteen years. She did think, however, that people would return to growing barley.

[18] Mr MacIver was going to re-sow a field of about six acres this year. She was going to erect a new fence around this field and she wanted it cropped to do away with the rashes. Mr MacIver was going to undersow the field with grass.There had been crops in this field within the past 20 years. Some people would still crop a field like that. They would take hay or silage off it.

[19] Long ago the land had been adequately drained by little stone drains but heavy tractors had broken those with the result that the land was not draining properly any more. It was put to her that the reason people no longer grew crops on a regular basis was the risk of crop failure because of the wetter weather. She accepted that there was such a risk if the land was not properly drained. She did not accept that the land itself was not the sort of soil that drained. If the land was properly drained crops would grow. She likewise resisted a suggestion that because the climate was different one would not take the risk of putting crops in for fear of crop failure. She would still put crops in; she would have to do so to feed her animals. She disagreed that a tenant would not view the growing of crops as a reasonable way to use the holdings. If she were still able to work the land she would have crops in it. Asked whether any of the other farms in the Hill of Forss area which she had mentioned were still practising traditional crop rotation she said that Glenburnie, Murrayfield and Hopefield still were, although on closer questioning it appeared that what they were doing was merely taking hay and silage off the fields.

[20] She had not discussed the duration of the proposed tenancy with the auctioneer. All she had asked for was a figure per acre for the land. She applied the figures she had been given to the various fields. The £75 per acre land was land which had just been resown; the £50 an acre was for fields where the grass was maybe a couple of years old; the £22 an acre was for five or six year old grass; the £20 an acre was pretty much hill grazing.

[21] Mr Mackenzie had still been cropping his land in the 1970s. She had been doing the same and she would speak with Mr Mackenzie from time to time. She knew how he was working Waas at that time.

[22] Mrs Macdonald was then asked about her knowledge of supply of, and demand for, land in the area. She assumed a lot of land was being made available to people for let because she saw people working other people’s holdings and she assumed that they had rented them. She thought there were more people looking for land than there was land available. It was very difficult for a young person to get land. She accepted that those who had land were trying to achieve economies of scale by renting extra fields. She could not comment on scarcity of land but one did see people paying big rents for land in the market.

[23] Having earlier referred to “all the crofts” doing as Mr Mackenzie had done, Mrs Macdonald was asked if any of the holdings locally were crofts. She said that part of her own had been a croft. This part comprised some 25 acres. In 1952 there had been two crofts; Seaview and Newlands of Guise. The part she was referring to as a croft was Newlands of Guise. Seaview was non-crofting. But both were now amalgamated on the same IACS code.The auctioneer had been aware that part of her land was a croft. Although part of the farm was a croft she had never claimed for any of the crofting grant or loan schemes. For example, she could have got a crofting grant for doing up the fences but she had not.

[24] Mrs Macdonald confirmed that the rent was just over £3,000. That had always been the rent. Asked whether she had discussed the rental with Sinclair Mackintosh she said that shortly after obtaining the valuation of her land from the auctioneer she had received a telephone call from a gentleman she understood to be Mr Mackintosh in which she had been asked if she rented out her land. That had been the start of her involvement in this case. She had not told Mr Mackintosh that the rent was only £2,500. The rent had always been £3,000. She did not know where £2,500 had come from. She could not be mistaken about that.

[25] Asked how farming had changed since her time as an active farmer, Mrs Macdonald said that farming had changed. The younger farmers used modern machinery with the result that, where once there had been three people working a farm, today there was only one. But she stoutly denied that new entrants into farming would use a farm such as hers only for grass ruminant grazing. If the people using the land had animals they would have to crop the land to feed the animals. They would grow barley and silage.

[26] Asked about her relationship with Mr and Mrs Ross, the witness explained that she had known Mr Ross as a little boy. His father had come from the same area as her father and her husband had known Mr Ross’s father. They had all known each other but there were no “ongoings”: they did not visit each other.

[27] Pursuing the point about any possible collusion between herself and Mr and Mrs Ross, Mr Maclean, in re-examination, took from the witness that she had not wanted to come to give evidence. As to part of the land being a croft, she had used the word croft to mean a small area of agricultural land. The auctioneer had known that part of the farm was croft land but he had said that it would not make any difference to the rent. As to Mr Murchison’s proposition that people would not use a farm such as hers for growing crops, she disagreed with that: people would do what they considered would be profitable.

[28] Asked by the Court as to whether it had been Mr MacIver’s idea or her own that the field she had mentioned be re-sown, she said that it had been hers: she had asked Mr MacIver to do it in order to improve the ground.

Mrs Isobel Mowat Mackay or Bates (62)

[29] Mrs Bates gave evidence about the other comparable farm suggested by the applicants. It is the farm of Ornum & Heathfield. Mrs Bates explained that her father, Mr James Mackay, owned Ornum and her brother owned Heathfield. Ornum had been bought in 1952 and Heathfield in 1986, it having been tenanted by her father prior to that. Either tenanted or owned, the farms had been in the family for three generations, going back to her grandparents’ time. Her father was now 89 and unable to give evidence himself. She helped him with his financial and business affairs.

[30] There was a farmhouse, cattleshed and piggery there but none of these buildings, nor any others, was let to the present tenant. Her father occupied the farmhouse. There was no farmhouse on Heathfield but her brother had built himself a house there. Again no buildings were included in the present lease of Heathfield.

[31] Ornum and Heathfield had been let as a single unit since around 1996. Around that time the witness’s mother had taken ill and her father had given up farming. The tenant was Robert MacIntosh. He had been there since her father stopped farming. He had it on a grazing let. As at Martinmas 2010 the rent had been £5,000.

[32] Mrs Bates identified productions 98 and 99 as maps of Ornum and Heathfield respectively. These were IACS maps and the field numbering showed that they were regarded as a single unit for IACS purposes. The two parts of the unit were about a mile and a half apart.

[33] Her own family and the MacIntosh family had known each other since her grandparents’ generation. Robert MacIntosh had his own farm in the area, situated between Ornum and Heathfield. His let of Ornum & Heathfield ran from January to October each year. The animals were taken off in October. Negotiations about each year’s lease were conducted by her father, rather than her brother. The most recent negotiations had taken place in September or October 2012. She was certain that the rent which had been paid in 2010 had been £5,000; that was the sum that had been paid into her father’s bank account. Her understanding was that the rent was negotiated yearly.

[34] Over the years the rent had increased. Some years it had stayed the same but overall it had increased. In 2002 it had probably been £4,000. It had never decreased since then. The earliest rent she had been able to trace was £3,000. She was not sure whether the rent was being paid in advance or in arrear: the state of her father’s paperwork had not been good when she had started helping him with his affairs.

[35] Asked whether rent negotiations with Mr MacIntosh tended to be difficult or amicable, she said they were amicable although her father may utter a couple of expletives at the level of rent being offered before deciding to accept it. It would be Mr MacIntosh’s expectation, year by year, that he would get the grazing on Ornum & Heathfield next year. The arrangement had been in place for some 20 years.

[36] The use made of the land by Mr MacIntosh was entirely grazing. The fencing had all been in a good state of repair at the beginning of the lease but Mr MacIntosh might have repaired the odd fence from time to time. All that was included in the lease by way of fixed equipment was fences and ditches. The overall hectorage of the joint unit was about 31.4 ha. Waas was situated roughly in the middle, between Ornum and Heathfield.

[37] In cross-examination Mrs Bates confirmed that her father had ceased farming in 1996 on the death of his wife. The lease subsequently entered into had not included any of the farm buildings.

[38] Heathfield was a croft. At least fields 9, 10 and 11 on production 99 were. She was unsure about field 12. Ornum was not subject to crofting.

[39] The witness also confirmed that Mr MacIntosh occupied the subjects from January to October in each year and took the stock off at the end of that period. That was done to ensure that it remained a grazing tenancy. Each year a written lease was entered into.

[40] It was put to the witness that a tenant who had to get off the land each October and required to negotiate for the following season’s use of the land was at a disadvantage in terms of rent negotiation: if he really needed the land he almost had to accept whatever the landlord was asking. Mrs Bates thought that there would be a general understanding of what one had to pay for land.

[41] It was similarly put to the witness that because of the precarious nature of seasonal grazing tenure such a tenant was at a disadvantage when it came to rent negotiations compared to a tenant under a secure lease with a right to remain on the land but Mrs Bates said that she did not fully understand what was involved in a full, secure tenancy. She accepted that there was a degree of goodwill between her father and Mr MacIntosh. Mr Murchison put it to her that, absent that goodwill, the landlord was in a very strong position, such that the tenant always had to keep the landlord’s goodwill. She replied that it was always good to maintain goodwill but accepted that one way of doing so was not to argue about the rent.

[42] Mrs Bates confirmed that the 2010 rent had been £5,000. She had a Power of Attorney from her father and access to his bank accounts. She could not say whether the rent was being paid forehand or backhand. It was paid at the end of October or in November. Her father could not remember whether it was for the season past or the season to come. It could be that the payment made in 2010 had been for 2011.

[43] So far as quality of land was concerned, the three parcel area of land at Heathfield was the best.

[44] Asked about scarcity, Mrs Bates said many of her friends were farmers and she knew how difficult it was to get land. Her father had been approached by others for his land. She herself had land at Strathie and she had been approached. That had always been the way of it in Caithness but it was less so in Sutherland. Land did not have to be advertised in order for it to be let. The demand was coming from small crofters who wanted to expand. Asked whether the level of demand influenced her father she replied that it would but that he would never put the MacIntoshes off the land in favour of anyone else. He would, however, want to get a good price for his land.

[45] Asked in re-examination about her reference to demand coming from small crofters wanting to expand, Mrs Bates said that that was mainly in relation to Sutherland, in Strathie, where she had land herself. She was not able to speak about demand in Caithness.

[46] In relation to Mr Murchison’s proposition that the landlord in a grazing let had the tenant over a barrel, she agreed with Mr Maclean that the control on that was the risk that the tenant would not pay an excessive rent demand and that the landlord would be left without a tenant. She agreed that in the annual “argie-bargie” about rent Mr MacIntosh gave as good as he got. But her father and Mr MacIntosh would eventually reach a bargain which suited them both. Her father would never ask for an unrealistic price.

Mrs Diane Joan Ross (52)

[47] Mrs Ross is one of the applicants. She is a lecturer in Equine Business Studies at North Highland College, part of the University of Highlands and Islands at Thurso.

[48] In 1998 she and her husband had bought the house and steading buildings at Waas, together with the access road to the same. In 2003 the then landlords had asked if they also wanted to buy the land. They had done so as a long term investment. They had been aware that there was a sitting tenant. Production 3 was a copy of the disposition of the farm in their favour.

[49] They had seen the lease, a copy of which is production 2, before going ahead with the purchase. The lease had run from Martinmas 1990, the rent was £2,300 from Martinmas 1996 and was not to be reviewed until Martinmas 1999. Clause 4 dealt with fixed equipment. No buildings were included in the let but the tenant was to be responsible for erection and maintenance of fences.

[50] The rent payable when they had bought the farm in 2003 had been £2,900 and had been fixed in 2002. There had been a court case between the previous landlords and the tenant but the rent had been agreed at that level in 2002. Since 2003 Mr and Mrs Ross had asked for an increase a number of times but nothing had happened. The rent therefore remained the same at Martinmas 2010 as it had been in 2003.

[51] Asked about how Mr Campbell had come to have a secure tenancy, her understanding was that he had originally had a grazing tenancy but had left his stock on the land for the full 365 days of the year. There had been an arrangement for Mr Campbell to buy the land. That had stalled for some reason. Mr Mackenzie, who owned the land at the time, had been going to sell to someone else and Mr Campbell had then claimed a full tenancy.

[52] So far as fixed equipment was concerned, there were old buildings in poor condition on the land but these were not part of the lease. The fixed equipment included in the lease comprised only the fences round the fields and the drains and ditches. She was not able to say what there had been in the way of fences in 1990. Under reference to production 75 Mrs Ross was asked which fences she recalled being erected or renewed in her time at Waas and answered that the fence between fields 10 and 14had been renewed. There had been a fence there previously and it had been removed and a new fence put up. She could not recollect the other fences shown blue on that production being renewed. Quite a lot of drains had been done since 2010 but only one had been dug out before then. That one was in field number 3. There had been an upsurge in activity of that kind since 2010 which she ascribed to the request for a rent rise. Production 76 showed drainage done in 1990. A lot of drainage had been put in in the last couple of years. Before that the ground had been wetter.

[53] The land had been used only for grazing for cattle and sheep and crops of silage had been taken off it. The witness was not able to say what numbers of cattle and sheep were grazed there. Mr Campbell had reseeded two fields, which she thought might be 11 and 12.

[54] She and her husband had made application for a rent review to the Land Court in 2008 but she thought it had been in the wrong format so they had applied again in 2009 for a rent to be fixed as at Martinmas 2010. They had spoken to other farmers about the level of rent and had felt that the rent being paid was well below the going rate. They had then consulted Mr Sinclair Mackintosh.

[55] She was aware of the statutory formula contained in sec 13 of the 1991 Act. They had been told about rents by a lot of people all over Caithness but no one wanted to come to court. The ones who had come, however, had been more than happy to do so.

[56] She and her husband had also consulted Lord Thurso. Her husband had been speaking to one of his 1991 Act tenants. The tenant had given good information but had not wanted to come to court. So they had then hit upon the idea of speaking to Lord Thurso himself. They had phoned him. He had been very helpful. He had been reviewing the rents on seven farms on his estate at that time. Reference was made to productions 83, 84 and 85, being exchanges between themselves and Lord Thurso. Lord Thurso’s approach was to divide the land into three classes; arable, pasture and hill. For arable ground rent was being looked for in the range £35 to £45 per acre; for pasture £30 to £35 and for hill ground £10 to £15 per acre. Lord Thurso had settled the rents on all seven farms at rents within these parameters.

[57] In cross-examination Mrs Ross denied that the only reason for which she was seeking an increase in rent was that it had not been increased since 2002. Their request for an increase was also based on what other tenants had told them. She accepted that, on its own, the fact that the rent had not increased over a period of time did not tell us anything. But that was not to be seen in isolation. There were other factors involved as well.

[58] Mr Murchison then asked about the possibility that an unrealistically high rent might be offered at the outset just to get the tenancy but Mr Maclean took objection on the basis that if evidence was going to be led of additional rent having been paid to obtain the tenancy or some sort of additional factor having come into the rent agreement arrived at in 2002 that was a matter requiring notice. If Mr Murchison was simply putting the matter on a hypothetical basis there may be no ground for objection but then the evidence would be of very little worth. After a response from Mr Murchison Mr Maclean undertook not to argue that the mere fact that the rent had not been increased for a lengthy period of time meant that it must be due for an increase now. That would be a preposterous submission which he had no intention of making. Standing this undertaking Mr Murchison departed from the line of questioning.

[59] The witness confirmed that she had been shown productions 22 to 73, being a number of invoices relating to goods or services supplied to Mr Campbell. It was agreed between Mr Murchison and Mr Maclean that it was not necessary to take the witness through these individually. Mrs Ross confirmed that she had had the opportunity of looking at them in more detail some time ago. They were for things such as drainage, fencing, reseeding and the provision of a water trough. She pointed out that not all of them specified provision in relation to Waas Farm. She was not, however, in a position to say that they were not in respect of Waas Farm. Mr Murchison put to her, in rebuttal of her earlier evidence that there had been an upsurge of renewal and repair activity since 2010, that the invoices showed the work to have been carried out consistently over the period covered. The witness pointed out that she lives at Waas Farm and insisted that she had seen a lot more activity recently. But she was not disputing that some work had been carried out before 2010.

[60] Under reference to production 49 the witness remembered that fields 11 and 12 had been ploughed by the applicant in her time at Waas. Field number 8 may also have been ploughed. Any other ploughing had been done before her time. Under reference to production 48 she remembered that fields 3, 9, 11 and 12 had been ploughed and seeded.

[61] Shown productions 74 to 77, she could not vouch for the extent and state of fencing at the outset of the tenancy: that was before her time (production 74). Under reference to production 75 she accepted that the fence between fields 10 and 14 had been renewed. She could not remember other fences being done but accepted that there were fences on the lines marked green on production 75. As to the fences marked in blue on production 75 she remembered that when she and her husband had first moved to Waas there had been a fence in the top field, then the fence had been removed and a new fence had been erected. She could not recollect the condition of the fence when they had arrived at Waas but did not think that it had been lying flat. She was unsure whether the fences in field 9 had been renewed. A double fence had been erected in field 14. She could not remember the others marked in blue having been done.

[62] Under reference to productions 76 and 77 she could remember drainage work having been done in fields 3 and 10 but not in any of the other fields indicated.

[63] Asked about her earlier evidence that the rent being paid for Waas was well below what other people were paying, she confirmed that the farms she had spoken about were Caithness farms. Her husband had been brought up on a croft and he knew a lot of farmers in Caithness. They had adjusted the rents being paid for these other farms to reflect different factors affecting different holdings. For instance at Pennywell the land was being rented out at £80 to £100 an acre. They had spoken to a lot of people informally but they had chosen as comparable the farms they had thought most comparable. The one of Lord Thurso’s tenants to whom they had spoken had not been willing to come to court. His farm was on a limited partnership tenancy. Most of Lord Thurso’s tenancies included houses and steadings but Lord Thurso did not take these into account when negotiating a rent. She did not know what effect the inclusion of the buildings had on a tenant’s willingness to take the tenancy and pay a certain level of rent: all she knew was that Lord Thurso did not take buildings into account in assessing rents.

[64] Mr Murchison put it to the witness that it was preposterous to say that if you had a holding with a house and another holding without a house they should pay the same rent and that it was ridiculous to suggest that a tenant would not care whether a house was included or not. Mrs Ross replied that one would have to speak to Lord Thurso to see how he arrived at his figures.

[65] The tenancies on Lord Thurso’s estate were similar tenancies in that they were secure tenancies and the land was put to similar use. Asked whether an adjustment to the Lord Thurso rentals was not necessary in order to reflect the fact that these tenancies had houses and steadings, the witness did not know. She had simply given evidence of what Lord Thurso had told her and she thought it was useful information. She denied that it was a matter of comparing apples with oranges. The houses on the Lord Thurso tenancies had been done up by the tenants. She rejected the idea that without more information it would be dangerous to use these tenancies as comparables. Lord Thurso had had the land surveyed by a surveyor and these figures had been what the surveyor had come up with, so the figures could be used as comparables.

[66] At this point Mr Maclean objected to the line of questioning as to what was comparable and what was not on the basis that that was a matter of law but Mr Murchison had reached the end of that line of questioning in any event.

[67] Asked about variation in rentals for agricultural land and in particular about the high rent she had mentioned for Pennywell Farm, Mrs Ross did not know the reasons for such variation. She was not an expert. If there were a lot of people bidding against each other at auction that could push up the price. Asked whether the high rent was because of demand, she did not know if that was right; she had merely been imagining reasons.

[68] In re-examination Mr Maclean pursued this line. The witness agreed that one reason for variation might be the different kinds of tenancy on which land was held. A reason for high rents might be that the land was seasonal grazing land being auctioned. Asked about the advantages of a secure tenancy such as we had here, one of these was that the tenancy could be passed on, another was the level of security of tenure and another was that the tenant would have the right to buy if the landlord attempted to sell.

[69] In relation to the comparable she had chosen, although they were grazing lets they were the best comparables available because they were long standing lets in the same area as Waas. She agreed with Mr Maclean that all the Lord Thurso evidence told us was that not all landlords and tenants agreed rents by a complicated process of adjustment. She agreed that Lord Thurso had been keen to emphasise that he had been able to achieve agreement in all his negotiations and that, so far as houses were concerned, if houses were included but they had been improved by the tenant they would not be rented in any event.

[70] So far as the invoices to which she had been referred to were concerned she agreed that no one was in a position to know, from the face of the invoices, whether all the goods and services which had been purchased had been for Waas. Nor was she in a position to say whether all the equipment purchased was for maintenance or for tenant’s improvements.

Sinclair Colquhoun Mackintosh (75)

[71] Mr Mackintosh is a Fellow of the Royal Institute of Chartered Surveyor. Having qualified in 1972 he spent time as a land agent, first on the Seafield Estate in Banffshire and then on the Westminster Estate in Sutherland. He has extensive experience in sporting and agricultural matters and has been in private practice in Dornoch since 1998. Mr Mackintosh described the geographical area of his practice as covering everything north of Dingwall, including Caithness and Orkney. He has experience of rent reviews in relation to both agricultural holdings and crofts.

[72] Mr Mackintosh confirmed that he had prepared reports in relation to this case for the applicants. Production 4 was his initial report, dated 24 May 2010. He had visited the farm and met Mr and Mrs Ross who had pointed out the boundaries. He had not entered upon the land for inspection purposes but had inspected from the road. The farm was held on a full secure tenancy. That was not unusual; he came across quite a lot of these in his work. Mr & Mrs Ross had told him about other possibly comparable farms in the area. He had not realised initially that these were grazing lets. In his assessment of rent for Waas he had taken into account economic conditions prevailing in the relevant sector at the time. He had assessed the rent, on an open market, sec 13 basis, at £5,000.

[73] That assessment had been supplemented with a letter, production 6, dealing with the comparables.Both of the farms referred to therewere comparable to Waas. Neither included the lease of buildings. In both cases the SFP was paid to the tenant. The Heathfield part of Ornum & Heathfield was better land than Waas but the Ornum part was the same. All three farms were geographically close.

[74] Production 12, dated 18 October 2010, was a second report prepared by him. It was closer to the rent review date. It referred to all the farms having marriage value. That would have the effect of increasing the rent. That was because when someone already had a farm and took on another holding he could spread the overheads, increase the stock and increase the profits. That would apply to all holdings, whether fully equipped or not, but for a holding without fixed equipment the most likely offerer was someone who already had a holding. Such a person would not be deterred by the lack of fixed equipment.

[75] The two comparable farms had not been let at arm’s length. Had they been, the rent would have been higher. The landlords of the comparables here had discounted the rent because of family or friendship issues. The same tenants had held the land for many years, albeit on seasonal lets. There was every expectation that they would get the grazing in each successive year. The tenancies were not let on the open market annually, or at all. Quite a lot of land in Caithness was let on seasonal grazing lets, whether through personal contacts or through the Mart. There was a ready market for farmers to acquire land in that manner.

[76] In the autumn of 2010 cattle and sheep prices had both increased. In the period from 2002 to 2010 the price of lambs had risen from £31 to £50 and the price of weaned calves from £380 to £500. Single Farm Payment had also increased. In 2002 the state of the livestock industry had been poorer than it was in 2010. Overheads were always increasing but prices for cattle and sheep had been poorer in 2002. Foot and Mouth Disease had affected the cattle market badly. The big move forward in sheep prices had not come until 2009 and in 2010 they had continued to move forward.

[77] Production 82 was a third report he had prepared.Dated 18 October 2012 it post-dated the review date by two years. By that time various factors to do with the determination of rent had become clearer in the light of the Moonzie Court of Session decision. The witness confirmed his understanding that the main import of that decision had been that rent reviews were all about open market valuation and that the Court had been unenthusiastic about the budget-based approach. His own general approach had not really changed over the range of his three reports. His Option 1 figure was his original valuation, Option 2 had been based on Lord Thurso’s approach and his figures for different categories of land and Option 3 followed the Moonzie approach.

[78] Lord Thurso’s approach took no account of buildings. He had spoken to Lord Thurso himself. He had applied Lord Thurso’s figures to the Waas acreage. Lord Thurso’s approach may be simple and crude but it seemed to work. It did not ascribe any value to farm buildings or fixed equipment. Asked about the range of values used by Lord Thurso for each category of land, the witness seemed to deny that a range was used: his understanding appeared to be that a fixed value per acre was used for each class of land. He had no recollection of having seen production 83, a letter from John Thurso M.P. (Lord Thurso), dated 13 July 2012.His understanding was that three per acre values were used: £35 for arable land, £20 for pasture and £10 for hill.

[79] With reference to Moonzie Farm, the Land Court had set out certain land classifications and ascribed a value to each of them. Although he had attempted to adjust these figures for Waas it had turned out to be just too complicated. The two farms were so different: Moonzie was a fully equipped farm and it was not in the same geographical area as Waas.

[80] Production 95 was a further report from the witness in which he had brought various strands together. It involved consultation of the MacAulay Institute’s plan showing soil classification in the area. According to that classification Waas was primarily suitable for grazing. But it was not confined to grazing. Root crops – turnips and potatoes – could be grown as could cereal crops, such as barley. Last year barley had been grown on farms quite close to Waas. In past years a variety of crops had been farmed at Waas.

[81] As to the tenant’s obligations in terms of the Waas lease, these were more onerous than usual in that he was bound to maintain fences, ditches and drains, all of which were normally the liability of the landlord. But given how limited the fixed equipment on the farm was there was not in fact much to maintain.

[82] Mr Mackintosh did not see the lack of a house as a disincentive to a tenant. His own experience from letting houses was that they produced very little real income. They could be empty for months while the owner was still liable to pay Council Tax and maintain them. The only reason for which he did it himself was the hope of a capital gain. One of the buildings at Waas may be an advantage to a tenant, the others certainly not. Their maintenance could be a very heavy burden. (We took that to be a reference to the buildings occupied by Mr and Mrs Ross, which are not part of the lease.)

[83] Under reference to page 3 of production 95, a Consolidated Report he had prepared dated 21 January 2013,Mr Mackintosh did not believe that in 2010 the market had been distorted by scarcity. Marts had been letting grazing land. The market for agricultural land was vibrant at that time. The granting of 1991 Act tenancies was rare but Short Limited Duration Tenancies (SLDTs) and Limited Duration Tenancies (LDTs) had been granted, although not many of the latter. Professionally, the letting of tenancies was something in which he himself was involved. Questioned further about scarcity by the court, Mr Mackintosh drew a comparison with what had been happening in the general property market. In 2010 there had been both a lot of property on the market and a big demand for that property. That was driving prices up. Asked whether in 2010 it would have been a landlord’s market or a tenant’s market, he thought it would have been a landlord’s market. On the other hand there had been a lack of finance at that time, with banks reluctant to lend money. However that was more of a problem for new entrants, rather than for people who already had farms of their own who would be the kind of tenant most likely to be interested in a holding such as Waas, with no buildings. Demand for a holding like Waas would come from the existing agricultural community, not from new entrants.

[84] Marriage value increased with proximity but was not confined to farmers in the immediate area of the farm being let. The attraction was the ability to spread overheads. As to the need to “strip out” marriage value from comparables, he had stripped it out for Seaview but not for Ornum & Heathfield. In the case of Seaview he had been aware of how Mrs MacDonald had arrived at the rent. It had not been a case of the tenant coming along and offering £x which might include marriage value. He had not been aware of how the rent had been arrived at in the case of Ornum & Heathfield. His understanding of the level of rent payable for Seaview was £2,750, not £3.000. If the rent truly was £3,000 that brought out a figure of £40.87 per acre compared to £37.47 if the rent was £2,750. Applying that rate per acre to Waas and adding marriage value at £1,400, it would bring out a rent of £5,421, as compared to the £5,160 referred to in his report (see production 102).

[85] Mr Mackintosh had been unaware that Heathfield was a croft but even if he had known that he would not have taken it into account; the exercise remained one of fixing a rent for a piece of land. He had been told by Mr Mackay on at least two occasions that the rent being paid for Ornum & Heathfield was £4,750. It was news to him that Mrs Bates had said it was £5,000. Mr Mackay was an elderly man who lived on his own and might be confused. A rent of £5,000 for Ornum & Heathfield worked out at £59.68 an acre. That would produce an annual rent for Waas of £4,993 (see production 103)..

[86] Theoretically the advantages of a 1991 Act tenancy – security of tenure, the ability to pass on the tenancy and the pre-emptive right to buy – should mean that the rent would be higher than for other types of tenancy but in practice it seemed that grazing lets were much more valuable. That was difficult to explain. There seemed to be great discrepancies between grazing lets and 1991 Act tenancies. Sitting tenant negotiated rents seemed to be less than the rents paid for grazing lets leased on the open market. There were no 1991 Act tenancies being newly acquired on the open market. The approach he had taken had been to treat seasonal grazing lets, with the particular features he had mentioned, as equivalent to the situation pertaining at Waas. Although their tenants did not enjoy the security of tenure Mr Campbell enjoyed they had a good expectation that their grazing leases would be renewed each year. The figures he had arrived at on the basis of these comparables were set out at pages 6 and 7 of production 95 (but adjusted, for the higher rents spoken to by Mrs Macdonald and Mrs Bates, in productions 102 and 103).

[87] Option 2, at page 2 of production 95 was based on Lord Thurso’s approach. It produced a rent of just under £5,000 for Waas. Mr Mackintosh confirmed that he had looked at some of Lord Thurso’s farms, which were very comparable to Waas. The land was very similar. They differed in that they had buildings, whereas Waas did not.

[88] As to the comparable suggested by the applicant – Culmaily Farm, Golspie – it did not begin to compare with Waas. The land at Culmaily was much better and it had extensive buildings, including a farmhouse, six cottages and a steading. It was 60 miles away from Waas, on the east coast of Sutherland. There were too many differences between them to make them truly comparable. We did not know the extent of tenant’s improvements at Culmaily. The fact that it was a larger farm meant that the rent per acre would be lower. That was what happened: the larger the farm the lower the rent per acre.

[89] Mr Mackintosh was then asked about the reports produced by the respondent’s expert, productions 15 and 18, producing a rent for Waas of £2,110.32. Mr Mackintosh did not understand Mr Duncan’s methodology. It did not seem to follow any recognised principle of valuation. The rent it produced was unrealistic, given that the passing rent was £2,900. The trend in Caithness since 2002, when the passing rent had been agreed, was for rents to increase.

[90] Production 78 was a “post Moonzie” report prepared by Mr Duncan. The reasoning was set out in more detail and was easier to understand. Yet the figure produced was more or less the same, at £2,112. Mr Mackintosh did not agree with the adjustments made by Mr Duncan – for the cost of fencing necessary for the proper management of the unit, uplift in productivity, lack of buildings and lack of a house. So far as the fencing was concerned, it was not known what the state of the fencing had been at ingo. So far as uplift in productivity was concerned, it was not known that any increase in productivity had in fact been achieved. So far as the lack of a house was concerned, it was not appropriate to make a reduction because a prospective tenant who already had a farm would not require a house. He did, however, agree with Mr Duncan that the open market value of Waas would include marriage value, which Mr Duncan assessed at £1,100 and Mr Mackintosh at £1,400. Asked about the difference, Mr Mackintosh said that he used Mr Duncan’s value as a base figure. If Mr Duncan, acting as he was for the tenant, was saying that marriage value was £1,100 it was almost certainly more than that and £1,400 was his own best guess. He could not make a lot of sense of the figures used by Mr Duncan in the computation of marriage value at the third last page of production 78.

[91] In cross-examination Mr Mackintosh said that he had not been involved in the open market letting of farms, whether on 1991 Act tenancies, to limited partnerships or on LDTs. On most occasions when leases had terminated on the estates on which he had worked the farms had been kept in-hand. He had occasionally been involved in re-lets to, or agreeing fresh terms with, existing tenants. He acknowledged that when a tenancy was offered on the open market there could be several interested parties, a closing date might be fixed and a range of offers might be received. He acknowledged too that a landlord might not always accept the highest offer. That might be because the rent being offered was not thought to be affordable or because the landlord wanted to let to another party. It occasionally happened that offers for tenancies were accompanied by budgets. He agreed that in the let of a secure tenancy the rent being offered was not the only factor which a landlord would take into account. What the landlord was really looking for was a good tenant because he might have to work with him for generations. A bad tenant in a secure tenancy could do a lot of damage and was not easy to get rid of. The same considerations did not apply, to the same extent, to seasonal grazing tenancies. He was not aware of a grazing lease going to auction and the highest offer not being accepted although such a thing was possible.

[92] He stood by his description of the land at Waas contained in his original report, dated 7 June 2010 (production 4). With reference to his comment, at page 2, to the effect that the farm was not intensively stocked, he thought a stocking density of 200 to 250 ewes would be reasonable. When it was pointed out to him that the farm was stocked with 200 ewes he thought something closer to 250 would be more reasonable.

[93] The owners of Seaview and Ornum & Heathfield had told him that they let their holdings on preferential terms. On the open market, however, the landlords could reasonably expect a rent of £5,000.

[94] Mr Mackintosh confirmed that his inspection of the land at Waas had largely been done from the farmhouse and the public road.

[95] With reference to his letter to his instructing solicitor, Mr Ewan, dated 23 July 2010 (production 6), he confirmed that at that time he had still been under the impression that the two comparable farms were let on secure tenancies. His letter explained that both lets were to friends of the landlords and at rents lower than the open market value. There was an element of trust that you would not necessarily have on an open market letting. The rents had been discounted to reflect this. He accepted that a tenant also benefited from a landlord he could trust and might, therefore, be willing to pay a higher rent to reflect that situation.

[96] With reference to his second report, dated 18 October 2010 (production 12), the Waas acreage had been miss-stated. It should be 117 acres not 147. He was not aware of any reseeding having been done by the landlord at Waas. Mr Murchison took the witness through the reasons listed in that report as to why Seaview and Ornum & Heathfield were good comparables. They were similar in size. The reference to Ornum being of better quality was a reference to the Heathfield part of the holding: he had used Ornum as shorthand for the name of the holding. Referred to what is said on the last page of that report about an upturn in the farming economy, Mr Mackintosh explained that from 2002 to 2009/2010 livestock prices had increased. There were always good years and bad years – farming was notorious for that – but the general picture had been one of improvement. He denied that there had been greater volatility in the sector at that time as compared with the 1960s and 70s.On the contrary, things had stabilised a good deal, particularly from 2005 onwards. The years 2009 and 2010 had been particularly good years for stock prices but he accepted that the years immediately before that had been worse. He accepted that someone taking on a secure tenancy had to pay the rent every year and that it was expensive to have the rent varied or reviewed. When budgeting a tenant had to look at the medium term. Mr Mackintosh accepted that the position of a grazing tenant was different. Such a tenant was not under any obligation to take on the grazing for the next year.

[97] The witness accepted that a tenant may offer a high rent for a secure tenancy and then hope to have it reduced on review. He had never known of a case where that had happened but it was possible.

[98] He accepted that if there was a spike in cattle prices a grazing tenant might decide not to sell in autumn but keep his stock until the spring to finish them off and may be prepared to pay a hefty rent to get grazing on which he could do that. But a tenant might also be prepared to pay a hefty rent for a secure tenancy. He did accept, however, that there was generally what Mr Murchison called a “disposability”element with a grazing let which one did not have with a secure tenancy.

[99] Asked about marriage value, Mr Mackintosh reiterated that if a person already has a farm he is able to reduce his overheads, as a proportion of income, by taking on another farm. He rejected the proposition that in the assessment of rent under sec 13 of the 1991 Act one had to imagine a lease by a hypothetical landlord to a hypothetical tenant and that marriage value had to be ignored. A farm would have no marriage value to an intending new entrant into farming but it would to those who already had farms in the vicinity. In a situation where there were a number of farms in a locality and land became available for let, farmers would put marriage value into their bids for that land. Where there was no fixed equipment it was not necessarily the case that the farm would be of interest only to someone who already had a farm; for example it might be of interest to someone living in Thurso who was looking for a smallholding to work. Sheep and cattle could be fed on baled hay which could be kept outside. He resisted the notion that any land which came onto the market in the locality with which we are concerned would be of interest only to neighbouring farmers. But certainly existing farmers in the locality would be interested. He accepted that a party who could benefit from marriage value was likely to be able to make a saving that someone who did not have another holding could not make. Marriage value was just a premium. He accepted that “over the piece” marriage value would be reflected in the “going value” of land. So it was probable that if an auctioneer was asked to give prices for land he would give prices which reflected marriage value. Asked why he thought it inappropriate to include marriage value in the rent of Seaview, he explained that he did not know by how much Mrs MacDonald had restricted the rent; she may already have made an adjustment which would, in effect, exclude marriage value. He accepted, however, that Mrs MacDonald had not mentioned marriage value. He conceded that we just did not have the information which would allow us to know whether we were comparing like with like in the treatment of marriage value as between Waas and Seaview.

[100] Mr Mackintosh was then asked about his description of the land in his final report, dated 21 January 2012 (production 95). It was put to him that this was just not a holding on which one would have a cropping regime. One might plant occasional crops for reseeding purposes, said Mr Murchison, but it would not be a predominantly arable regime. Mr Mackintosh pointed out that it had been used as arable in the past. He accepted that he had described the soil type on the 83 acres of arable land at Waas as relatively shallow gleys over flag. It was also peaty, which made it difficult to drain, although the principal factor in relation to drainage was the gradient of the land. He accepted that if a holding did not drain, or there was a wet year, in extreme cases crops could fail. Whilst accepting that there was such a risk here, he denied that parties interested in taking this land on lease in 2010 would only have been contemplating the same sort of regime as the respondent, avoiding cropping. It would, he said, always be open to a bidder to crop the farm with barley, turnips or whatever.

[101] Asked about Macaulay Institute soil classifications 4(1) and 4(2), Mr Mackintosh said these did not take drainage into account. Soil classification was about soil quality, although recent climate, gradient, erosion and other factors had to be taken into account. He denied that there was a greater risk of crop failure on class 4(2) land than there was on class 4(1). All else being equal class 4(1) would produce better crops than class 4(2). Reference was made to production 86, the Macaulay Institute Soil Survey map of Caithness. Waas is shown as being comprised of areas of pink or dark blue, corresponding to class 5 and 4(2) respectively. The accompanying description describes class 4(2) land as being suitable for an occasional cereal crop when the extra risks involved can be accepted. Mr Mackintosh accepted that description but pointed out that one could get class 4(2) land which was naturally well drained. It was possible that the potential for cropping of the class 4(2) land at Waas was limited but Mr Mackintosh resisted the suggestion that anyone offering for the land would not be intending to use it for routine cropping but rather for pastoral rotation. What would be required to avoid the risk of crop failure would be effective drainage. There had been a trend towards rotational pasture in the area in recent years. The climate was getting wetter, the last five or six years having been very wet. Mr Mackintosh accepted that the fact that cropping had been done in the past was of little value to the court since it was accepted that the climate had been getting progressively wetter.

[102] As to the importance of buildings, it was fair to say that if one was trying to compare like with like and one holding had buildings and another holding did not an adjustment required to be made to reflect that. The landlords’ comparables here did not have buildings but Culmaily, the tenant’s comparable did. But having a house available was not always a benefit. It could be a disadvantage. He knew that from his own experience. He was resistant to the notion that the availability of a suitable house increased the marketability of a holding. The lack of a house had not prevented Mr Campbell taking the holding. Mr Mackintosh accepted, however, that the lack of a house restricted the range of possible offerers. If there was evidence of demand for houses in the area that would have to be taken into account. He did not know whether Mr MacIver, the tenant at Seaview, and Mr Chalmers, the tenant at Glebirnie, lived in rented houses. It was not his impression that in 2010 there would have been no difficulty in letting houses. If you went into Estate Agents’ offices you would find that they had houses to let.

[103] Questioned about scarcity, Mr Mackintosh adhered to his view, expressed at page 3 of production 95, that the market was not distorted by scarcity when he wrote that report. Evidence of scarcity would be lack of land coming onto the market. He accepted that scarcity was about the ratio of buyers to sellers in the market. But he denied the notion that if there were only five leases available and there were 500 buyers that was a sign of scarcity, saying that all it would do would be to drive the market up. It was the lack of supply, rather than the demand, which constituted scarcity. He was not aware of land for letting being on the market for months; of it “sticking” on the market. Land for letting was snapped up as soon as it came on the market because bankers would not lend to people to allow them to buy land. That had been a feature of the market in 2010 also. If 1991 Act tenancies did come onto the market people would offer high rents because they would not know when they would next get the chance to bid for one.

[104] As to scarcity of grazing lets, Mr Mackintosh did not think the landlord was in a stronger position than the tenant. Both were in strong positions: the tenant could, after all, say to the landlord that he would get another grazing tenancy because they were always available at the Mart. Such a tenant would not know what he might have to pay for another let but lets were always available.

[105] Mr Mackintosh was referred to page 5 of production 95 where he compares a grazing let with an LDT. He accepted that the lease of Seaview did not involve a written contract and that the tenant was not under any obligation to do anything. The fact was that the tenant was doing the maintenance. He accepted that even in five year SLDTs there were a variety of obligations on the tenant and that a tenant under a seasonal grazing let would not have such obligations.

[106] Mrs MacDonald had calculated the rent of Seaview on a differential basis, according to the age of the grass, with a high rate per acre for new grass and a lower rate for older grass. She had paid for any reseeding which had been done but the tenant was now going to take that on. As at 2010 all the reseeding had been paid for by the landlord and Mr Murchison asked whether, for comparison purposes, one would have to know whether the tenant of Waas was getting the same benefit. He accepted that the landlord at Waas had not done any reseeding in 2010. Mr Mackintosh thought the tenant would be obliged to reseed as part of the requirements of good husbandry. But he accepted that if we were to compare like with like account should be taken of reseeding done by the landlord.

[107] Asked about his discussion of Lord Thurso’s approach in production 95, Mr Mackintosh agreed that Lord Thurso had chosen to value his land regardless of whether buildings were included or marriage value or any other consideration. Asked whether most of his farms had marriage value for their tenants, Mr Mackintosh thought most of them were small and occupied by people who did not want to increase their holdings. He did not, however, know that to be a fact. There may be marriage value included in some of Lord Thurso’s agreed rents. The tenant would not care how the rent was made up as long as the final figure was acceptable to him. Lord Thurso’s system was a very crude one but it seemed to work. Mr Murchison suggested that such an approach could not work for Waas because Waas had no steading and no house. In particular it could not be used for determining a rent under sec 13 of the 1991 Act for Waas. Mr Mackintosh simply made the point that it was a method of rent review which was practised in the county. Mr Murchison put it to him that the arable rate used by Lord Thurso was not suitable for Waas because Waas was not an arable farm: that the rate should therefore be Lord Thurso’s pasturage rate of £20 per acre. Mr Mackintosh rejected this because, he submitted, Waas was capable of arable use. Farms across the road from Waas had been growing barley as recently as this year.

[108] Mr Murchison then took Mr Mackintosh up on his assertion that the fact that some of the comparable land was subject to crofting made no difference for renting purposes. He accepted that a crofter had substantially greater rights than a seasonal grazier. He agreed that any letting of croft land without the consent of the Crofting Commission was void. Any letting of croft land to graziers would therefore be void for want of Commission consent. Mr Mackintosh explained again that he had been unaware that part of the land was subject to crofting until yesterday. He had just been looking at it as an area of land to be let.

[109] Asked about his statement at page 8 of production 95 that it was of some significance that the tenants of Seaview and Ornum & Heathfield had offered higher rents for next year, Mr Mackintosh confirmed that he had been told this by both landlords. Mr Murchison suggested that it was extraordinary that this should happen “in a vacuum”. The witness understood that one of the tenants had been asked for a higher rent and the other tenant had volunteered it.

[110] Mr Mackintosh was then asked about production 100, a note prepared by the respondent’s expert, giving a critique of the applicants’ comparables. He took issue with what is said there about the landlord of a seasonal let being in a position to maximise rental income because of the lack of security of tenure. Although this is not the way we have noted him, we think Mr Mackintosh’s point was that a tenant could always go to the Mart and get other land to let. He accepted, however, that a tenant could not be sure of being able to get other land through the Mart. Having been taken through the other bullet points in the first paragraph of production 100 and the following paragraph, Mr Mackintosh accepted that the result of treating seasonal lets in the same way as secure tenancies would be to cause rents under secure tenancies to increase. Mr Murchison then took the witness through the two worked examples, for Seaview and Ornum & Heathfield. Mr Mackintosh did not accept that marriage value varies with the size of farm. On Mr Duncan’s figures, when marriage value was stripped out, Seaview ended up with a rental rate of £23.52 per acre which was close to that being paid at Culmailly for a fully equipped farm. Mr Mackintosh made the point that we did not know the extent of to the tenant’s investment at Culmaily.

[111] There was then discussion of the Ornum & Heathfield comparable. Heathfield has category 4(1) soil classification and Mr Mackintosh thought a 15% adjustment was appropriate to allow for this. There then followed a discussion as to whether any element of premium in the Ornum & Heathfield rent was attributable to marriage value or scarcity, with Mr Mackintosh contending for marriage value and Mr Murchison for scarcity. Mr Mackintosh remained unpersuaded that the figures for Ornum & Seafield disclosed a 20 – 30% distortion in market rents caused by scarcity.

[112] Still on production 100, there was questioning on the Sinclair Trust (referred to above as Lord Thurso’s) holdings. One or two of these were held on LDTs. Mr Mackintosh accepted that soil classification affected productivity but he did not think that was relevant for our purposes. Mr Murchison contended that if we were to follow Lord Thurso’s approach we would be using his figure for pasture land rent but Mr Mackintosh insisted that Lord Thurso would classify the better land at Waas as arable and charge it at £35 an acre. That was simply because the better land was arable.

[113] In a brief passage of evidence relating to the first page (headed “Rent Determination”) of Mr Duncan’s report of March 2011 (production 18) Mr Mackintosh took issue with the failure to factor in SFP although a Naked Area Rent Equivalent was included. Mr Murchison suggested that this part of Mr Duncan’s report showed that were the rent to be increased the unit would not be profitable, to which Mr Mackintosh agreed, pointing out that without SFP the tenant would be out of business. However, following the Court of Session’s decision in Moonzie, SFP was to be taken into account.

[114] Mr Mackintosh was then questioned in relation to Mr Duncan’s post Moonzie report (production 78). He recognised that the Waas lease imposed an obligation on the tenant in relation to fencing, although Mr Mackintosh seemed to think that burden extended only to march fences. He agreed that stocking density would depend on the quality of the grass. He agreed that if one went back to the pre-let situation and disregarded the reseeding work the tenant had done that would mean that the holding could not support more than 200 ewes. He disputed the fencing position. It was put to him that much of the fencing had been missing or derelict at the outset of the lease and that 1750 metres of new fencing had had to be erected. Again Mr Mackintosh seemed to think that the tenant’s obligation was confined to march fencing. He did not believe that 1750 metres of march fencing had had to be renewed. Fencing costs would normally be treated simply as outgoings. Mr Murchison put it to him that if improved fencing had improved productivity that required to be taken into account. Mr Mackintosh accepted that improved fencing could improve productivity but said that such improvement would be hard to quantify. He accepted, however, that a tenant would not want to do anything which was not going to be of benefit.

[115] Mr Mackintosh did not agree that there had been improvements to drainage which had improved productivity at Waas. The tenant was under an obligation to maintain the existing drainage. The requirements of good husbandry also applied, requiring him to maintain efficient drainage. He agreed with Mr Murchison that to the extent that the tenant had carried out works of improvement he should not be rented on them but pointed out that there was no farm record here and that, therefore, the extent of improvements was not known. The passage at the top of the third page of Mr Duncan’s report, reading “Given their extent, I would estimate the effect of the improvement aspect of the foregoing work to be a minimum of 2% uplift in animal productivity”, was put to him. He thought a 2% increase was not unreasonable.

[116] Asked about Mr Duncan’s treatment of Culmaily as a comparable, Mr Mackintosh pointed out that it was not in the general area of Waas. He accepted that the soil classification was the same although he considered class 4(2) land to be arable rather than pasture. He accepted that the £25 per acre quoted for pasture land at Culmaily was higher than Lord Thurso’s rate for similar land. Asked about Mr Duncan’s adjustments, Mr Mackintosh first said that he thought the amortisation period should be longer than the period suggested by Mr Duncan but then came up with the same figure – 20 years – himself. He accepted that in principle there would be an advantage in having buildings available but not the buildings which were on Waas. Buildings were not essential to the letting at Waas. He questioned whether a rent of £300 per calendar month for a house was realistic. He asked whether one would be able to get occupation by a suitable tenant and whether one would be able to get that rent. At this point Mr Maclean took objection to a question about house rentals in the region: such questions begged the question as to where the houses were. Mr Murchison did not pursue the line but asked whether if there were such a house at Waas it would be likely to get a tenant to which the answer was “possibly”, although the chances were it would be a DHSS tenant. In any event he thought £300 per month for a house at Waas was on the high side: he suggested £3,000 per annum. Likewise he thought that £8,000 for fixtures and fittings for a house was too high. A house could be furnished for £4,500 to £5,000. Asked about an amortisation period for fixtures and fittings of 5 years, one would be lucky to get a period as long as that: a bad tenant could write it all off in a year. He thought Mr Duncan’s allowance for “voids” (periods when the house was vacant) and management costs was reasonable.

[117] Questioning then moved to Mr Duncan’s additions, firstly for marriage value. Mr Duncan’s approach having been explained by Mr Murchison, Mr Mackintosh’s reaction was that he did not think the calculation of marriage value was as scientific as that. Mr Duncan’s calculation produced an adjusted rent of £2,112. Mr Mackintosh thought it was unreasonable to suggest that the rent in 2010 should be less than it had previously been.

[118] As to Mr Duncan’s analysis of current economic conditions, Mr Mackintosh agreed that 2008 and 2009 had been good years and that 2005 to 2007 had been particularly bad. In 2010 one would have expected the next couple of years to be much in line with 2009 and 2010. He accepted, however, that a tenant had to be wary lest conditions deteriorated.

[119] As to whether the rent arrived at by Mr Duncan was realistic, Mr Mackintosh thought not. He disputed Mr Duncan’s assertion (at para 9 of his report) that there was no proper basis upon which a rent above the current rent was justified.

[120] A number of individual points were then put to Mr Mackintosh. Asked about the number of farms coming on the market, Mr Mackintosh thought that one a month might come on the market in the north mainland, the area covered by his practice. He reiterated his view that Culmaily did not begin to compare with Waas. It was much bigger, at 1,000 acres, and had buildings on which a lot of money had been spent. Larger farms tended to have a lower rent per acre: the more apples you bought the cheaper you got them. Mr Murchison put it to him that it was the other way around: the more acres you had the greater the economies of scale that could be achieved, the greater the profit which could be generated and, therefore, the greater the slice for which the landlord would look. Mr Mackintosh was unmoved: in his experience the bigger the farm the lower the rent per acre. Asked what he knew of the improvements carried out at Culmaily, he said that if they had all been landlord’s improvements the tenant would have been rented on them and he would have a much higher rent. He knew of a large farm in Dornoch where the tenant had carried out tremendous improvements and the rent was so low that it did not provide an adequate return on capital for the landlord. He accepted that two farms, side by side, one with no fixed equipment, the other with only tenant’s improvements (which had to be ignored) would be comparable. The tenant’s improvements were irrelevant. He resisted, however, the notion that Waas and Culmaily were comparable, notwithstanding that soil classification was the same. Proper account had not been taken of the tenant’s improvements at Culmaily.

[121] In re-examination Mr Maclean took up questioning about Culmaily as a comparable. It was known that the rent for Culmaily had been agreed at £16,500 last spring. It was accepted that a tenant was not rented on his improvements. Mr Mackintosh understood that there had been improvements to the steading and to cottages but agreed that, beyond that, the court would not know what the improvements at Culmaily were.

[122] Mr Mackintosh reiterated his opinion that the larger the farm the lower the rent per acre. That was particularly true of hill farms. Such farms always had lower rents “by definition” but it was a feature that the bigger they were the lower the rent per acre. It might not be a terribly significant reduction but it was a factor to be borne in mind.

[123] Any farm coming onto the letting market would not draw the interest of everyone looking for a farm to rent. People would offer for the particular kind of farm which they were looking for.

[124] It was not known whether the rent agreed for Waas in 2003 was high or low but it was a negotiated rent. It was a rent the tenant had been willing to pay. It could have been reviewed twice since then.

[125] Mr Maclean then took the witness to paragraph 7 of production 78, being Mr Duncan’s figures for Net Farm Income for the years 2003 to 2011. Asked what the state of the sheep sector had been in the first three years of that decade (not included in Mr Duncan’s list) Mr Mackintosh thought that these had been “fairly reasonable” years. Reminded that this was after the Foot and Mouth outbreak, he thought that cattle prices had gone down at that time. Farming was inherently unpredictable. Asked to think back to autumn 2010, he thought the hypothetical offerer would have been positive about the outlook for the sheep sector at that time. There had been two good years and more would be expected to follow. Autumn 2010 came on the back of a very successful series of sales.

[126] Mr Mackintosh was then taken to Mr Duncan’s calculation of marriage value in production 78. He agreed that the percentages used by Mr Duncan there for savings on power and overhead costs were not actual to Waas. They did not represent actual savings made by the tenant of Waas. He had never seen any figures showing what levels of output were being achieved by Mr Campbell. It was not even known how much he was getting in SFP. Similarly, with reference to section 6 of production 78, he had not seen any evidence that improved productivity was actually being achieved at Waas as a result of the tenant’s improvements.

[127] Mr Mackintosh adhered to his view that likely offerers for Waas would not be put off by the lack of a house. There were tenants who did not want to get involved in residential letting.

[128] There was then questioning about the difference between Caithness and Sutherland when it came to farms and crofts. Sutherland was different from Caithness. It had very few farms and reasonable arable ground was confined to the coastline. The rest was rock and heather. From the Kyles of Sutherland to the Ord of Caithness there were no more than a dozen farms. So Sutherland did not contribute very much to the stream of farms available for letting which the witness had put at one a month. The majority came from Ross-shire or Caithness.

[129] Mr Maclean suggested to the witness that Mr Duncan’s justification for the figure he had given for marriage value was “pseudo-scientific mumbo-jumbo”. Mr Mackintosh’s view was that marriage value was not capable of such precise analysis. A much broader approach was required. It was principally a question of how much a tenant who wanted the farm would be prepared to pay “over the odds” to get it. That would depend on the particular tenant and the particular farm. He agreed with Mr Maclean that Mr Duncan’s generalisation did not “get off the ground”.

[130] The witness was then asked about Mr Duncan’s rent determination as contained in production 18. He agreed that it appeared to say (by the use of the word “none” to describe allocation of Relevant Net Farming Income available) that Waas was not generating any income at all. But that omitted the fact that the tenant was receiving SFP. A budget that did not take account of SFP would be unrealistic. If Mr Campbell was going to get nothing back from his use of Waas he would not be there in the first place.

[131] When he had agreed with Mr Murchison that using seasonal lets as comparables was going to push up 1991 Act rents, he had been talking of lets sold through the Mart. In using Seaview and Ornum & Heathfield as comparables he had regarded the tenants there as having, to all intents and purposes, secure tenancies of these farms. Neither party here had been able to provide evidence of the open market letting of 1991 Act tenancies. So he had done the best he could with such evidence as was available. He had tried to get something within the general area of Thurso. He had come up with two holdings which physically had a great deal in common with Waas. He repeated that he had been unaware of the crofting status of Heathfield until yesterday. He agreed that when the rent for Ornum & Heathfield had been negotiated the parties had not analysed it in terms of it being part agricultural holding under the 1991 Act and part croft. So far as his use of Lord Thurso’s agreed rents was concerned he was not making use of these farms as traditional comparables but using these figures to provide a cross-check on the figures produced by Seaview and Ornum & Heathfield. He was happy that the rent he had come up with for Waas as at November 2010 was a commercially realistic rent. It fitted with the Seaview and Ornum & Heathfield rents and with Lord Thurso’s. So far as the latter were concerned, although we had heard no evidence from Lord Thurso’s tenants, the fact was that the tenants had quickly accepted rents fixed in this way because they regarded them as a good deal.

[132] So far as the volatility of farming was concerned, Mr Mackintosh agreed with Mr Maclean that when one was trying to judge what the open market might produce in the way of rent one had to bear in mind not only the most risk-averse tenants but those who were more bullish.

[133] So far as scarcity was concerned, Mr Mackintosh adhered to his view that there was no scarcity. There was a stream of agricultural properties coming onto the market. Asked whether there was a relative equilibrium between properties coming onto the market and the number of people looking for tenancies, he replied that there was equilibrium of sorts. Generally tenancies were taken up pretty quickly. It was unusual to see more than one or two being left at the end of a sale.

[134] So far as marriage value was concerned, that was just another form of premium.

John Simpson Bremner (58)

[135] Mr Bremner is an Auctioneer and Valuer who has been employed by Aberdeen and Northern Marts for 42 years, first at Huntly and since 1989 at Thurso. He has no experience of the letting of land under 1991 Act tenancies, LDTs or SLDTs but has extensive experience of the selling of seasonal grass lets at auction through the Mart.

[136] Such lets were sold through the Mart on the basis of standard form contracts. They were for a standard period, from the end of April to the end of October. Some were sold with SFP entitlements attached. In most cases the SFP entitlement was retained by the landowner. The standard conditions did not include any maintenance obligations on the tenant in relation to fixed equipment, such as fencing.

[137] Not every let went through the Mart: some were negotiated privately. Under such arrangements it might well be that the tenant did some of the maintenance of fencing. It might also be the case that the duration under such agreements was different from the standard six months period offered thought the Mart. They might be for less than six month or up to 364 days. Mr Bremner agreed that some such private arrangements might be entered into in successive years. The same was true of the Mart: the same bidders tended to buy the same grass year after year.

[138] From his general knowledge of agriculture in Caithness the witness was able to say that the state of the livestock sector in autumn 2010 had been “pretty buoyant”. It had been on the rise for several years prior to that. In the period 2000 to 2004 there had been fewer animals about and people had been leaving this sector. They had not been getting enough return for their work and for all the paperwork they were having to do.

[139] The witness knew the farm of Waas. Were it to be offered for let on the open market the sort of person who was likely to bid for it would be someone already farming in the neighbourhood. Bidders would not be people who needed a house or buildings. They would be people hoping to expand their business in the locality. The availability of so much portable equipment, such as sheep pens, now would go some way to alleviating the effects of lack of buildings on the holding. There were always neighbours wanting to expand if land became available.

[140] Asked about the level of demand for grazing lets sold through the Mart, Mr Bremner said that demand was good. People who already had farms of their own tended to keep the grass on their home farms for winter feed and graze their stock on whatever other land was available to them. There was always a steady demand for grazing lets.

[141] Asked about any distortion of rents (of grazing lets) due to scarcity the witness said that he had never really understood what scarcity meant in this context. Mr Maclean having suggested to him that scarcity in this context might mean people paying “silly money” – more than they could hope to get back – to secure a let, he had seen no evidence of that in Caithness. He agreed that there was demand in that there were always people prepared to bid for grazing lets but that even then there were limits as to what people were prepared to pay. The limit was the point at which it would not be profitable for the tenant to let the land.

[142] Mr Bremner understood that the point about a 1991 Act tenancy was the security of tenure it gave. He had never understood why people would pay less for such a tenancy than for a grazing let. But that was what happened: grazing let rents were higher. The more a tenant took on in the way of obligations the less he would pay in rent.

[143] The witness was then asked about rent levels in Caithness in 2010 compared with 2002, when the passing rent in this case had been fixed. Objection was taken by Mr Murchison on the basis that in response to an earlier objection Mr Maclean had undertaken not to pursue this line and also on the basis that no notice of this line had been given. No report by this witness had been lodged and there was nothing in the pleadings which would justify the leading of this evidence. Mr Maclean referred to the terms of sec 13 of the 1991 Act for the matters to which the court was to have regard in determining a rent. These included conditions in the relevant sector of agriculture. It was entirely legitimate to lead evidence as to changes in these conditions in the period between the rent having been agreed, in 2002, and October 2010. Mr Murchison said that he had no objection to the matter being taken in general terms but maintained his objection as to opinion evidence of the appropriate rent being taken from this witness.

[144] We repelled the first objection on the ground that what Mr Maclean had undertaken to do was not advance the simple proposition that rents must be taken to have increased between 2002 and 2010. That did not, in our view, prevent him from leading evidence of rents actually having increased over that period. So far as the second objection was concerned, we allowed evidence to be taken from the witness in the non-objectionable general terms proposed by Mr Murchison.

[145] In the witness’s experience as an observer of the agricultural market in Caithness, rents had not fallen back in the period from 2002 to 2010. The trend had been the other way. He was in no doubt about that. It would be a surprising outcome for the rent in 2010 to be less than the rent in 2002. He was not aware of any case in which that had happened. He had not carried out an inspection of Waas for the purposes of this hearing. He would not presume to tell us what the rent of Waas should be as at 2010. He was, however, aware generally of the quality of the land in the area of Waas, Seaview and Ornum & Heathfield. Physically they appeared to him to be reasonably comparable with each other. The land there was not top quality agricultural land but it wasn’t the poorest either. There was reasonable grazing even on the rougher ground.

[146] Asked what a reasonable rent for arable land in the Hill of Forss area might be, he thought it would be £30 to £35 an acre and £15 to £20 for rough pasture. These figures would apply as at November 2010. Asked to suggest a “ball park” figure for marriage value for a holding such as Waas, the witness declined to give a figure but said that there certainly would be additional value of that kind.

[147] Mr Bremner knew of Culmaily Farm, having seen it from the road driving past. He had not inspected it. As to its comparability with Waas it was, for one thing, 50 to 60 miles further south, in Sutherland rather than Caithness, much more remote from Waas than were Seaview and Ornum & Heathfield.

[148] The Mart would sell six to eight grazing lets each year. Almost all of these would be repeats, that is to say let to the same bidder as the previous year. There would be the odd occasion when a new holding came onto the market but most of the lets would be repeats. There were usually the same three or four bidders for them all.

[149] In cross-examination Mr Bremner confirmed that reserve prices were never used. The auctioneer would just come down, in terms of an opening bid, to the level at which someone started bidding. A large proportion of the bidders would be people routinely taking grazing who already had other farms. That would be the position exclusively except for the very occasional new entrant. There had been a recent case where a new bidder had appeared. That had happened because the person in question had increased his stock so much that he did not have enough grass of his own. If there were more buyers than sellers that would push up the price. Asked whether at the end of a sale there could be people left without land he said that sometimes happened. The auctions were held in April. Some of the lets ran from the date of the sale and some from 15 April.

[150] Mr Bremner agreed that what he had described was a “pretty good” situation for the seller. If a farmer had a lot of stock and could not get enough land his options were to sell some stock or buy in feed. With the cost of haulage, buying in feed was expensive. Asked if he saw stress as a result of auctions having gone wrong (in the sense of a farmer not getting the land he needed) he said that he frequently did but that when farmers did get land they complained it was too dear! He accepted that an auction was a pressurised environment. There was more demand than supply. That had been the situation for a “good while”.

[151] Mr Bremner did not think that the price of grass lets reflected other prices, such as the price of stock but he said that he did not really know. People were going to the maximum of what they could pay in order to get the grazing. Nobody came away from an auction saying the prices had been cheap.

[152] The witness accepted that a person bidding for a grazing let would have in his mind certain elements as to how the price was made up. He accepted from Mr Murchison that a piece of land would have its own intrinsic value related to what it could produce. On top of that, he agreed, marriage value would be a significant factor. That was the saving which arose from using the holdings together. One did not need extra machinery to work the land nor travel long distances between units. He also accepted that one would have in mind that if one was unsuccessful in obtaining a particular piece of land that there was a risk that other land would not be available. He agreed that farmers did not want to have to sell stock. He accepted Mr Murchison’s analysis that bids would be made up of these three elements; intrinsic value, marriage value and something against the risk of ending up with no land. He accepted that in grazing lets marriage value would be quite a big factor.

[153] As to what sort of agricultural activity he would expect to be carried out on holdings such as Waas, Seaview and Ornum & Heathfield, he thought mainly grazing sheep or cattle. Periodically a crop might be grown as a means of refreshing the grass or one could do direct reseeding. He accepted that Waas would be used for rotational grazing with periodic crops being taken to refresh the grass.

[154] In relation to his figures of £30-£35 per acre for arable land and £15-£20 for rough grazing he confirmed that these were the prices he would expect to be achieved at auction at the Mart. He accepted that the prices achieved at the Mart would already have a marriage value element in them.

[155] Mr Bremner accepted that a grazing let performed a different function from a 1991 Act tenancy. He accepted that the market features of these systems were different. He accepted that a grazing let was a “much more flexible product”.

[156] Asked about the rate of increase in rents between 2002 and 2010 he thought that they had maybe increased by £5 or £10 an acre annually. There was not much difference in rents between 2010 and now. Foot and Mouth Disease had not had an effect on grazing let rents: the lets were sold in April and the outbreak of the disease had been in August.

[157] In his capacity as auctioneer he was acting exclusively for the landlord. He did not know what might be in the mind of a prospective tenant bidding for grass. He would not be aware of the mechanics of any increase in rents which was happening. But he accepted that there was an element of scarcity present. He confirmed that SFP entitlements sometimes went with the grazing and sometimes not.

[158] He remembered Mrs Macdonald speaking to him about rent for Seaview but could not remember what, exactly, she had asked. Some of the land at Ornum & Heathfield was better than the land at Waas.

[159] Asked about the difference, for grazing let rent purposes, between croft land and non-croft land he thought there was no difference. Grants were available to crofters but the grazier would not get the grants. From the grazier’s point of view the status of the land, whether crofting or non-crofting, made no difference. He just wanted a grazing let. No land subject to crofting went through the Mart for grazing let purposes, so far as he was aware.

[160] Asked by the court as to whether he would expect Waas to be put to other uses, beyond rotational pasture, he said he would not. That was because the land could not produce a heavy enough crop.

[161] In re-examination Mr Bremner explained that whether the land was accompanied by SFP entitlements or not made little difference to most bidders because most of them already had sufficient entitlements.

[162] He sometimes got asked for advice as to levels of grazing let rents, as had happened with Mrs Macdonald. That would not be just by landlords but also by tenants. A tenant might ask how much he was likely to have to pay.

[163] Mr Bremner reiterated that the usual pattern at the Mart was the letting of the same land to the same people. On an odd occasion someone fresh might come in. That could stir up the market but the pattern described had been the way of things since he had come to Caithness. He also confirmed that there had been a steady rise in rents of some £5-£10 an acre annually over the last eight to 10 years.

[164] He agreed with Mr Maclean that the economics of a bid still had to “stack up” for the grazier. A grazier wanted to make money. He confirmed that most bidders would already have farms in ownership or tenancy.

[165] Mr Bremner was then asked whether he would expect Waas, if offered on a seasonal grazing let through the Mart, with the landlord retaining all maintenance obligations, to fetch the levels of £30-£35 for arable and £15 - £20 for rough he had quoted. He thought Waas would fetch more for the summer grazing. That was because the tenant could put fertiliser on it and the grass would last for longer. He thought Waas would fetch £40 - £50 an acre for arable and not much less for the rough if sold through the Mart.

[166] Asked about the difference between 1991 Act rents and grazing let rents, he agreed that the 1991 Act tenant was free of anxiety and uncertainty as to whether the land was going to be his in the future. A 1991 Act tenant had the land all the time. The grazing tenant had the land for only six months of the year (on the Mart’s standard form contract) and might therefore pay a little more to get it. Nonetheless he thought that a grazing let was a reasonable comparable for a 1991 Act tenancy.

[167] Mr Bremner confirmed his view that if croft land was to be let for grazing purposes through the Mart (something which did not happen) the fact that it was croft land would have had no effect on the rent: it was still just the letting of land for grazing for a short period of time. He also confirmed that what he had been saying about the pattern of things at the Mart was that the same people tended to end up as the successful bidders for the same land each year. There was little history of new entrants: it was mostly the same people. That was not surprising given the presence of marriage value and its associated economies of scale.

[168] Asked to clarify something he had said to the effect that lets through the Mart produced much higher rents, he said that levels of £60-£80 per acre could be achieved. That level was much higher than was being paid at Waas or Seaview. On further questioning by Mr Maclean it became apparent that what the witness was saying was that land let for grazing through the Mart could go for as high as £60-£80 an acre, but it depended on the quality of the land. The land which would attract that sort of rent would be better quality than the land at Waas. Bids ranged over a spectrum from £20-£30 an acre to £120 an acre. Land of the quality of Waas might go for £45-£50 an acre on the open market whereas £30-£35 an acre might be agreed if it was sold by private bargain.

[169] On this last point we allowed further cross-examination by Mr Murchison. Mr Bremner agreed that a rent of £120 an acre, as well as reflecting the quality of the land, might include an element reflecting the tenant’s need and scarcity. He agreed that such a rate would be paid only be someone who was very keen but added that in some areas land always realised that sort of money.

(ii) for the respondent

John Adam Henderson (63)

[170] Mr Henderson is the owner-occupier of Scrabster Farm, a typical mixed Caithness farm, raising sheep, cattle and some cereals. Over the past five years he has been reducing the intensity of his farming operation and, as part of that, has been letting land or arranging for its use otherwise than by himself. He described a cropping agreement covering 200 acres and grass lets involving 60 to 80 acres.

[171] The seasonal grazing let was a very straightforward arrangement. It was for a period from April to October. He had not required to go out to find a tenant. When it became known that the land was for let he had received several approaches from local farmers. People had come knocking on his door. There was considerable demand for any land which became available locally. It came from people looking to expand their businesses, reduce their overheads and wanting land to satisfy their SFP and LFASS acreage requirements.

[172] The position in 2010 had been the same. In terms of rents being achieved he himself had not been seeking to maximise his income but it was quite apparent that there was considerable demand. Seasonal grazing lets attracted rents in excess of secure tenancies. That had been so for years. That was mainly to do with flexibility. Seasonal grazing lets did not involve long term commitment. From a tenant’s point of view, his strategy and circumstances could change from year to year. Secure tenancies sometimes involved having to adopt a cropping strategy, which was not required under a seasonal grazing let. His knowledge of these matters was derived from talking to tenant farmers and owner-occupiers.

[173] So far as supply of and demand for land in the locality was concerned, the supply was, obviously, fixed but the demand was always there and it was strong. In a free market that would push rents up. Asked about distortion due to scarcity, the witness said that it was not a straightforward question but scarcity was quite apparent. Sometimes the driver for getting land was not profitability but the need to get supporting acres for SFP purposes. Some people might take a view that it was worth paying a high rent safe in the knowledge (in the case of a grazings let) that their exposure was limited.

[174] Another attraction of grazings lets was that the obligations on the tenant were minimal. The tenant could simply open the gate and drive his stock in. He could expect that things like fencing and water supply would be in satisfactory condition. Asked whether a grazing let was a comparable product to a secure tenancy such as one had at Waas, the witness explained that there was a range of arrangements people could make outwith the legislative restrictions: there was not just one template. But there were different considerations which bore on the fixing of rent for a grazing let as against a 1991 Act tenancy. The principal one was time-scale. Grazing lets were much more “opportunistic”. He agreed that from a landlord’s point of view the choice of tenant was not so critical because the lease was over and done with quite quickly.

[175] Questioning then dealt with the letting of farm cottages. The witness had six cottages which were let. These were traditional farm cottages, situated within a mile or so of Thurso. They were let on Short Assured Tenancies but most of the tenants had been there for some time. There was always demand for them, probably because they were close to town. In decades of renting he had never had to advertise. The rents were about £300 per month. He supposed that could be increased if he were to drive harder bargains. Asked whether he thought Waas would be more attractive to a tenant if it had a cottage on it he thought it would: a lettable cottage was a very obvious source of income so it was hard to understand why it would not be. He would expect there to be a ready market for a cottage on Waas at the same sort of rent as he was getting. He was not aware of cottages available for let which could not find a tenant.

[176] Mr Campbell, the applicant, had worked for the witness, effectively managing his farm for 25 or 26 years. They had a very close relationship. When he had been asked to give evidence he had made the point that he might be perceived as favouring Mr Campbell but had wanted it clearly understood that anything he said in evidence would be said without any bias: he would try to make his evidence as independent of that as possible. His evidence was based on 30 or 40 years of experience in farming. He thought nothing he had said was very remarkable. His views on scarcity were a layman’s views. He thought it self-evident that scarcity was distorting grazing let rents. But he was not in a position to give professional advice on that and it would be really difficult to quantify.

[177] In cross-examination Mr Henderson confirmed that his farm extended to 560 ha, 60 to 80 acres of which were let out. That was on a seasonal let in favour of Mr Campbell. He thought this was the fourth year of Mr Campbell having it. So far as allocation of liabilities for improvements and maintenance were concerned there was no undertaking on the tenant’s part to spend money on improvements. It was a classic grazing let of the same sort as was auctioned through the Mart. Rents for grazing lets going through the Mart varied but it was not uncommon for them to be in three figures, in other words in excess of £100 per acre. Asked whether he would expect a secure tenancy rent to be around 50% of that he thought that would very roughly be so although he would expect greater stability in the rents of secure tenancies. The rent Mr Campbell was paying him was more in keeping with a secure tenancy rent: it was in the region of £35 an acre. That was notwithstanding that Mr Campbell had a landlord who had assumed responsibility for maintenance. He explained that his agreement with Mr Campbell should not be seen in isolation from Mr Campbell’s 26 years of service. He accepted that it was a special situation. If he were to let the land on the open market he would expect to get more than he was presently getting. In that event he would expect to get something in the region of £100 an acre. His arrangement with Mr Campbell was a “very unique arrangement”. He did not accept that there were many other comparable arrangements in Caithness “at these values” but agreed that there were many arrangements which were similar in nature.

[178] Asked whether in his experience there were other forms of grazing let entered into privately which had different arrangements regarding maintenance, Mr Henderson suspected that there was a spectrum of arrangements but most of the ones he was aware of were of the classic variety, with no obligation on the tenant re maintenance. He was not aware of the arrangements at Seaview and Ornum. He agreed, however, that these were two farms which could act as a guide for the rent for Waas. He agreed also that the prospects of new 1991 Act tenancies being entered into was “zero”. LDTs and SLDTs had not caught on in Caithness. He thought people sought other arrangements, avoiding legislative strictures. The limited partnership tenancy had had flexibility.

[179] He was not aware of the possibility of seasonal grazing lets slipping into secure tenancies because the stock was left on the subjects all year round but he confirmed that Mr Campbell’s tenancy at Waas had originally been a seasonal let. His knowledge was from hearsay but, as he understood it, what had happened was that Mr Campbell had been asked to quit at short notice and had resisted that because it had implications for his SFP. That had made relations with the landlord difficult because the landlord had a quick sale in mind. The situation ended with a secure tenancy having been established.

[180] Mr Henderson understood that one could have a grazing let which, because of the particular terms and conditions agreed, was much closer to the practicalities of a 1991 Act tenancy than a classic grazing let but he had no first-hand knowledge of any such lease. It was possible, therefore, that, in the absence of open market 1991 Act comparables, the rents payable under such leases could provide assistance in determining a proper rent for Waas but one would have to strip away layer after layer to find what the comparison came to.

[181] So far as the land leased by Mr Campbell at Scrabster was concerned, Mr Henderson retained the SFP entitlement.

[182] So far as the availability of a lettable house was concerned, Mr Henderson accepted that a house was a source of additional work as well as of additional income. One might have to put the property into the condition the letting market required. Notwithstanding that, however, it would be available as a source of income if the tenant wanted to let it out. He accepted that farms such as Waas tended to be added to larger holdings in order to create more viable units. He accepted that not every hypothetical bidder would want to become a letting agent but argued that the vast majority of farmers coped with the renting of cottages on their farms: there were very few farm cottages lying empty round the country. In response to the proposition that there were hypothetical bidders who would be interested only in the land and that it did not follow that they would be willing to pay a higher rent for land with a cottage he thought that would be extraordinary. Hypothetically it was an attitude someone might take but anyone taking it would not be likely to be very successful in business.

[183] Asked about his earlier evidence that there had always been more demand for land than supply, that position had obtained over his lifetime. To the proposition that his position must, therefore, be that that scarcity had always caused distortion of rent on the marketplace he replied that scarcity was a slippery concept. There was a fixed supply of land and constant scarcity. To the proposition that what scarcity meant to the layman was not the same as it meant in the legislation, Mr Henderson responded that whilst he was sure that whoever had introduced the concept into the legislation had the best of intentions its introduction had not necessarily been very helpful.

[184] Profitability would be a prime consideration when deciding what to bid in the open market for a grazing let. If a bidder had more stock than he could graze and if he could not afford the going rate for land he would have to look at the option of selling his excess stock. Whereas flexibility was an advantage of a grazing let, the witness acknowledged that the corresponding disadvantage was that there was no guarantee that one would get the same land again next year. He also accepted that even with a secure tenancy the tenant was not stuck with the lease: he could renounce it. In many cases the landlord would welcome the land back with open arms. Asked whether Mr Campbell would have a reasonable expectation of having the grazing at Scrabster available to him next year, the witness thought Mr Campbell would not expect to have it in perpetuity. But, as in any business, a good working relationship was worth holding onto.

[185] Questioned, in re-examination by Mr Murchison, about the comparability of 1991 Act tenancies and grazing lets, Mr Henderson again made the point that one would have to strip away many layers and “dig very hard” to get at anything worthwhile as a comparable. Seasonal lets and what Mr Murchison called “steady state” agricultural businesses were essentially different markets. They were related but distinct.

[186] Re-examined as to the value of a house for let on a tenanted farm, it seemed “blindingly obvious” to Mr Henderson that there was value there and he had found that line of questioning in cross-examination bizarre.

[187] As to scarcity, as a “lay agricultural person”, it was his evidence that the market for grazing lets was distorted by scarcity.

[188] As to the likelihood that a tenant of secure tenancy would renounce the tenancy, that would be giving up something of considerable value. It would be quite an extraordinary thing to do. These tenancies, he agreed, also provided a home and a history and people became very attached to land.

Angus Cameron McCall (62)

[189] Mr McCall is the tenant of Culmaily Farm, Golspie, Sutherland, on a 1991 Act tenancy. It comprises 450 acres of inbye land and about 550 acres of hill ground. Production 91 had been prepared by him. The lease had been entered into by his father in 1971 and he himself had come in as joint tenant with his father in 1994. When his father had died in 2003 he had become sole tenant.

[190] A record of Condition had been drawn up in 2000 and he had carried out several improvements since then, all of them intimated to the landlord. There were six cottages on the holding and he had permission to let three of these. Production 88 was a copy of the lease and 89 was a copy of a Post Lease Agreement which had now been annulled.

[191] Prior to the lease being entered into the farm had been a dairy farm and the steading was completely unsuitable for a livestock production and cropping operation. The steading had therefore had to be converted. The landlord had renovated a fank. The family had been given use, under the lease, of three of the six houses and permission to sub-let the other three. All had been in poor condition and all had been renovated by the McCalls over the past 30 years. All of the improvements had been taken into account in rent negotiations, so that the rent was always based on the condition of the fixed equipment at the date of entry.

[192] The rent had been agreed in 2010. The rent could be broken down in accordance with the quality of land and production 91 showed the figures agreed. What was shown as “Grade 4 sand” was land at the bottom of the farm which was very flat but also very sandy. Although graded 4 by the Macaulay Land Use Research Institute, it was really more like Grade 5. What was shown as ”Grade 4 inbye” was upland land, in places fairly steep. There were 40 acres of grade 3[2] land consisting of sloping fields which were, however, possible to crop. The field nearest Golspie, a 25 acre field, had not been ploughed since the war and should probably be graded 4[2] rather than 4[1]. There were areas which dried out in the summer and the farm as a whole could be prone to drought. Most of the grade 4 land was pasture. Asked about rotations pasture, Mr McCall said that of 120 acres 50 had never been ploughed because it was too stony, 25 acres had been ploughed once and the rest was permanent pasture.

[193] How the letting cottages were treated for rent purposes had been a bone of contention between himself and the Estate Factor. The Factor insisted on them being shown as a separate element of the rent, over and above the farm rent, whereas he, Mr McCall, had regarded this as simply an element of the farm rent. That element amounted to £2,000 per annum.

[194] Reverting to fixed equipment, a sheep shed and a cattle shed had been built and silage pits put in by his father and himself. The landlord had provided a steading.Asked about improvements to fencing and soil in respect of the grade 4 land, Mr McCall explained that the whole farm was divided into dyked areas. Above the road there was not much required in the way of fencing. The tenant had to maintain the fencing. Very little drainage work had been done because the land drained well naturally. Apart from reseeding some ground above the road the ground was much as it had been at the start of the tenancy. There had been routine reseeding to refresh the grass. He confirmed that the rent for the Grade 4 land had been agreed at £25 an acre.

[195] Asked about his familiarity with seasonal grazing lets, Mr McCall confirmed that he himself took ground on a seasonal basis. The rent payable on such lets was very variable, varying according the season and the stock people had. The ground he took was not exposed to competitive tender on the open market. It was shared with a neighbour. It was, he thought, slightly out of touch with the rents being got at the Mart.

[196] There was a great scarcity of land to let from Easter Ross all the way up to John o’ Groats. Fresh lets of 1991 Act tenancies were as rare as hen’s teeth. There was, however, a market for grazing lets, some of which were sold through the Mart and others by private bargain. One could not compare 1991 Act tenancies with grazing lets. It was like comparing apples and pears. On a secure tenancy the tenant was responsible for a lot of maintenance and was committed from year to year whereas on a seasonal let the landlord was responsible for maintaining the grass, fences and water.

[197] There were a lot of people whose business involved buying stock, renting grazing and re-selling the stock. That could be done using grazing lets. Different types of land use may have an effect on rent. He rented his additional ground from the Golf Club. He was not paying a high rent. If one went out into the market looking for land one might not come back satisfied. There was no doubt that there was more demand than supply, indeed demand was fierce. There had been over 100 expressions of interest in one of the farms referred to as a comparable in Moonzie. Most farms in Caithness were owner-occupied and land did not become available on the open market.

[198] Even where one had a grazing let with the tenant carrying the sort of maintenance obligations one would normally find in a secure tenancy Mr McCall doubted whether the two were truly comparable. One had to compare like with like. He did not see how one could possibly make appropriate adjustments so as to render the two comparable. He had tried to compare an LDT with a secure tenancy and had found it very difficult.

[199] Scarcity was undoubtedly having an effect on rents. Scarcity and marriage value were driving rents up. One saw it with new lets. There had never been an equilibrium between supply and demand and it was getting worse. If one was taking on land one would pay an economic rent but one would have to factor in something for scarcity. People were paying uneconomic rents. That was because of their desperation for land. Reference was made to a Co-operative (SCWS) farm in Ayrshire where an LDT had been entered into but the tenant had required to withdraw because the level of rent was uneconomic. An economic rent could be arrived at on a budgetary basis. It sounded quite a complicated process but it was in fact fairly easy.

[200] When the rent for Culmaily had been agreed the Factor and the McCalls had done their researches independently. The McCalls had used a budgetary approach. The Factor had used both a budgetary approach and a comparative approach using settled rents for other farms rather than the open market. The result of the two approaches had not been far apart.

[201] Asked in cross-examination what he thought the rent for Culmaily would have been had it been agreed after the Court of Session’s decision in Moonzie, Mr McCall explained that he was in the throes of a rent review for Culmaily at the moment in which an increase of 5-6% was being looked for. He hoped to settle the new rent by negotiation.

[202] Mr Maclean then asked the witness about his involvement with the Scottish Tenant Farmers Association (“STFA”) and how it had led to his giving evidence in this case. Mr McCall explained that Mr Campbell is a member of the STFA. The STFA maintained a database of rents for comparative purposes. The only comparable for Waas on that database was Culmaily. At the stage of checking the database he had not expected this case to go this far. Mr McCall confirmed that he had given evidence in Moonzie at first instance. He confirmed that the STFA operated an insurance scheme for its members covering litigation of this kind. He confirmed that the scheme did not pay out if a case settled. If a case ran to a conclusion the tenant had to pay 10% of the expenses and the scheme would pay legal fees of £120 an hour up to a ceiling of £50,000. Mr McCall confirmed that he had been President of the STFA until February 2013 and since then a Director.

[203] Mr McCall agreed that he had been vocal on behalf of the Association’s members and direct in his criticisms of the rent review system – all of that was on public record – but he denied a suggestion from Mr Maclean that he was trying to fight Moonzie all over again in this case. To a challenge that he had said that one could only assess economic rent on a budgetary basis he responded that it was very difficult to work out profit and loss without a budget. Lord Gill had said that budgets were to be used only as last resort but he had not said they should be ignored. Lord Gill had laid down a hierarchy as to what constituted best evidence with included open market rents of secure holdings, LDTS, negotiated settlements and budgets. The witness had never said that open market rents should not be part of the equation. He denied being at odds with Lord Gill in that he was making budgets the first port of call whereas Lord Gill had said they should be the last resort. He was far too humble to argue with Lord Gill but in his opinion the fairest way to assess rent was the productive capacity of the holding. He accepted that, in light of Moonzie, one had to take account of SFP considerations but the budgetary approach took account of the SFP the holding would attract. To his mind the amount of SFP which should be taken into account should be based on what the average tenant would stock the farm with but SFP was distorted by being based on the historical reference period, unless one had bought entitlements.

[204] Asked about his connection with Mr Duncan (see below), Mr McCall explained that he had known him for a number of years. Mr Duncan had been the Scottish Agricultural College’s advisor in Thurso. He counted him as a friend. Mr Duncan was not a member of the STFA, nor was he on their panel of experts, but he had helped STFA members. Mr Duncan had no closer connection to the STFA than he had to the National Union of Farmers or any other organisation. He had no idea whether any fee Mr Duncan might be charging in this case was being paid by the STFA or its insurers.

[205] When Mr Campbell had been trying to negotiate his rent he had come to the witness, looking for comparables. The only farm on the STFA database which could be a comparable was Culmaily. It was the only recorded settled rent for around this review date north of Inverness. Of course there would have been other rents settled of which the database was unaware.

[206] Mr McCall had not inspected Waas, nor visited it, but he knew where it was. He had not come to court to make any assertion that Culmaily was an appropriate and helpful comparable for Waas. It was up to the respondent’s advisers to make that decision.

[207] Asked whether his own rent negotiation had involved an element of goodwill, given that the tenancy had run since 1971 and that the two sides had settled their differences amicably, Mr McCall explained that there had been a change of Factor just before the 2010 review and that there had been a determination to come to an agreement. He declined to agree that the element of goodwill must be quite significant given that he was a secondgeneration tenant and his prominent position in the industry. His impression was that both sides had viewed the settlement as fair. He denied a suggestion that the Factor would not have wanted to tangle with him. The Factor was from a big agency which would not be put up or down by tackling with Mr McCall.

[208] Mr McCall agreed with Mr Maclean that this case did not correspond to the typical David and Goliath profile of rent reviews. It did not involve a big estate.

[209] Asked about the effect of scarcity, he questioned a proposition from Mr Maclean that the mere fact that there was more demand than supply did not mean that the rent was distorted by scarcity. Questioned about the interplay between scarcity and marriage value, Mr McCall said that it was not just marriage value farm rents which were affected by scarcity: the rents of stand-alone farms were also affected.

[210] He agreed that, since 1991 Act tenancies were not to be had and the new tenancies introduced by the Agricultural Holdings (Scotland) Act 2003 (“the 2003 Act”) had not caught on, people had been entering into a variety of other arrangements which were neither 1991 Act tenancies nor classic grazing lets. He mentioned share farming and contract farming. He thought grazing lets in which the tenant had maintenance obligations would mostly be 364 day lets. He did not think such lets were particularly common. They had a 364 day lease themselves but not one involving maintenance obligations.

[211] Mr McCall agreed that fixing a rent for an agricultural holding ought to be a very practical matter. He agreed that he was extremely unhappy about how the present system under sec 13 operated. It involved trying to seek out an open market rent for a 1991 Act tenancy when there was no open market in such tenancies. Mr Maclean put it to him that where there was evidence of agreements which were the same as 1991 Act tenancies in all but name it would be ridiculous to close our eyes to such evidence, albeit adjustments may have to be made for comparability purposes. Mr McCall thought the adjustments required would be so extensive that Lord Gill would rank these lets below budgets in the hierarchy of best evidence. The lack of security was a huge factor and the obligations on the tenant in a formal tenancy regarding maintenance of fixed equipment and good husbandry were also considerations. Even where one was not talking about classic grazing lets but about lets with maintenance obligations corresponding closely to those of a secure tenancy, he did not accept that one was comparing apples with apples. One should compare like with like because it rendered comparison more relevant. The bareland element of Culmaily in the context of the configuration and structure of the parties’ agreement was more comparable with Waas than any grazing let.

[212] In re-examination Mr McCall confirmed that SFP had been treated as income coming from the holding for the purposes of the rent negotiations for Culmaily but the amount taken into account was less than the actual SFP payment.

[213] If rents were not based on the productive capacity of the farm they were based, in Scottish practice, on comparative rents. There were a variety of factors governing what one might be willing to pay, such as scarcity, marriage value and perhaps goodwill. What had happened with Culmaily was that the new Land Agent had come along with a set of figures and Mr McCall had done the same and Mr McCall had been surprised by how close the two sets of figures were. The difference between them was just the value of the cottages. The exercise had been done on a fairly objective basis.

[214] When land was being let it was not always the case that the highest bid was accepted. The landlord might question whether the applicant had done his sums properly. With a seasonal let, however, one would probably always accept the top offer because it was only a temporary arrangement. The process of negotiating for a full tenancy was completely different from that for a grazings let. It was quite a formal process, involving consideration of the state of the fixed equipment and of who has to do what. It was a completely different scenario from negotiating a grazings let where the landlord could just state a figure and the tenant could either take it or leave it. In negotiating the rent for a 1991 Act tenancy rent the threat of going to arbitration or the Land Court was available and whatever happened in the negotiations the tenant was still the tenant.

John Archibald Cook Campbell (50)

[215] Mr Campbell is the respondent and the tenant of Waas Farm. He gave evidence that he had taken entry around 1990 or 1991. At a later stage the landlords had requested a written lease. Production 2 was a copy of that lease. Production 97 was an IACS map of Waas.

[216] Prior to taking entry he had been told by a neighbour that land was available for let at Waas. He had approached the late Mr MacKenzie, who owned the land, and they had agreed a lease of the farm. Mr MacKenzie had intended to carry on farming for a few years and then sell the farm to Mr Campbell.

[217] The farm was not in “top condition” at that time but Mr Campbell had been happy to improve it as he was going to be buying it. Fencing was required to control stock and the drains could not cope. He had carried out fencing over a number of years. He had installed a few water troughs in different fields. He had started ploughing as part of a scheme to renew some of the grass.

[218] There had been an arbitration. He had given evidence of the improvements he had carried out. He had produced invoices. The witness was then referred to productions 23 to 77 being a collection of invoices said to relate to work carried out by Mr Campbell at Waas. At the invitation of the court it was agreed that it was not necessary to go through all of these individually. Mr Maclean could challenge anything which was not accepted as relating to maintenance or improvements at Waas in cross-examination.

[219] Reference was made to production 74. It showed the fencing which existed when he had taken entry. The boundary fences had to be rendered stockproof for cattle. Some of them did not have barbed wire along the top and were not suitable for cattle. Internal fencing had to be erected for stock management; to keep stock off new grass. Production 75 again showed the original fences marked in red; stretches of repaired fences, where barbed wire on top of net had been installed, marked in black; renewed fences marked in blue; new fences marked in green; and two new water troughs marked with green crosses. The lifespan of fences would be 20 years or less. Cattle were much harder on fences than sheep.

[220] Production 76 showed drainage work done. In field 12 the line of a completely new drain was shown. In field 11 one drain had had to be repaired and a new drain had been added. The ground was shallow there and the existing drainage had not been coping with the volume of water. In fields 7 and 10 new sections of drain had been installed. In field 7 new sections had been added on to existing drains to connect them with other drains. Where old drains had been replaced it had been with plastic piping set in gravel.

[221] He had also carried out some ditching. The ditches had not been cleared for a long time. Mr MacKenzie was by then an old man and had been doing less and less as the years went on. The farm had been showing signs of being run-down. The witness had improved it.

[222] He thought 200 ewes year round would be a good level of stocking for the farm. You could grow silage for that number. He thought 250, Mr Mackintosh’s number, was too high. You would have lambs and tups as well as the 200 ewes. He had used the farm mainly for sheep. There were no buildings for a large number of cattle. He used the land for pasture; mainly for grazing sheep. The climate was not suitable for growing crops and there was nowhere to store them anyway. A couple of years ago those who grew crops in the locality had been combining as late as March.The risks associated with growing crops on a farm like Waas were quite high. It was quite a small acreage and you would have to depend on a contractor. So you would be waiting for a combine and for good weather. Fewer and fewer people were growing crops in Caithness. In a field opposite Waas they had been chopping and burning the crop off in March one year.The harvest was getting later. You had to be into cropping in a reasonably big way if you were to cover your costs.

[223] Asked about Seaview and Ornum & Heathfield as comparables, Mr Campbell had difficulty with Seaview. Mrs Macdonald had said that the tenant was doing the fencing, drainage, cropping barley and reseeding. But there was a new fence being erected there at the moment and he had spoken to the contractor and the contractor had told him that Mrs Macdonald was paying for it. He had also spoken to the tenant there and the tenant had told him that if he was going to be doing any reseeding the rent would have to be reduced. Mr Campbell passed Seaview two or three times a day. He had never seen fields ploughed there nor seen the tenant erecting fences. He found it strange in any event that anyone would spend £250 an acrereseeding a field of grass when there was no guarantee that the person would have the use of the field the following year. Over a 10 acre field that would be a substantial investment. Reseeding was usually done anytime from now (May) onwards. It took six weeks to two months for the grass to reach a stage at which it could be cut. It would be disadvantageous, in a seasonal grazing let, to have to leave the ground unused for that length of time. Also, after reseeding the ground was usually very tender and it would have to be a pretty good season, in terms of weather, before you could put cattle on it. It did not make sense for a grazing tenant to do that although if the arrangement carried on he would have fresh grass next year. How long would elapse before one had to reseed again varied from farm to farm and for lots of reasons but typically it might be seven, eight or nine years. If the landlord at Seaview was doing all the repair work whereas in a secure tenancy that was being done by the tenant he could not see how you could compare the two. Before a grazing let tenant would volunteer to take on these obligations he would need to have some benefit from it or some security. Without security there was a large element of risk.

[224] Prices varied for grazing lets: it depended where they were and why people wanted them. At a recent sale a farmer had lost his grazing and had had to get other land because he had a large number of stock. If someone who was breeding stock and building up his numbers had to sell stock because he had no land he was back at square one. Some people carried out that sort of operation but others had a permanent herd of cattle. If you were keeping such a herd you would not push them on so hard towards finished condition and if you lost land and had to sell at short notice you would not have time to prepare them for sale and you would get less for them.

[225] Asked how seasonal let prices were fixed, he had seen two people who disliked each other bidding against each other simply to prevent the other person getting the land. That would not produce a true market value. When landlords and tenants were working out prices for lets some would do their homework themselves and others would go to the Mart to find out what prices were being achieved there. Some people never sold through the Mart but still went there to see what prices lets were making. He would question the profitability of some of the rents being paid at the Mart. Some were extremely high. One farmer had said to him that he would have been better to sell his cattle in the spring rather than take on a let at the price he had paid.

[226] There were various reasons for a farmer taking on additional land. One was so as to take young cattle away from bulls. At the Mart grazing land was sold in fields, not in whole units. There were always people looking for land. That put prices up at the Mart. The demand had quite a big effect on prices from what he could see, talking to other farmers. If a farmer was dependent on getting the same land next year that too pushed the price up. He had known two farmers who had lost the land they had been in the habit of letting – having been outbid by a newcomer – and they had been left with big problems.

[227] So far as Ornum & Heathfield was concerned, again he had not seen any work being done by the tenant. His general comments about grazing lets also applied to this farm.

[228] Questioning then moved on to Lord Thurso’s farms. These were identified on production 86. Thurso East was probably one of the best farms in Caithness. It was a dairy farm. It had a large cattle court building, an outside silage pit and other sheds. It also had a cottage which was available to the tenant. He himself used to do relief milking at Thurso East.

[229] Tower Hill was the neighbouring farm to Thurso East. The two farms had been let out at the same time to two brothers. Both farms had a house and the land was good on both. There was not much fixed equipment on Tower Hill and what there was was not in the best of condition. Dalemore would be a hill farm with some arable. Dirlot was, he thought, also a hill farm. Bullenie was a smaller farm but quite arable. It had a house on it and some steadings. Ulbster Mains was land without a house or steading. Most of its arable land was right against the rock faceand would be hard to crop.

[230] Mr Campbell found it hard to believe that rents for these farms were being fixed without regard to whether they had any fixed equipment. Who was going to give you a house and steading, such as were to be found at Thurso East, for nothing? It was certainly going to be relevant to a tenant whether there were steadings. The rent would certainly reflect that. Having cottages available for rent was a major benefit. The tenant of Towerhill rented out the house and the rent was a large part of his income. Asked which of the Sinclair Estate farms was most comparable to Waas he said definitely not Thurso East or Towerhill. Most of the Sinclair Estate farms, other than the hill farms, had houses whereas Waas did not. Bullenie was in a good farming area. None of them was particularly comparable.

[231] The practical consequences of having no steading included having nowhere to put a sick animal. Similarly you would have no buildings for lambing. Your losses could, therefore, be quite high in a wet year.

[232] Asked again about the possibility of using Waas for cropping, Mr Campbell repeated the point that there was nowhere to store a crop, regardless of the quality of the land. But as to the quality of the land, the rough ground at Waas was not ploughable. One could not say that one could not grow crops at Waas but one would need a yield of 1.5 tonnes per acre to cover one’s costs.He doubted if one would get two tons per acre on average in Caithness. One could get silage off the good fields but otherwise the obvious use of the land was rotational pasture.

[233] The rent he was paying was £2,900 per annum. The landlords were wanting £5,000. He did not think the rent should be increased to that level because it made no allowance for the improvements he had carried out at the farm. His position was that any increase should be to a figure less than £5,000. He had put in an increased offer.

[234] In cross-examination Mr Campbell was asked about the various conversations he had referred to in examination-in-chief. The new farmer who had come into the area and got grass which other farmers had been hoping to get was a Johnny MacKenzie. Those left grassless had been a Mr Cormack and a Mr MacKay. He had not been told this by Mr Cormack or Mr MacKay but had heard it at the Mart. He could not remember the name of the farmer who had said that he would have been better off if he had not got grass at the price he had paid for it. Asked about two people whom he had said had fallen out at the Mart and who bid against each other just because they had fallen out he was not prepared to divulge their names because “there was enough trouble between them already”. It had happened about two years ago. The farmer who had lost his grazing was the same Johnny MacKenzie as previously mentioned.

[235] He had spoken to Mr MacIver, the tenant at Seaview, but had not threatened him with being taken to the Land Court; he had said only that Mr MacIver might be asked to come to court. He had not spoken to Mrs Macdonald in three years but he admitted having heard of an unpleasant incident between Mrs Wood, his partner, and Mrs Macdonald in a local shop. He had spoken to a contractor called William Wilson who was working at Seaview but again denied having threatened to take him to the Land Court. He admitted that he had fallen out with the Macdonalds. He had also fallen out with Mr Mackay, proprietor of Ornum but not on this issue. He accepted that he was not popular in the district. Although he had no direct knowledge of the arrangements between Mrs Macdonald and her tenant the fact of the matter was that what she had said the tenant was going to do had not been done: nothing of that nature was happening at Seaview. There was a difference between the arrangement described by Mrs Macdonald in her evidence and what he had been told by Mr MacIver.

[236] He was registered for Value Added Tax. He had been the occupier of Waas during the reference period used for SFP purposes. The land at Waas was included in his SFP entitlements. He was not able to give a breakdown as to how much of his SFP was attributable to Waas. When Mr Maclean attempted to press the matter Mr Murchison objected to further questions as irrelevant or, if relevant, as being matters for Mr Duncan rather than Mr Campbell. We repelled the objection because what the tenant was receiving by way of SFP was clearly of relevance in terms of the Court of Session’s decision in Moonzie.

[237] Mr Campbell confirmed that he also received LFASS for Waas. Again he was not able to say how much. He confirmed that he was owner-occupier of Mayfield Farm which extended to 43 or 44 hectares. He had been at Mayfield all his life, it having been the family farm.

[238] Mr Maclean then questioned the witness about the invoices lodged. He said that they had all been incurred directly in relation to Waas. Some invoices might show his home address rather than Waas Farm but they had all been incurred in relation to Waas. He accepted that some of the expenditure represented by the invoices might have been in relation to maintenance rather than improvements. This was particularly true in relation to drains.

[239] Some specific invoices were then put to Mr Campbell. The inclusion of a charge for trousers on production 28 was a mistake. Although productions 30 and 31 referred to delivery to his home address the materials listed would certainly not have been delivered there. What had probably happened was that he himself had picked up these materials from the supplier. Production 38 referred to Mayfield but if one checked the goods supplied against what he had done at Waas one could see that the goods had been bought for Waas. He could not remember whether the reference to “Verbal” as the order reference on production 40 meant that the order had been placed over the phone. He accepted that production 44, being an invoice from North of Scotland Water Authority for the consumption of water, was not in respect of an improvement. He agreed that only some of the items listed on production 47 related to Waas. He denied a suggestion that the items listed in production 53 were for use at Mayfield. Similarly the grass seed and fertilisers listed in production 56, although delivered to Mayfield, had been for use at Waas. They had been stored at Mayfield to keep them dry and taken to Waas as required. He accepted that there was nothing on production 57 to show where the lime referred to was to be used but his position was that it had been for use at Waas. Similarly the fertiliser referred to in productions 58 and 59 had been used at Waas. He accepted, however, that this did not relate to a tenant’s improvement. On production 63 the fact that certain entries specifically related to Waas meant that it was fair to infer that the others did not. Initially he maintained that the whole of production 66 related to the field at the quarry on Waas but then accepted that the reference to a 200 acre field must mean that part of the expenditure shown related to Mayfield. He accepted that productions 69 and 70 related to the same thing.

[240] Mr Campbell confirmed that what he was claiming as tenant’s improvements at Waas took the form of some initial fencing, the installation of certain drains, the cleaning out of ditches, the repair of sections of fencing, the provision of two water troughs and a limited amount of reseeding. He was unable to give a figure for the total cost of these improvements.

[241] With reference to the lease, Mr Campbell confirmed that although it had been entered into only in 1998 it had been backdated to 28 November 1990. The rent had been £2,300 per annum from Martinmas 1996 with a review in 1999. He agreed that clause 4 obliged the landlord to provide such fixed equipment as would enable the tenant to maintain efficient production with the tenant being obliged to erect all fences, both boundary and internal. He accepted, therefore, that the provision of new fences had been his responsibility. Under reference to Clause 6 of the lease, it was put to the witness that when he had taken on the holding he had accepted the fixed equipment as being tenantable and sufficient to fulfil the landlords’ obligations under Clause 4. He denied that such fixed equipment as had been provided had been provided in good condition by the landlords. He accepted that he had not at any time sought consent for carrying out any tenant’s improvements. He had not discussed improvements with Mr and Mrs Ross but had discussed what he was doing with Mr MacKenzie. If that meant, as Mr Maclean suggested, that he would not be entitled to compensation for improvements at outgoing, so be it; if Mr and Mrs Ross did not have to pay him they did not have to pay him.

[242] Production 97 was the IACS plan of Waas Farm. It bore his IACS code number. The fields were numbered 1 to 16. However fields 13 and 16 were not part of the tenancy and he had not been claiming IACS on these. Mrs Ross kept her horses on these fields. Mr Maclean explained that the map had been obtained by the applicants from the Scottish Government; that when it had been received it had been unmarked and that it had been the applicants who had marked these two fields as not being part of the tenancy. Mr Campbell was, however, adamant that he had not claimed SFP on these fields. He was not claiming these fields as part of the tenancy.

[243] Under reference to production 19 Mr Campbell confirmed that the rent had been increased in 1999 and again three years later. That had been before Mr and Mrs Ross had bought the subjects. In 2005 another review had been sought. He had instructed a firm of solicitors at that time. They had taken a technical objection to the demand for a review. The same thing had happened in 2007. In 2008 Mr and Mrs Ross had lodged an application for rent determination with the Land Court but it too had been opposed by Mr Campbell’s solicitors as not being in the correct form and the application had been abandoned. Mr Campbell explained that on each occasion he had followed the advice of his solicitor. To a proposition from Mr Maclean to the effect that if he had been keen to have the rent reviewed he would not have taken these technical objections, Mr Campbell replied that he had thought the rent to be pretty reasonable. He accepted that in 2002, when the rent had last been increased, he had been a sitting tenant and that it had not been a case of having to offer a high rent to secure the tenancy.

[244] Asked what else, apart from assist in this rent review application, Mr Duncan did for him, Mr Campbell denied that he did anything. His IACS claims were done by his partner, Mrs Woods. He had known Mr Duncan when Mr Duncan had been with the SAC in Thurso but more recently he had met him at a Scottish Tenant Farmers’ Association meeting in Inverness. Mr Campbell was a member of the STFA but attended meetings only very occasionally. He had raised with Mr Duncan the possibility that Mr Duncan could help him with rent review. He had done so directly, rather than through Mr McCall or Mr Murchison. Mr Campbell had believed the rent he was paying to have been a “good” rent both as at 2002 and 2009. Although conditions in the livestock sector in Caithness had not been buoyant in 2002, costs had also been lower. He was reluctant to accept that economic conditions in the sector had been worse in 2002 than they had been in autumn 2010. There had been a couple of years in which the livestock sector had been in serious trouble. Even if there had also been a period, around Martinmas 2010 when prices had been particularly good, in another year people had been selling sheep for less than they had paid for them. He did not accept that sentiment among farmers in Caithness had been much better in autumn 2010 than in 2002: he would “have to look that up”. Asked by the Court if he was saying he did not know whether sentiment had been better in autumn 2010 than in 2002, Mr Campbell thought it had been better but he did not know to what extent that had been so.

[245] Mr Campbell denied that his knowledge of the applicants’ comparable farms, including those on Lord Thurso’s Estate, was sketchy. He had told the court what he knew of these farms. Asked about them in more detail, he did not know the detail of the arrangement between Lord Thurso and the tenant of Thurso East. It was a lease of some sort. He accepted from Mr Maclean that it was a limited partnership lease. He was not in a position to dispute that the subjects were held directly from Lord Thurso rather than on a sub-lease.

[246] Mr Campbell confirmed that his partner, Mrs Woods, had visited Lord Thurso at one of his constituency surgeries to ask about the rents on his estate. Lord Thurso had told her what his practice was. He had written to Mr Campbell in terms of production 96. Mr Campbell confirmed that this was the same information as Lord Thurso had given the applicants. Nevertheless he continued to find it hard to believe that the same rate per acre for rent was being charged for a farm with a big house as was being charged for a farm with a small house. It was not that he did not believe Lord Thurso. He just found it surprising. He was reluctant to accept that Lord Thurso’s practice was a useful illustration of how rent reviews were dealt with locally.

[247] In re-examination Mr Campbell identified the fencing contractor at Seaview as William Wilson. Mr Campbell had spoken to him and he had confirmed that he was putting up a fence for Mrs MacDonald and that she was paying him for his work and for materials.

[248] Referred again to productions 38 and 40, he confirmed that, although they had a delivery address of 1 Farm Cottages, Scrabster, they related to Waas. The amount of materials provided would tie up with the extent of fencing he had done at Waas at that time. Mrs Woods had done the relevant exercise proving that. The Scrabster address was a default delivery address. On many occasions he himself would collect the materials from the supplier.

[249] Questioned about the extent of reseeding carried out at Waas, under reference to production 49, field 9 had been ploughed by Jeffrey Sutherland. Production 50 was the relevant invoice. Field 3 had also been ploughed by Mr Sutherland, in 1997, and production 54 was the invoice for that. Field 8 had been ploughed twice – in 2000 by W & A Oag and in 2001 by Mr G S Williamson. Productions 60 and 63 were the corresponding invoices. Production 66 was Oags’ invoice for ploughing and putting dung on field 11 in 2006. Production 71 was Williamson’s invoice for ploughing and other work done in field 12 in 2010.

[250] Asked to clarify what he had meant when he said he thought he had been paying a “good rent” for the holding he said he meant a fair rent.

[251] He accepted a suggestion from Mr Murchison that his perception of how things had been in this sector of agriculture in 2002/2003 and then in 2010 might be affected by how he himself had been doing. In the early 2000s he had been “getting through”. Asked whether these had been hard times he said that you had to be careful what you were doing: you had to keep your thinking cap on.

[252] So far as the Thurso Estate rents were concerned, he had spoken to one of the tenants and that tenant had told him that, in agreeing a rent with Lord Thurso, the tenant took into consideration the rent he himself was receiving for the house he was letting out.

Ronald Henry Duncan

[253] Mr Duncan gave evidence that he had met Mr Campbell at a Scottish Farm Tenants Association in Dingwall in early 2010. Mr Campbell had asked him whether he would be interested in working with him in the preparation of his case.

[254] He had a degree in general agriculture from Edinburgh University and Master’s Degree from Ohio State University. He had worked with the North of Scotland College of Agriculture for a number of years. He had started in 1978 in Thurso. That had been followed by a spell in Uist and Barra from 1981 to 1987, when he had returned to Thurso. In 1995 he had been made Senior Agricultural Advisor in Inverness. In 2009 he had left the Scottish Agricultural College, as it had then become, to set up as a consultant on his own account. He had lived in Thurso for a total of 11 years. His principal interest was in farm business management, preparing cash flows, business plans and the like principally on behalf of tenant farmers. He identified productions 18, 78 and 100 as reports he had prepared for this case.

[255] Mr Murchison took him through production 78. The burden of erecting and maintaining boundary fences contained in the lease and referred to in the first paragraph of his report was not one a tenant would normally expect to bear. Any prospective tenant would have that in mind when assessing the rent he could afford to pay.

[256] Waas was not suitable for arable cropping. He preferred the word ploughable to arable; arable caused confusion. Production systems had now moved on and whereas in the past a farm such as Waas would have been used for cropping that was now less common. He was not sure that the evidence of climatic deterioration was conclusive but there had been a lot of heavy rain in recent years. Caithness soil did not drain well. Cropping could still be done on a farm such as Waas but it would be risky. Harvest would be late and it would be difficult to secure the crop. Modern machinery was heavier and bigger and “out of kilter” with the sort of farming previously done at Waas. As at 2010 the type of occupation and use the parties would have had in mind for Waas would be grass and sheep based. Cattle may have featured in it but more as a management tool. It was likely to be operated as a “marriage” farm. He would not entirely exclude the possibility of cropping. A small scale farmer might be interested in cropping. This was a crofting area and there were such units around. But the people who were pursuing that kind of farming were doing so more as a life choice. They would not bring marriage value to a unit such as Waas. But predominant interest in a holding such as Waas would be from people who would use it as it was presently being used.

[257] The carrying capacity of Waas was around 200 ewes with followers and tups. The improvements listed in his report were shown on productions 74, 75, 76, 77 and 79. In arriving at his measurements for the physical extent of these improvements he had scaled these lengths from the productions. These improvements would lead to greater live weight being produced per acre. He estimated that they had resulted in a minimum uplift of 2% in animal production. That was his opinion and in arriving at it he had erred on the side of caution.

[258] For the purpose of finding comparables he had used the STFA data-base. Culmaily was the farm referred to in section 5 of his report. It was the best comparable. It contained within it an area of permanent pasture similar to Waas. That was the area listed as Permanent Pasture [LCA 4(2)] the rent attributed to which was £25 per acre. The reference to further enquiries confirming that a neighbouring tenant had agreed the same rates per acre was based on something said by a neighbour of Mr McCall’s when Mr Duncan had visited Culmaily.

[259] Applying a rate of £25 per acre to the 83.5 ploughable acres at Waas produced a figure of £2,087. The remainder of the land at Waas was classification 5[2]. This formed a “ploughable equivalent” area of 16.97 acres, the rental for which, in round figures, would be £424. The total rent for Waas on this basis would be £2,511. However that required adjustment to make it comparable to Culmaily. The relevant adjustments are set out at section 6 of production 78 under three headings:” Cost of Fencing”, “Uplift in productivity as a result of improvements” and “Lack of buildings”. The cost of fencing pertained to the cost of erecting boundary fences. He had treated the cost incurred as a loan or mortgage and amortised it over the 20 year life expectancy of the fence. The uplift in productivity was calculated at 2% on average livestock sales. He had calculated the deduction due to lack of buildings at £480 per annum on the basis of reduced productivity of 3% attributable to the lack of buildings. So far as the lack of a house was concerned, he had carried out a telephone survey of estate agents in the area. A three bedroomed farm cottage would be expected to fetch a rent of £300 per month or £3,600 per annum. After making the deductions shown in the report an appropriate deduction for lack of a house on Waas would be £573. Total deductions amounted to £1,499.

[260] There was also an adjustment to be made by way of addition, for marriage value. He had tried to assess that objectively. He had assumed that 20% of power and overhead costs could be saved as a result of operating Waas along with another unit. These costs could reasonably be calculated at 25% of average gross output over three years. The 20% estimate of savings was, he thought, a reasonable estimate of the savings which would be achieved in practice. The resulting marriage value was £1,100. Adjusting the base rent of £2,511 by the foregoing deductions and addition produced an adjusted rent of £2,112.

[261] Section 7 of his report dealt with current economic conditions. His figures showed how farm income had fluctuated over the period 2003 to 2011. Volatility had been a feature of economic conditions in this sector over that period.

[262] Section 8 asked whether the result was realistic. A cross-check of rents from the SFTA data-base shown in production 15 showed the current rent of £2,900 per annum to be in keeping with those. There was no proper basis for a rent increase.

[263] Questioning then moved on to general consideration of the factors affecting rent. These factors were the economic return likely to be gained from the holding, the convenience of its location and a premium reflecting how difficult land was to acquire, or, in other words, scarcity.

[264] Under reference to production 100 he did not consider seasonal lets to be good comparables for Waas. That was for the various reasons listed there. Seasonal lets could be used for especially risky ventures, such as short-term speculation in the price of stock. There were relatively few seasonal lets available. They were taken up very quickly. Demand outweighed supply but it was difficult to say by how much. Nevertheless he was not himself aware of people in Caithness who wanted land but could not get it. But he knew that there were people who could not get as much of it as they wanted. In many incidents people wanted to expand their businesses but could not get enough land to fulfil their aspirations.

[265] Farming was a long term enterprise and seasonal lets did not give the prospect of long term arrangements which would allow the business to develop. There was always the danger of losing a grazing let. The production cycles for sheep were long: up to a year for sheep and longer for cattle. Maintenance and improvement of land required substantial investment. The erection of fences would involve an expectancy of a lifespan of 20 years and reseeding was what the witness described as a “mid-term” enterprise. So the timescales in farming were all long.

[266] There was no mechanism for rent review in grazing lets. The landlord was free to ask what he wanted and the tenant would always be anxious to keep the land. If a tenant had to sell stock due to lack of land that could lead to longer-term problems. So there was pressure on a grazing tenant to preserve goodwill. It was always difficult to find other land. Selling stock would be at the bottom of the list of preferred options in a situation in which a grazing tenant was at risk of losing land.

[267] Mr Mackintosh had not deducted any marriage value from the Seaview rent whereas marriage value must have existed in the circumstances of the case. Marriage value would have been included in the quotation Mrs MacDonald had been given by the Mart. The correct methodology was to deduct marriage value from the comparables and add it to the rent of the subject farm. He had tried to carry out that exercise in production 100. He had done so on the basis of a rent of £2,750 for Seaview whereas Mrs MacDonald had given evidence that the rent was £3,000. We allowed Mr Duncan time to adjust his figures accordingly. Mr Maclean moved to lodge two documents prepared by Mr Mackintosh giving his revised calculations in relation to Seaview and Ornum & Heathfield and these were received as productions 102 and 103.

[268] For the assessment of marriage value for Seaview he took as his starting point the £22,000 he had calculated as being the average gross output of Waas. That (divided by the acreage of Waas) produced gross output per acre of £219.00. The gross output of Seaview would therefore be (£219 x 73.35) £16,063.65. Applying the same formula to that figure as he had applied for calculating the marriage value of Waas (20% of 25% of £16,063.65) produced a marriage value for Seaview of £803.

[269] Mr Duncan also calculated a “budget” or economic rent for Seaview. Under reference to production 100 he explained that the calculation of such a rent was a standard management analysis technique which involved calculating the budget rent at 12% of gross output. At this point Mr Duncan must have been working on the basis of a slightly different acreage for Seaview from the 73.73 acres referred to above because he calculated a gross output of £16,075 rather than £16,063.65 Twelve per cent of £16,075 produced a budget rent for Seaview of £1,929. Adding that sum to the marriage value of £803 produced a figure of £2,732. The difference between that and the actual rent being paid must relate to scarcity.

[270] For Ornum & Heathfield Mr Duncan calculated a budget rent of £2,197 (12% of an assessed gross output of £18,310) and marriage value of £1,168 (using Mr Mackintosh’s rates). The difference between the total of these two amounts (£3,365) and the rent of £5,000 was £1,635. That must represent scarcity. Mr Duncan then applied those values to the rent of £4,695 Mr Mackintosh had arrived at for Waas in production 95 and came up with a rent of £2,554 for Waas.

[271] Asked about the evidence relating to Sinclair Estate holdings, Mr Duncan thought it was useful information in terms of comparable farms in the area. There was, however, a dearth of detail as to the extent of fixed equipment on these farms which limited their usefulness in terms of assessment of what rent was being paid for. One would need to know the extent of the landlord’s provision of equipment and buildings, the type of tenancy, whether there was marriage value and the nature and extent of the tenant’s obligations under the lease and whether there were post lease agreements before one could properly use these farms as comparables. Although Lord Thurso quoted rental rates per acre the rent also included whatever fixed equipment there was. If any of the farms had a house or steading an adjustment would have to be made for comparative purposes. One would have to assess the rental value of the equipment available and deduct it from the rent being paid in order to make the rent comparable with Waas.

[272] Lord Thurso’s approach was one which seemed to satisfy both sides but Mr Duncan doubted how widespread it was. The fourth paragraph of production 96 (a letter from Lord Thurso to Mr Campbell) suggested that he did take account of the buildings on the farms into account. It seemed to contradict what Lord Thurso said elsewhere. Lord Thurso’s categories of “arable” and “pasture” were quite broad categories but if Waas had to be classified as one or the other it would be pasture and the relevant rate would be £20 per acre. That would produce a figure of £2,000 for Waas from which a deduction would have to be made for the lack of a house and steading. Lord Thurso had arrived at his rates by asking a local valuer. The values given by the valuer must be taken to include marriage value. On the basis of Lord Thurso’s figures Mr Mackintosh had come up with a rent of £4,959 for Waas but that failed to take account of the fact that Lord Thurso’s figures must include an element in respect of the fixed equipment.

[273] Despite these qualifications, Mr Duncan remained of the view that the Sinclair Estate figures were very useful. He thought them to be generally in line with what the rent for Culmaily had been in 2010.

[274] After a break calculations in respect of Seaview and Ornum & Heathfield were revisited. Mr Duncan had calculated an economic rent of £1,929 for Seaview. That was £26.27 per acre. Applying that to Waas produced a figure of £2,627 to which marriage value of £1,100 had to be added but from which £446 had to be deducted for tenant’s improvements. The result was a rent of £3,291.

[275] The witness then carried out a similar exercise in relation to Ornum & Heathfield. He calculated a budget rent of £2,197. Using Mr Mackintosh’s adjusted arable acreage of 83.77 that worked out at £26.22 per acre. Applying that to Waas produced a figure of £2,631 to which £1,100 again fell to be added by way of marriage value and £446 fell to be deducted for tenant’s improvements, resulting in a rent of £3,285.

[276] These comparisons were, of course, subject to Mr Duncan’s reservations about the validity of comparing seasonal grazing lets with 1991 Act tenancies at all.

[277] Under reference to the evidence heard as to part of Ornum & Heathfield being under crofting tenure, Mr Duncan had reservations as to whether it was possible to compare land held on crofting tenure with land held under the 1991 Act for rent determination purposes. The two regimes were very different. There were more concerns for landlords of crofts than for landlords of agricultural holdings and the rent might be affected in an attempt to assuage these concerns.

[278] One way of measuring the effect of scarcity was to calculate the budget rent. Another way, he agreed, would be to use agreements between landlords and sitting tenants as a comparator. Any difference between rents agreed in existing tenancies and rents for new lettings on the open market would be attributable to scarcity. Asked by the court as to whether the difference between the two might not be to do with goodwill, the witness agreed with Mr Murchison that it could have to do with the necessity, on the part of the occupier, to secure the goodwill of the landlord. In grazing lets there was no formal rent review mechanism. Possession was precarious and one party, the landlord, was particularly powerful. A tenant could not simply go off and get other land. That option was less attractive and less commercially viable than coming to an agreement with his existing landlord. Each grazing let reflected a unique situation and they were scarce almost by definition.

[279] Mr Duncan did not think that Mr Campbell under stocked Waas. Two hundred ewes was a reasonable number. He had calculated gross output for Waas on the basis on lamb sales but also including SFP and LFASS at £22,000. That would mean a budget rent of £2,640 (12% of £22,000). To that marriage value of £1,100 was to be added, producing a figure of £3,740. The value of tenant’s improvements of £446 had to be deducted, leaving a rent of £3,294.

[280] At this point Mr Murchison put it to the witness that his report (number 78 of process) came to the view that there was no basis for increasing the present rent. This produced an objection from Mr Maclean, who pointed out that the rent the respondent was contending for was £2,112. That is the position on which the respondent had come to court. Production 18, an earlier report by Mr Duncan, suggested that Moonzie had stressed the importance of compromise and pragmatism and on that basis an offer to maintain the current level of rent was recommended in the interests of expeditious settlement of the matter. Such an offer had not, however, been made.

[281] Mr Murchison responded that in his answers the respondent averred that an offer of £3,200 had been made. This was a matter on which the court required to hear evidence.

[282] Mr Maclean pointed out that the making of the offer of £3,200 and its rejection had not been put to Mr Mackintosh in evidence. The position was that no formal offer had been made at all. Mr Murchison argued that the meeting being referred to (in the last two sentences of the adjusted answers) was not a pre-litigation meeting. He accepted that the making of the offer had not been put to Mr Mackintosh and began to address us on the consequences of that in the context of something which was highlighted in a party’s pleadings. He referred to Walker & Walker The Law of Evidence in Scotland 3rd ed para 12.15.1. However the court intervened to say that we were anxious to avoid going down the road of hearing about offers which may or may not have been made. If that were to be of consequence in relation to expenses the court would be prepared, if necessary, to hear evidence about it then. On that basis Mr Murchison was happy not to seek to take the matter further at this stage.

[283] In cross-examination Mr Duncan accepted that in Moonzie Lord Gill had reminded us that rent reviews were to be conducted with reference to the open market. He accepted that he had no qualifications in valuation. Asked about the extent of his experience in rural surveying he said that he had been involved in two rent reviews last year but they had been resolved. He accepted that his area of expertise was really in farm management, preparation of cash flows and like. He had not given advice in any contested rent applications. He had never compiled a report for such a case prior to March 2011. And between then and the reparation of production 78 he had not given advice in any contested rent applications. He had prepared another report in May 2012 but the rent there had been negotiated. He accepted that when he had compiled his reports for this case he had had very little knowledge or experience in the law and practice of rent reviews. Asked whether he thought he had the necessary professional qualifications to give evidence as an expert in this case he said that he had to say yes because he was here. He could speak to the practice of valuers because of information he had gathered since more formally developing an interest in valuation. That had been derived not so much from talking to people but from research. He understood his role as an expert or skilled witness to be to present an assessment of the situation for the benefit of the court. Mr Maclean put it to him that an expert had to be independent, objective, must act within his own field of expertise and must never assume the role of advocate for a particular cause. Mr Duncan did not think he had taken up the position of advocate in this case, nor did he think he had been biased. He had done the best he could in the circumstances.

[284] Referred to his two reports (productions 18 and 78), 17 months apart, one on either side of the Court of Session’s decision on Moonzie, he accepted that they followed completely different methodologies yet came up with a difference of only £1.68. That was by accident rather than design. He had not sought to manipulate the result of the second report but he had not been surprised that the figures turned out to be so close. If it looked to a cynical observer as if he had worked back from the figure produced by the first report to produce a similar figure in the second, that was the way it looked, but he had not done that. He had a lot of management experience in this area and he had applied it. He denied that, as someone establishing a new area of work and having come up with an extremely favourable figure in his first report, he had felt under pressure to come up with a similar result in the second. He would have assumed the opposite to the true.

[285] At the time of preparing his first report he had felt confident that he had understood the Land Court’s decision in Moonzie. We allowed Mr Maclean to lodge a copy of that judgement (production 104). Reference was made to page 2 of production 18 where a rental of £2,110.32 was arrived at comprising SFP naked acre rent equivalent of £1,055.16 and an identical amount for marriage value. He accepted that £1,055.16 was the equivalent of £9 multiplied by the total acreage of Waas (117.24 in Mr Duncan’s report although subsequently agreed between Mr Duncan and Mr Mackintosh to be 117.45) and that the £9 per acre had been “plucked from” (Mr Maclean’s words) a finding made by this court in relation to the cost of leasing “naked acres” in Moonzie (see para [141] of the Land Court decision in Moonzie). He accepted that he had translated that finding into the present case. Referred to para [154] of the Moonzie decision, he denied that he had taken what was, in Mr Maclean’s words, “almost a throwaway remark” and converted it into a rule of thumb whereby marriage value could never be more than the cost of renting the equivalent (equivalent to the size of the farm) number of naked acres. Mr Duncan insisted that he had tried to calculate marriage value in an objective way. He had not manipulated the figures. However, questioned by the court, he accepted that that was how he had arrived at the figure for marriage value in his report (i.e. on the basis of what the court had said at para [154] of Moonzie). He agreed with Mr Maclean that he now departed completely from that approach.

[286] Asked what information he had had about the situation at ingo when he wrote paragraph 3 of his second report, production 78, he said the information had been provided by Mr Campbell. Mr Duncan’s report describes much of the fencing as having been missing or derelict at ingo. He accepted that the situation could not have been so bad that Mr Campbell could not farm at all, because Mr Campbell had, of course, been a grazing tenant on the subjects for a number of years before securing the present tenancy. Mr Duncan had not carried out a reconciliation exercise between what the invoices showed as having been spent on fencing and what the plans of the farm showed as to what fencing needed to be replaced. He had accepted the position as described to him by Mr Campbell at face value. He accepted that it was possible that some invoices may not relate to Waas at all and that others may relate to repairs rather than replacement. He had not “valued out” maintenance and repair and he accepted that on any view improvements in relation to fencing were overstated in his figures.

[287] As to whether the improvements made had in fact produced an increase in productivity, it was a supposition on his part that they had. He had performed this exercise on a theoretical basis. He accepted that what the hypothetical open market bidder would be interested in was whether the improvements had in fact led to an increase in productivity. He accepted that he could have asked Mr Campbell to produce his lambing records but had not done so. Nor had he attempted to work out how much less productivity would have been without the improvements. He pointed out that any investment was made with an expectation of a return. It was logical that improvements would lead to increased productivity.

[288] Asked whether he was seriously contending that the provision of two new water troughs could have had a measurable effect on productivity, Mr Duncan pointed out that there had been a risk of animals drowning in open water courses.

[289] Mr Duncan accepted that he had approached the Moonzie case selectively: he had selected what was relevant. He accepted that he had not mentioned the availability of SFP despite what had been said by Lord Gill about the centrality of SFP to a hypothetical bidder’s assessment of rent in Moonzie. That had been an omission. As to the level of SFP which Waas could unlock, he calculated that at £4,000 with an additional £2,000 for LFASS. He agreed that these were the figures which a hypothetical open-market bidder would have in mind.

[290] He denied having tried to conceal the identity of the comparable farm in his first report. He had not been hiding the fact that it was tenanted by Mr McCall. It had more to do with the way he wrote reports. He himself was not a member of the STFA. He had been given access to its data-base by Mr McCall. He denied that he and Mr McCall went back a long away: he went back a long way with many farmers. He had discussed farm renting with Mr McCall in a general way but not specifically in relation to Waas. He had spoken to him about this case in general terms. He admitted that his view as to the admissibility of grazing lets as comparables in 1991 Act rent review cases had been influenced by Mr McCall’s views and those of others.

[291] Although he had purported to select Culmaily as a comparable on the basis of location and the fact that it contained permanent pasture, he accepted from Mr Maclean that the real reason he had selected it was that it was the only one he could find. Culmaily contained an area of permanent pasture of similar size and quality to Waas. He agreed that he had abstracted the values attributed to that area in the Culmaily rent negotiations and had applied them to similar classes of land at Waas. This had given him a basic rent for Waas from which he had gone on to make deductions. He disagreed that, by this point, his methodology was already wrong. He had no doubt that it was right.

[292] He accepted that sec 13(4)(a) of the 1991 Act directed the Land Court to to have regard to information about rents of other agricultural holdings. He accepted that it did not direct the Land Court to have regard to the various elementsand trade-offs which enabled parties to agree the global rent. He accepted that he had done something quite different from what the Land Court was directed to do.

[293] Asked whether Culmaily was not a situation in which account should be taken of goodwill, Mr Duncan explained that he had not considered goodwill because he had understood the rent negotiation to have been robust. He had considered whether to take goodwill into account and decided against it. Having heard Mr McCall’s evidence he would now consider goodwill “more strongly”, although his understanding remained that the 2010 rent negotiation had been robust.

[294] In his second report, production 78, he had arrived at a basic rent for Waas (on the basis of Culmaily) of £2,511. He had then gone on to make adjustments. At this point he accepted that his methodology was not defensible. That was because he had not been able to obtain information which was necessary in order to make appropriate adjustments. He accepted that the correct approach was to adjust the evidence in relation to the comparables so as to make them truly comparable to the subject farm, not the other way around. He also accepted that what he was valuing, in terms of the subject farm, was the holding as it existed on the ground. He asked, however, whether the exercise could not be performed the other way round with equally valid results.

[295] Referred to some specific matters, what he had done in relation to fencing had been to calculate the cost and write it off over a period of 20 years. He agreed with Mr Maclean that what he should have done was assess its worth to the open market offeror. He stood by his deduction in respect of increased productivity resulting from Mr Campbell’s improvements. The tenant should not be rented on these improvements. He accepted that if the holding did not have farm buildings or a house what that meant was that the rent had to be fixed on its open market value so equipped. One did not, in that situation, assume that the hypothetical open market bidder would offer less for the bareland holding. He agreed that, where the holding did not have a house and it was, therefore, being rented on that basis, it did not make sense to make a deduction from the rent for the absence of a house. From that point of view, he agreed with Mr Maclean that Seaview and Ornum & Heathfield were better comparables because they did not have houses. He agreed that they were also good physical comparables, except as to soil quality. These comparables were, he accepted, of some use in the working out of a rent for Waas but the very different conditions of tenure had to be kept in mind.

[296] Asked about the information contained at para 6[4] of production 78 about house rentals, Mr Duncan explained that he did market surveys. He accepted that Mr Mackintosh had been doing this sort of thing (the letting of properties) “man and boy for many years”. He accepted that what he himself was basing his evidence on was second hand information form letting agents.

[297] Questioning then turned to the treatment of marriage value in Mr Duncan’s second report. The witness accepted that, whilst a stand-alone use for Waas could be imagined, it was more likely to be rented by someone with an existing holding. Mr Duncan defended his use of 20% as the percentage of overhead costs which could be saved in that situation. Every situation varied but 20% was a reasonable figure to use.

[298] One of the improvements he had mentioned in his report had been ditch cleaning. He understood extensive cleaning out of ditches had been required over a period of years. In the Culmaily lease cleaning out of ditches was part of the tenant’s obligations.

[299] In relation to the fencing, he had produced a figure of 1, 749 metres as the extent of fencing carried out. That had been arrived at by “scaling up” from the plan which is production 75. The same approach had been taken with drainage on production 76. He had not taken any steps to ensure that the lines from which he had scaled up from these maps were accurate: he had accepted them as they appeared on the maps.

[300] Referred to the Waas lease, clause 6, Mr Duncan confirmed that he thought a prospective offerer would weigh the obligations specified in his mind. He accepted, however, that the tenant’s obligations therein contained were not particularly onerous or unusual except for the reference to clause 4. Taking clauses 4 and 6 together, the only thing which was onerous was the liability on the tenant in relation to boundary fencing. He agreed that there must be few 1991 Act tenancies with so little in the way of fixed equipment to be maintained. Individual tenants would have their own ideas as to how internal fencing should be deployed and where the holding had potential to be adapted to better use he agreed that the Court should factor into the rent a value for what the hypothetical offerer would attach to such potential.

[301] Mr Duncan thought the Culmaily and Waas leases were “about the same” in terms of onerosity. Mr Maclean then took us through the Culmaily lease for its reservations of power to the landlords and imposition of obligations on the tenant. Mr Duncan agreed with him that they were exceptionally detailed and prescriptive. He agreed that, as with Waas, so with Culmaily; the more onerous the obligations on the tenant the less a tenant would be prepared to pay. His failure, as part of the adjustments he had made, to compare the terms of the Culmaily and Waas leases had been an omission. He agreed that the onerous nature of the Culmaily lease undermined its suitability as a comparable for Waas.

[302] With further reference to Culmaily, Mr Duncan agreed that the fact that the tenant had carried out improvements to a cottage did not mean that no account should be taken of that item in the comparison exercise. Account had to be taken of it in its unimproved state. He agreed that he had made the mistake of looking at the matter of improvements from the point of view of the tenant rather than the hypothetical open market offerer. The exercise would be about asking, for instance in relation to the 1996 reseeding of field 9, what would the fact of that reseeding be worth to an offerer in 2010. As to reseeding generally, he had not gone into the reseeded fields to assess the state of the grass. He had been driven round the farm. But it was the fact of reseeding which was the tenant’s improvement, not the condition of the grass per se. He agreed with Mr Maclean that as no record had been drawn up at ingo there was no way of assessing whether these fields were more productive today than then but, all else being equal, a small element of improvement was to be expected. He agreed that what mattered was not how much the improvements had cost Mr Campbell but how much they would be worth to a hypothetical offerer. He agreed that the exercise was one of valuation, not farm management analysis.

[303] As to the comparability of grazing leases with 1991 Act tenancies, he shared Mr McCall’s objection on the ground of lack of security of tenure in grazing lets but another difference was the absence of a mechanism for fixing rent. Mr Maclean asked if that meant that evidence of limited partnership leases should also be inadmissible. Mr Murchison objected on the basis that the question was being put on a false basis: not all limited partnership leases were vulnerable to termination by notice. Mr Maclean answered that his point was that the general partner in a limited partnership derived no security of tenure from the lease at all: whatever security he had derived from the partnership agreement. Mr Duncan accepted that, prior to the 2003 Act, evidence of rents in limited partnership leases had regularly been accepted in relation to 1991 Act tenancies not involving limited partnerships. Mr Maclean put it to the witness that if evidence in relation to limited partnership leases – which were, he said, by definition precarious – was admissible in rent reviews so too should evidence of grazing lets be. At this point Mr Murchison renewed his objection. We allowed the evidence under reservation of competency and relevancy. .Mr Maclean put to the witness that if such evidence had, pre-2003, been considered relevant for rent review purposes, it could not be the relative precariousness of the tenant’s position that disqualified grazing lets from consideration and that it was a counsel of despair that suitable adjustments could not be made to evidence in relation to grazing lets so as to make them useful comparables in this exercise. Mr Duncan thought the relative durations of these leases compared to 1991 Act leases was a problem as was the lack of security in grazing lets.

[304] With regard to Lord Thurso’s method of negotiating rents, whilst he did not disbelieve Lord Thurso, Mr Duncan found his approach unusual. He accepted that in the real world where there were sitting tenants in place there were many different ways by which they could go about the task of negotiating a new rent. Some were more complicated and formal, as in this case, others broader and simpler. He confirmed that his own approach was budget-based: working out how much a tenant could afford to pay while still making a profit but also allowing for a competitive element. He agreed that ultimately tenants paid what they could afford.

[305] Asked about distortion, he agreed that what we were trying to do was identify situations over and above normal open market transactions where people were offering “silly money” (Mr Maclean’s term). He agreed that such rogue transactions had to be factored out. He agreed that there would always be a healthy demand for land since supply was fixed.

[306] Whilst landlords may perceive an advantage in having a tenant they knew and trusted and had worked with over a period of years, that did not detract from the fact that a grazing let was still limited to a duration of 364 days and that, therefore, the arrangement could come to an end abruptly. He did not, however, dispute that there was a spectrum of different grazing let arrangements, some being let through the market, others by agreement and some more elaborate than others and involving obligations upon the tenant.

[307] In relation to scarcity, Mr Maclean referred to Mr Bremner’s evidence and suggested that it portrayed a very stable market, with the same people buying the same lets as before, and that there was no solid evidence of people not being able to get land. Mr Duncan replied that bidders were, nevertheless, sometimes left “high and dry”. He referred to a dispersal sale having to be carried out on a farm near Nairn last weekend because the farmer had not been able to get more land. He agreed with Mr Bremner’s evidence that, so far as scarcity and distortion were concerned, nothing much had changed in Caithness over the past quarter of a century.

[308] So far as current economic conditions in the relevant sector of agriculture were concerned, he agreed that sentiment was much stronger in the run up to Martinmas 2010 than it had been when the rent for Waas had been agreed in 2002. In section 7 of his report (production 78) he had gone back only as far as 2003-4 because that was the data he had had available. Although farmers had had cash in their pockets from buoyant sales in 2010 they would also bear in mind the volatility of the agricultural market when it came to agreeing a new rent. He agreed, however, that the fact that three of the last four years had been significantly more profitable for farmers would affect the rent for Waas in 2010.

[309] Turning to section 8 of his report, he had posed the question whether the rent arrived at was realistic as had been recommended by Lord Gill in Moonzie. He thought the rent of £2,112 arrived at was realistic. That remained his position. That was notwithstanding that the passing rent at the review date was £2,900 per annum and that that rent had stood since 2002. He agreed that sentiment in the sector had been considerable less positive in 2002. He accepted that rent was potentially reviewable every three years and that Mr Campbell could therefore have sought a rent review in 2005 and 2008. He accepted that when, in 2009, the landlords had sought a rent review Mr Campbell had taken a technical objection. He agreed that these were hardly the actions of a tenant who thought his rent too high. But Mr Campbell had been entitled to object if the landlords were not following due process. The fact that Mr Campbell himself had regarded the rent as being fair had not given the witness pause when considering whether the rent he had arrived at was realistic: the figure he had arrived at had resulted from the process he had followed. He accepted that the result represented a 25% reduction of the passing rent and the rent as it had been in 2002. He was not, however, aware of any rents having been negotiated over that period which had resulted in a 25% reduction. He pointed out that what he had in fact concluded was not a 25% reduction but that there was no proper basis upon which the passing rent could be increased. Asked by the court as to whether he now said that a rent of £2,112 per annum as at Martinmas 2010 was a realistic rent to propose, he agreed that it was not.

[310] Mr Maclean closed cross-examination by explaining that he had not formally put Mr Mackintosh’s report to Mr Duncan because he thought that the differences between the witnesses had been sufficiently ventilated.

[311] In re-examination Mr Duncan confirmed that his experience lay in general agriculture, particularly in assessing the productive capacity of farms. There was a connection between the cost of running a farm and what someone else, coming in, might be prepared to pay by way of rent. Under reference to the “Stock Carrying Capacity” section of production 78 he confirmed that the works specified there were works which a potential new tenant, as at Martinmas 2010, would have wanted to carry out. The cost of these would have had a bearing on how much he was prepared to pay by way of rent. His methodology, therefore, had not been invalid: he had considered what would have been in the mind of a tenant in terms of cost. He had not worked out the cost on site but any tenant would have wanted to attend to defective external fencing and to complete the internal fencing. If the choice, for an incoming tenant, was between an absence of internal fencing, thus giving freedom to erect fences where he wanted, or taking over the fences erected by Mr Campbell, the latter would be more attractive.

[312] Writing off the cost of fencing over a period of 20 years, being the expected life of a fence, was a fairly standard technique. The cost had to be “netted off” what a tenant would be prepared to pay. That was a reasonable approach; the expenditure was “costed out”. It was, agreeing with Mr Murchison, one way of getting inside the financial mechanism of how any new tenant was going to look at the matter.

[313] His report recognised that some of the work referred to in section 3[2] included certain elements of repair and maintenance as well as improvement. But draining, ditching and installation of water troughs were things any new tenant was going to want to get done. A tenant would want his holding to be up and running to best capacity as soon as possible after ingo. The water troughs were centrally located for stock being rotated around various fields. Given the extent of work done he had estimated an increase of 2% in productivity. That was a benefit. It had led to him making a deduction of £320 in the appropriate rent. He agreed with Mr Murchison that if the calculation had been made on the basis of cost of the works rather than increased productivity the deduction would have been larger.

[314] In respect of buildings, and the comparison with Culmaily, he had made a deduction for the absence of buildings on one side of the equation rather than the other. The size of that deduction was £480. It had been arrived at on the basis of the benefit which might be expected to arise, in terms of animal husbandry and, ultimately, in terms of livestock sales, from the availability of suitable buildings. So, again agreeing with Mr Murchison, if we were to apply a rate of £25 an acre (being the rate for permanent pasture agreed for Culmaily) to Waas without making a deduction we would be applying the wrong figure because the appropriate adjustment would not have been made. A tenant who knew that £25 an acre was the going rate for this kind of land, coming to Waas would need to factor into his calculation of rent the lack of a building. One way of doing that was to calculate the value, in terms of improved production, of a building. That would result in a tenant coming in to Waas paying £480 a year less. That was, in his opinion, a reasonable figure to deduct. It was arrived at on the basis of matters of cost and effect in farming with which he was entirely familiar. In particular he was familiar with budgets and costing, advising new entrants to farming and assisting with building grant applications. He was experienced in calculating the return on investment in farm businesses. The unavailability would be a factor an incoming tenant or a new entrant would take into account because it would limit the income they could generate.

[315] There were six houses on Culmaily; three used by the farmer and his family and three available to let. The three available to let were rented separately. The farm rent included the other three. Mr McCall had given evidence that the farm was fully equipped. The witness understood that to mean adequately equipped for the needs of the farm. The £25 per acre he had used for comparative purposes included the use of that fixed equipment. The income from the cottages which were let out at Culmaily was divided, a third to the landlord, a third to Mr McCall and a third to the cottages themselves (i.e. for maintenance of the cottages). The three let cottages at Culmaily made £6,000 in rent in total, of which the landlord got £2,000. There was also £2,000 of benefit to the tenant. For a single cottage the net benefit to the tenant would, therefore, be a third of that. For Waas he had calculated a reduction of a similar amount, £573 per annum,for the absence of a house.

[316] As to marriage value, it seemed to Mr Duncan that the approach he had taken was a reasonable one. It was, admittedly, a generalisation: - marriage value would vary from situation to situation – but his approach had nevertheless been reasonable. He did not know how one could approach it other than on a budgetary basis.

[317] As to the interplay between SFP and marriage value, in a marriage value situation the tenant was likely to have entitlements for his home farm and he would not get SFP on the new holding unless he bought additional entitlements. There was no guarantee that SFP entitlements would be available for use in relation to the additional holding. Most people holding SFP entitlements already had the land they needed to realise SFP on these entitlements. SFP entitlements were traded at 2 or 2.5 times their face value. Here the entitlements were unlocking payments of £4,000, so the capital cost for buying the required entitlements would be £10,000. LFASS was different: it went with the land and was not dependent on entitlements. The end of SFP was thought to be imminent in 2010 although in the event it looked as if it was possibly going to go on until 2015.

[318] As to there being a large element of goodwill in the Culmaily rent negotiations, Mr Duncan agreed that Mr McCall’s evidence had been that he and the landlord’s agent had done their calculations independently and that there had not been much between them at the end of the day. There was no reason to assume that there was any significant element of goodwill in their figures. It seemed to have been an arm’s length process.

[319] As to the comparative onerosity of the leases of Waas and Culmaily, the thing about the Waas lease was that an incoming tenant would know that he was obliged to take the existing fences in good order even if they were not. He recognised, however, that the Culmaily lease was more onerous.

[320] As to Lord Thurso’s leases, a tenant would not mind if Lord Thurso did not include buildings in the calculation of rent. The tenant knew the buildings were there and he would not care what the landlord called the arrangement. If we were trying to make these leases comparable to Waas an adjustment would have to be made for the lack of fixed equipment on Waas.

[321] Regarding Mr Maclean’s reference to “silly money” and “rogue transactions” the witness agreed that there were transactions which were above the level of an economic rent yet could not be regarded as “silly money”. An economic rent was one that could be justified in budgetary terms. Once you got beyond the level of rent a budget for the holding would suggest that must be because of scarcity. He agreed that although healthy demand in itself would not result in scarcity, healthy demand and limited supply would. That would result in both scarcity and distortion. He agreed that these were features we had here. People could not get as much land as they wanted. Mr Bremner had described a pressurised environment at the Mart. That had always been the case. There had always been demand for land.

[322] Regarding his acceptance that the rent of £2,112 brought out in his report was unrealistic, he confirmed that the rent should be higher than that. His report had concluded that there should be no change in the rent. That was his position. There was no justification for an increase from £2,900 per annum.

SUBMISSIONS

[323] Both Mr Maclean and Mr Murchison helpfully provided copies of the text of their submissions. What follows is a paraphrase of these.

(i) for the applicants

[324] Mr Maclean went over the formation of the lease, its provision for rent and the fact that the rent had been agreed at £2,900. Procedure in the case had been unusually protracted, not least because it had been sisted to await the Inner House’s decision in Moonzie. He then took us through the terms of sec 13 of the 1991 Act and the guidance to be derived, in the interpretation of that section, from the Inner House’s said decision.

[325] Mr Maclean then dealt with the admissibility of the applicants’ comparables. That was the first substantive legal issue in the case. As a result of the 2003 Act changes sec 13 now made no mention of comparables: the word “comparable” simply did not appear. But sec 13(4) provided that the Land Court was to have regard to the rents of other agricultural holdings and any factors affecting those rents save distortion due to scarcity. The previous wording, which “agricultural holdings” had replaced, had been “comparable subjects in the surrounding area”. On the previous wording there would have been no basis for excluding grazing lets as comparables. However, sec 85(1) defined “agricultural holding” as the aggregate of agricultural land comprised in a lease and defined “lease”, unless the context required otherwise, as “a letting of land for a term of years, or for lives, or for lives and years, or from year to year”. It was arguable, therefore that sec 13(4) only obliged the Land Court to have regard to rents for agricultural land held under leases within that definition, thereby excluding seasonal grazings lets.

[326] This was not an issue which arose under the provisions of the 2003 Act for review of LDT rents, where the corresponding phrase, in sec 9(3)(b)(ii) was “agricultural tenancies”. That wording enjoined the Court to have regard to seasonal grazing lets.

[327] The argument that seasonal grazing lets had been excluded from consideration by the changes to sec 13 wrought by the 2003 Act was akin to the argument, dismissed by Lord Gill in Moonzie at paras [59]-[60], that the effect of these changes was to exclude LDTs from consideration. Lord Gill (at para [60]) had said that it was “inconceivable that Parliament, having drastically reduced the likelihood that new 1991 Act tenancies would be created, would at the same time have restricted the range of comparables relevant to sec 13(4) to transactions of that kind, thereby turning a blind eye to the best available evidence of lettings of agricultural land in the open market”. He had gone on to say that even if that was wrong the positive directions to the Land Court contained in sec 13 to have regard to certain sources of evidence did not forbid the Court from having regard to other sources. Otherwise, he had said, the mechanism for rent review under sec 13(4) would be unworkable. It was on the basis of these remarks by Lord Gill that it was being said that the Court could have regard to evidence from seasonal grazing lets.

[328] One further point arose from what Lord Gill had said in Moonzie. That was that it would be wrong to interpret him as prescribing a strict hierarchy or formal order of precedence as regards rental evidence; as meaning that the best evidence in every case would be the open market letting of a 1991 Act tenancy, followed by the open market letting of an LDT, followed by evidence of an agreed sitting tenant rent for a 1991 Act tenancy and so on. The essential point about the use of comparables was made by Fraser Barraclough in A Practical Guide to Rent Review of Agricultural Holdings in Scotland, 2002, at para 4.1:-

“The ideal comparable is the farm next door, which is similar in size, quality and in the provision of fixed equipment and which has just been let on a lease of identical terms on an undistorted open market. The further one moves away from this ideal, the more adjustments have to be made and the less ideal the comparable becomes.”

[329] Nothing said either in the legislation or by Lord Gill in Moonzie warranted the view that evidence as to open market letting of a 1991 Act tenancy would always trump or be entitled to more weight than evidence of the open market letting of an LDT or of an agreed sitting tenant rent in a 1991 Act tenancy. The weight to be given to the disparate adminicles of evidence which played a part in comparability was pre-eminently a matter for the Court and it would be an error of law on the part of the Court if it were to approach its task wedded to the notion that one type of evidence would always be worthy of more weight than another, even where all else was not equal. There was no warrant for a restrictive approach by the Land Court as to what evidence it may take into account for the purposes of determining a rent for the review subjects. This approach was reinforced by (i) the fact that sec 13(3) read “For the purposes of this section, the rent properly payable in respect of a holding shall normally be…” [emphasis added], and (ii) by the fact that sec 13(4) employed the formula “have regard to” rather than “having particular regard to”, which is what had appeared in the subsection prior to amendment.

[330] The inherent lack of security of grazing lets could not, alone, provide a basis of principle for their exclusion, given that before the changes introduced by the 2003 Act, parties had regularly advanced as comparables 1991 Act tenancies to limited partnerships which were vulnerable to termination by termination of the partnership. The existence of a limited partnership as tenant was simply one of the things for which the Court had to make an adjustment; Agnew, Agricultural Law, page 70.

[331] There was a difference between what had been referred to in evidence as a “classic” grazing let, offered annually through the Mart on standard terms and conditions, and “bespoke” arrangements between landlord and tenant whereby the responsibilities of the tenant were more extensive than those of a classic seasonal grazings tenant. Seaview and Ornum & Heathfield were examples of such bespoke arrangements which also featured tenants who were well established in the subjects let and had a reasonable expectation or assurance that the same subjects would be available to them year on year for the foreseeable future. These features made these subjects even more comparable with Waas and rendered even more artificial any suggestion that such evidence was not relevant for the purposes of fixing a rent for Waas.

[332] The tenant’s obligations at Waas were not onerous. Mr Campbell had spent very small sums of money on the holding over the 20 years of his possession. It was fanciful to think that a hypothetical open market offeror for the tenancy at Waas would consider these obligations so onerous that he would offer a sum significantly less than the tenants at Seaview and Ornum & Heathfield had paid for their far less secure lets. By contrast, the lease of Culmaily was a far better example of terms and conditions which might well deter a prospective incoming tenant.

[333] Mr Murchison had been at pains to bring out the lack of security of tenure at Seaview and Ornum & Heathfield. In Mr Maclean’s submission, properly analysed, that made them more rather than less helpful as comparables for Waas and certainly more helpful than Culmaily. That was because Mr McCall, negotiating his rent for Culmaily, was secure in the knowledge that he would have the tenancy whatever became of the negotiations whereas the hypothetical bidder for Waas knew that if his bid was not successful he would be left with nothing. The hypothetical bidder for Waas, therefore, was in a much more similar position to the tenants at Seaview and Ornum & Heathfield, trying to ensure that they got the subjects for another year, than to Mr McCall at Culmaily. Mr Mackintosh had treated the applicants’ comparables as having a rough equivalence to a 1991 Act tenancy of a similar bare land holding at Waas and common sense suggested that his resulting figure understated rather than overstated what an open market offeror would offer for Waas on a fully secure 1991 Act tenancy.

[334] The fact that some of Ornum & Heathfield may be under crofting tenure was a non-issue. That was because, whatever its status, the land had not been rented as a croft. There may be crofting regulatory issues arising from that situation but these had no bearing on the value of the Ornum & Heathfield evidence in this case.

[335] Concluding this chapter of his submissions, Mr Maclean submitted that where the best evidence the respondent, with all the resources of the SFTA behind him, could come up with was an agreed sitting tenant rent for a 1991 Act tenancy of a farm about as different from Waas both physically and in terms of the other terms and conditions of the lease as it was possible to conceive, it was utterly unrealistic to seek to exclude other forms of evidence of rents agreed between landlords and tenants in relation to physically extremely similar neighbouring holdings. Finally, whilst the inclusion of agricultural buildings was inconsistent with the inherent nature of grazing or mowing lets, inclusion of maintenance obligations for fences and drains was not; Duncan v Shaw and Mackenzie v Laird, supra.

[336] Mr Maclean then presented an attack on Mr Duncan’s status as an expert witness which culminated in a submission that as a matter of law, and under reference to the case of Hainey v HMA, supra.

[337] He submitted that, given the nature of our task, it might be thought that both sides would have produced witnesses skilled or expert in the science or art of valuation. The applicants had instructed a much respected and experienced practitioner, a former land agent and a member of the Royal Institute of Chartered Surveyors. As such Mr Mackintosh had been subject to his professional body’s Practice Statement and Guidance Note, Surveyors acting as expert witnesses: A guide to best practice, 3rd ed., effective from 1 January 2009. Mr Mackintosh had been well aware that his primary duty as an expert or skilled witness was to the court and not to his client and he had observed that duty in the witness box.

[338] The respondent, on the other hand, had not adduced a skilled or expert witness with professional qualifications or experience entitling him to give opinion evidence upon the issues of valuation. His reports disclosed Mr Duncan as having a BSc and MSc in addition to which he had, in Mr Maclean’s words, “awarded himself the increasingly ubiquitous but somewhat nebulous designation of ‘Consultant’, in his case ‘Farm and Rural Business Consultant’.” Notwithstanding the apparent absence of relevant qualifications and professional experience the privileges of a skilled or expert witness had been invoked on his behalf, most notably that of sitting in whilst the other witnesses gave their evidence.

[339] Mr Maclean then went on to criticise Mr Duncan’s demeanour while other witnesses were giving their evidence. An observer in the public benches would have thought the animated Mr Duncan to be the respondent and the far more impassive Mr Campbell to be the skilled or expert witness. Mr Duncan’s behaviour had been, in Mr Maclean’s submission, “the antithesis of that of an expert witness” and raised doubts about whether his evidence could be relied upon as independent, impartial and uninfluenced by those paying for his services. In short, Mr Duncan had crossed the line and had acted as an advocate in the respondent’s cause.

[340] Mr Duncan had no relevant professional qualifications in valuation, no relevant professional experience in valuation and extremely limited experience in relation to rent review, having advised on one previous case. His basis for appearing as an expert or skilled witness was simply a developing “interest” in rent review. He had, nevertheless, taken it upon himself to advance criticism of a proper professional practising in the field and, unforgivably, to find some amusement in Mr Mackintosh’s predicament when he struggled to answer some of Mr Murchison’s cross-examination. In fairness to Mr Mackintosh, much of his difficulty resulted from the fact that Mr Murchison was putting to him propositions based on Mr Duncan’s reports which Mr Mackintosh did not understand and the reason for which he did not understand them was that they did not make sense.

[341] That brought us on to Mr Duncan’s methodologies. They bore no resemblance to any conventional approach in the handling of comparables. Mr Duncan had conceded that they were of his own devising. In his second report he had adjusted the review subjects to meet the comparables rather than adjusting the comparables to the review subjects, leading to the absurdity of making a deduction from the rental figure for Waas for the fact that there was no house, rather than renting Waas as it was.

[342] Mr Duncan had claimed to understand the Land Court’s decision in Moonzie but it had become clear that he did not. What he had done was pick up two stray findings in fact made by the Court and constructed his first report around them. He had misunderstood and misapplied the Court’s decision. His second report had adopted a completely different methodology yet had led to a rent differing from that brought out in his first report by only £1.68. Mr Duncan had denied setting out to come up with a similar figure but Mr Maclean suggested that, consciously or unconsciously, he had been predisposed to confirm his earlier findings. Both reports had produced figures which represented a 25% reduction in the passing rent. While rents could go down as well as up over time, that was wholly unrealistic in this case because (a) when the passing rent had been agreed the livestock sector in the Highlands had been on its knees, whereas in autumn 2010 it had been buoyant, (b) Mr Duncan knew of no other farm rent in this sector which had gone down by such a percentage over the same period, and (c) even the respondent believed that the passing rent was a reasonable rent. These factors called into question Mr Duncan’s good faith, independence and impartiality.

[343] All of these factors had culminated in Mr Duncan’s admission that the rent he had proposed was not realistic and that the rent fell to be increased. With his subsequent evidence that one did not recommend an increase of rent if acting for the tenant the last vestige of his credibility had disappeared. Moreover, if Mr Campbell was not contending that his rent should be reduced and Mr Duncan knew that the figure he was proposing was not realistic, it raised the question whether anyone involved with the presentation of the respondent’s case believed, in good faith, that the figure brought out in Mr Duncan’s reports was justified. If not, the situation was tantamount to an abuse of process.

[344] For these reasons, and under reference to Hainey, the Court was not merely entitled to attach no weight to Mr Duncan’s evidence, it was bound in law to dismiss it altogether. If the court agreed, the consequence was that there was no contradictor of Mr Mackintosh’s evidence. That did not mean that we would have to accept that evidence in its entirety – Davie v Magistrates of Edinburgh, supra, per Lord Russell at page 42. But, if we were persuaded of its fundamental soundness and applicability, we would be entitled to accept it. And we should in fact accept it, not least because all the evidence in the case, other than Mr Duncan’s, was broadly confirmatory of the sort of figure Mr Mackintosh suggested in his report. With particular reference to the evidence as to how things were done on Lord Thurso’s estate, the applicants accepted that not enough was known about the individual farms to make them usable as comparables and that this evidence could be used only as a cross-check on the result of other evidence.

[345] Mr Maclean then turned to particular issues in relation to valuation. He dealt first with distortion of rents due to scarcity. It was for the party contending for distortion due to scarcity to produce credible and reliable evidence to that effect. The mere fact that demand may exceed supply did not itself mean that rents were distorted by scarcity. The evidence of scarcity here was too unspecific to let the court establish its extent, let alone the extent of any resultant distortion.

[346] When 1991 Act tenancies had still been available on the open market and a large number of offers were received, these offers could be placed before the court and their number and the spectrum of rents offered might indicate a market distorted by scarcity. Where the only evidence was of rents agreed with sitting tenants, particularly where the arrangements had been in place for many years and there may be a significant element of goodwill, the exercise was inevitably much more difficult. Agreed sitting tenant rents may be, directly or indirectly, affected by distortion due to scarcity (cf Kinnaird Trust and Boyne, supra at page 34) but that was likely to be much more difficult for a party arguing that comparable rents had been distorted by scarcity to prove. No evidence of that had been led in this case.

[347] Evidence of scarcity had come, anecdotally, principally from the respondent himself. But it was compromised by failure to identify the individuals who had been unable to get land. Furthermore, the land they had been unable to get had been land offered as seasonal lets through the auction and the respondent argued that such lets were inadmissible as evidence in any event. The argument that the existence of such persons in significant numbers exerted an upward pressure on rents suffered from two problems. First, the rents payable for Seaview and Ornum & Heathfield were far lower than the rents for “classic” lets going through the Mart. Secondly, the existence of such people in significant numbers was hard to reconcile with Mr Bremner’s evidence which was of an essentially stable market. Furthermore, if this was a chronic problem it might have been expected that witnesses would have been available to speak to specific incidents of it happening. All the respondent’s case amounted to was proof of the theoretical possibility that a situation could arise where a bidder did not get the land he wanted.

[348] Here the evidence suggested that the rents agreed for the applicants’ comparables was less than might have been achieved if the lets had been made available on the open market through the Mart, whether as grazing lets or a fortiori as 1991 Act tenancies. In addition to Mrs Macdonald and Mrs Bates having given evidence that higher rents could probably be achieved through the open market, Mr Henderson had given evidence that he could probably let the land adjacent to Seaview, which he presently let to the respondent under a special arrangement, through the Mart for a higher rent than the £35 an acre paid by the respondent. If one then adjusted the rent of the comparables to reflect them being let on the open market as 1991 Act tenancies, with all the additional benefits to the tenant that entailed, common sense would suggest that the rents achieved would be significantly higher than those spoken to by Mrs Macdonald and Mrs Bates. Although the evidence had been that grazing let rents were generally higher, per acre, than 1991 Act tenancy rents, we ought not to make a deduction from the rents of the comparables in this case to reflect that, because these rents were already lower than obtained for grazing lets on the open market through the Mart.

[349] Mr Maclean then turned to marriage value. We should ignore Mr Duncan’s criticisms of Mr Mackintosh on marriage value. Marriage value was outwith Mr Duncan’s area of expertise. Mr Duncan had misunderstood what he was supposed to do in terms of Lord Gill’s guidance in Moonzie at paras [92] to [95], where it had been explained that account had to be taken of marriage value in relation to the review subjects but valued out of the rent of comparables. Like scarcity and distortion, marriage value was a matter for evidence. It depended on the facts adduced in evidence; Aberdeen Endowment Trust v Will, supra, referred to by Lord Gill in Moonzie at paras [90], [91], and [98]. In an open market situation where there was a range of offers for comparable subjects marriage value may be deduced from the presence of higher offers from neighbouring farmers as compared with lower offers from others. Where, as here, the only evidence was of sitting tenant arrangements, or their equivalent, it was conceivable that there would be no evidence to indicate that marriage value should be deducted from the rent of the comparables. But in any event, given that we were trying to compare like with like, if the review subjects would attract marriage value and the rent of the comparables included marriage value there was no need to deduct marriage value from the latter in order to compare them with the former. Mr Mackintosh’s treatment of marriage value had been correct and Mr Duncan’s wrong.

[350] Moving on to current economic conditions in the relevant sector of agriculture (sec 13(4)(b) of the 1991 Act), the punctum temporis for this purpose was the starting date of the new rent; Buccleuch Estates and Kennedy, supra, at pages 22-23. We therefore had to place ourselves at Martinmas 2010. We were not entitled to use hindsight but, as a specialist court, we could use judicial knowledge. In any event it was indisputable that, as Mr Mackintosh’s report puts it, “the outlook for the cattle and sheep industry appeared to be good in the last quarter of [2010]” and that the sentiment in the sector then, boosted as it was by much higher prices for livestock, was much more positive than it had been in 2002.

[351] Mr Maclean then considered the effect of SFP. In Moonzie Lord Gill had said (at para [86]) that the payment of SFP may “go to the heart of the hypothetical bidder’s assessment of rent”. That was on the basis that the Land Court had found on the evidence in Moonzie that in most sitting tenant negotiations SFP was included as a material factor, that it is the occupation of agricultural land which unlocks SFP and that the hypothetical tenant would have an appropriate SFP entitlement. It was not clear to Mr Maclean why the same was not true here, particularly as it was agreed that this was a marriage value farm where the successful hypothetical offeror was likely to be someone with other land holdings in the locality. It would be instructive, therefore, to know how much SFP Waas would unlock. In the event we had learned that the respondent’s SFP in relation to Waas was enough to pay his existing rent twice over and still leave a four figure sum left over. That information had not been available to Mr Mackintosh when he had compiled his report but it tended to confirm that a significant increase in the rent which had been in place since 2002 would now be in order. On the rent proposed by Mr Mackintosh a hypothetical open market offeror with entitlements would be able to pay his yearly rent out of his SFP and still have money to spare. Even if the offeror did not have SFP entitlements it would be worth his while to acquire them in order to unlock the SFP for Waas.

[352] Mr Maclean then turned to Culmaily. Since the enactment of the 2003 Act there was nothing in sec 13 which limited comparables to those in the surrounding area. Thus the fact that Culmaily was in East Sutherland was not enough on its own to disqualify it as a comparable. However, the further away from the review subjects was the comparable, the less relevant and useful evidence pertaining to it was likely to be. Furthermore, the more physically different, and the more differently equipped it was, the less instructive would that evidence be. The differences between Culmaily and Waas could scarcely be more pronounced. The former was a large, stand-alone unit whereas Waas was likely to be let as an adjunct to the bidder’s main holding. The former was fully equipped, with houses and holiday cottages as well as agricultural buildings whereas Waas had virtually nothing. The terms and conditions of let were also entirely different, with the Culmaily lease being far more prescriptive and onerous in its obligations than the lease of Waas.

[353] Lastly Mr Maclean dealt with tenant’s improvements. The crucial point about the expenditure incurred by the respondent was that it was not the cost of that which mattered but the impact the improvements made would have on what the hypothetical open market bidder would offer for the tenancy. Mr Duncan’s approach had not sought to distinguish improvements from maintenance and repair and was misguided because he was approaching it from the point of view of the respondent and as an exercise in farm budget analysis rather than from the point of view of the hypothetical open market offeror. What had to be established was the difference between what that offeror would offer for the holding with the improvements and what he would offer if they had not been carried out. Given the very limited nature of the improvements and the antiquity of some of them that difference would be very little. Once again the respondent had failed to produce expert evidence – or indeed any evidence – on that point. Mr Duncan had made no attempt to discover whether the improvements made had in fact resulted in the increased productivity of which he gave evidence. That revealed the unreality of his approach.

[354] As to credibility, Mr Mackintosh, Mrs Ross, Mrs Macdonald, Mrs Bates, Mr Henderson and Mr Bremner were all patently credible and reliable witnesses. Mr McCall had a personal agenda which seemed to involve re-fighting some of the battles lost in Moonzie. His credibility and reliability in relation to his own circumstances at Culmaily were not in doubt but we should treat his more general evidence with caution, given his interest, in relation to his SFTA involvement, in securing an outcome which may be used as a precedent in other rent review proceedings. None of Mr Campbell’s evidence was of any great moment but Mr Maclean would leave it to the court to assess his credibility and reliability. He had already commented on Mr Duncan.

[355] Ultimately resolution of the case came down to the court’s assessment of the expert evidence adduced. It was an exercise in valuation and only one side had an expert qualified to assist in that area. Were we to accept that the evidence in relation to Seaview and Ornum & Heathfield was admissible we would have no reason not to increase the rent of Waas to the sort of level suggested by Mr Mackintosh in production 95, as modified in his revised calculations in productions 102 and 103, which would produce a rent of between £4,993 and £5,421. Expenses should await our decision on the merits.

[356] In a postscript to his submissions, Mr Maclean explained that he had been hard on Mr Duncan because actions had consequences. Mr Duncan had sought to justify an absurd conclusion. His continued adherence to that position had encouraged the respondent in his defence of the application. Another factor which had resulted in this case being litigated to a conclusion was the fact that the SFTA insurance policy, which covered the respondent, would not pay out if the case settled. There was thus no incentive on the insured to settle the case. This had been touched upon in the Land Court’s judgement in Moonzie at para [23]. That fact must not play any role in the court’s determination of the case but it did discourage settlement. It would be instructive to readers of the court’s judgement to understand what some of the factors were in having five days of evidence and one of submissions. Two of these factors were the terms of said insurance policy and Mr Duncan’s entirely unrealistic reports. These made Mr Campbell’s position more understandable. Generally, much was made by, among others, Mr McCall about the imbalance between parties in a rent review negotiation. In this case Mr Maclean’s clients were a couple of very modest means, who faced ruin if they were to lose the case. Again that must not affect our decision in the case but it would be useful if we took the opportunity to comment on the reasons for which this case had been litigated as it had.

(ii) for the respondent

[357] In Mr Murchison’s submission the evidence, properly assessed and evaluated, would result in a rent which did not significantly increase the rent currently being paid. The respondent’s position was that he would accept the existing rental or even a small increase thereon. That was also how Mr Duncan summed up his own position.

[358] With that introduction Mr Murchison set out his submissions in four chapters.

(i) The applicants’ case

[359] The landlords’ case was based on the comparables of Seaview and Ornum & Heathfield. The respondent’s position was that sec 13 neither directed nor permitted the use of seasonal grazing lets as comparables. What the court was directed to have regard to was (i) information about lets of other agricultural holdings and (ii) economic conditions applicable at the date of review. The lets of Seaview and Ornum & Heathfield were not lets of agricultural holdings within the meaning of secs 1 and 85 of the 1991 Act. A lease for a term of less than a year could not be a lease of agricultural holding. In the eyes of the law a grazing let was something quite different. The law recognised a fundamental difference between a seasonal grazing let and a tenancy of at least a year’s duration; Little v McEwan supra, a case decided in the crofting context but extended in Gill, supra, at para 3.20 to the non-crofting context. Strictly speaking, as was recognised in the Scottish Agricultural Arbiters and Valuers Association’s recommended style of grazing let agreement, a grazing let only amounted to a right in the tenant to take a crop of grass. That was why grazing lets granted by a tenant to a third party, at least where there was no express prohibition of them, did not breach a tenant’s obligation to his landlord not to sub-let the land. The rationale behind all of this was that the law did not recognise any distinction between the grass when still attached to the land and the grass once severed from it. Sections 3 and 4 of the 2003 Act, concerning, “grazing or mowing”, recognised the distinction between proper tenancies and grazing lets.

[360] It was also relevant to note that parts of Seaview and Ornum & Heathfield were crofts. Sec 23(3) of the Crofters (Scotland) Act 1993 prohibited the letting of crofts without the consent of the Crofting Commission. Here there was no such consent and no such consent would have been given. This, submitted Mr Murchison, further underlined the fact that the landlords’ comparables here were not lets at all, never mind lets of agricultural holdings. Even if the parties to these arrangements had intended them to be letting arrangements as opposed to the rights to take grass, the law would not permit such arrangements; Agnew Crofting Law pages 113-114, citing MacPhee v Westminster (Liverpool) Trust Co Ltd, supra. It would be dangerous to ignore the clear legislative distinction made between seasonal grazing lets and leases of agricultural holdings in the Acts and there was no warrant either in the legislation itself or in what had been said by Lord Gill at paras [57] to [62] of Moonzie for holding that the direction in sec 13 to have regard to “lets of other agricultural holdings” required the Land Court to have regard to grazing lets.

[361] In the foresaid section of his judgement in Moonzie Lord Gill had been dealing with the broad question of interpretation of the phrase “agricultural holdings” and he had held it to include, for the purposes of sec 13, LDTs. What he said did not go beyond that.

[362] As to whether the Land Court was nevertheless permitted to consider grazing lets, it was acknowledged that Moonzie allowed the Court to look at material extrinsic to the evidence it was expressly directed to look at. In order to understand when that was permitted one had to understand the underlying rationale of the decision. At para [62] of the Lord Justice-Clerk’s decision it was said that what the Land Court was permitted to look at was evidence “of this kind”. That was a reference to LDTs. However, even if the Lord Justice-Clerk had been making a more general statement it still had limits. His Lordship had referred to the Land Court’s over-riding duty as being to fix an open market rent. It was for that purpose that it was entitled to have regard to “open market evidence of this kind” (para [62]). Therefore other material was relevant only to the extent that it assisted the court in applying that test. It was permissible to look at other material beyond what the court was expressly directed to consider but only if one could not do the exercise (of fixing an open market rent) by using the material which the section does direct the court to use. Only in these limited circumstances could the Court look beyond what it was directed by sec 13 to look at.

[363] At paras [56] and [63] to [66] of his opinion Lord Gill had described a hierarchy of evidence. He had described how the evidence which the court was directed to consider needed to be considered in order of priority. Where the court had enough evidence to do its job within that hierarchy it was not entitled to look beyond that. It could not have been Parliament’s intention that if the material to which the court was directed to have regard was available the court was nevertheless entitled to ignore it and prefer other material not mentioned in sec 13. In the present case there was sufficient material on which to base a decision without resort to grazing let evidence. We must therefore disregard it.

[364] Another difficulty for the landlord was that this material did not assist in regard to the open market test. Mr Murchison listed some of the differences between grazing lets and 1991 Act tenancies. We need not repeat the list: they are well known. All of them suggested that a grazing let was something very different from a secure tenancy. Mr Mackintosh had accepted these differences. Mr Murchison emphasised the difference in commitment to rent between the 1991 Act tenant who was committing to a level of rent for at least the next three years and the grazing tenant who was committing only to a single season. Such was the volatility of agriculture that spikes in the market such as the good years of 2009 and 2010 favoured the payment of an increased price for a grazing let rather than for a secure tenancy.

[365] Another distinction was that a landlord in a 1991 Act tenancy would want to have a good reliable tenant, given the damage a bad tenant could do over the years of possession of a 1991 Act holding, whereas that was not so true of grazing lets, where the only factor really was rent. Reference was made to Crown Estate Commissioners v Gunn RN 4818/61.

[366] All of these differences were matters which would have to be adjusted for if the grazing lets were going to become truly comparable to Waas. Yet the landlords here had offered no such adjustments. Their position must therefore be that grazing lets equated to secure tenancies for rent comparison purposes. But nowhere was the difference between rents for grazing lets and secure tenancies clearer than in Mr Mackintosh’s evidence. Mr Mackintosh had frankly admitted that a landowner would get far more letting land on a seasonal grazing basis than he would get letting it under a secure tenancy. That was inexplicable but it was an acknowledged feature of the market. That piece of evidence on its own should make us discard rents for grazing lets as comparables. The evidence of Mr Henderson, Mr McCall and Mr Duncan had been to the same effect. As against that there was no evidence at all to show that they were comparable.

[367] The landlords’ case had emphasised the physical similarities between Waas, Seaview and Ornum & Heathfield. But physical similarity was only part of the comparative exercise. What was required was a coherent explanation of why different types of tenure provided very different outcomes in terms of rent. That was absent from the landlords’ case. It was possible to speculate as to why. Scarcity was likely to be a particular feature of the grazing let market. There was also evidence that rents for grazing lets generally were indirectly influenced by prices being obtained at the Mart. The Mart was a stressful environment. People were bidding for land they needed to get for use the next day. In any event the rent related to a wholly different type of arrangement from a secure tenancy. But the Court did not need to come to a conclusion as to why the rents were so different. All it required to do was realise that the differences between the two arrangements were so great as to sever any reliable link between the rents they generated. Grazing lets were just not good comparables, at all events in this case. To attempt to rely on them would be an inherently unreliable and dangerous exercise.

[368] If we were against him on that, Mr Murchison had submissions as to how we should use the grazing let material.

[369] In regard to Seaview there were a number of factors to note:-

(1) Mrs Macdonald had described the land as “good arable” whereas the experts agreed that Waas would be used for rotational pasture.

(2) Mr Mackintosh had failed to allow for marriage value in relation to Seaview (production 100). In cross-examination he had acknowledged that this omission meant that it was not a suitable comparable.

(3) Mrs Macdonald based her rent on prices from the Mart. These were prices for various categories of grass, depending upon when they had last been resown. This demonstrated that none of the Seaview land was comparable to land at Waas at all because the last time land at Waas had been sown at the expense of the landlord had been 20 years ago. There was no equivalent category at Seaview.

(4) With the exception of one boundary fence, which the landlord was in the process of paying to re-fence, the fencing at Seaview was in good order.

(5) The tenant at Seaview had no legal obligation to do anything because there was no written lease.

(6) Since Mrs Macdonald had not discussed the period of the proposed let with the auctioneer, the assumption had to be that the prices he had quoted were for “standard six month occupancy entitlement”. The landlords had wrongly formed the impression that the Mart’s figures were the going rate for all arrangements. Mr Bremner had spoken of an “auction mart rent” and a “non auction mart rent” and described a difference of at least £10 an acre between them. This differential had not been taken into account in any of the calculations before the court.

(7) Contrary to the landlords’ submission, the fact that part of Seaview was a croft was another factor adding uncertainty to its use as a comparable.

[370] In relation to Ornum & Heathfield Mr Murchison made the following points:-

(1) There was uncertainty as to what the rent was. Mrs Bates had spoken to a payment of £5,000 having been received in autumn 2010 but she did not know whether it was for the previous year or the following year. She had spoken to the rent having been £4,000 at some earlier point. Mr Mackintosh, having spoken to the owner, had understood the rent to have been £4,750.

(2) The land was of significantly better quality than the land at Waas. It had not been reseeded in 20 years yet retained good productive capacity. That suggested a better quality of land than the MacAulay Land Institute grading.

(3) The land was under crofting to a significant extent.

(4) Mr Mackintosh had accepted that there must be a particularly strong element of marriage value or scarcity in relation to this let. It may therefore be misleading to use the broad formula proposed by Mr Duncan for calculating marriage value. Combined with that was Mrs Bates evidence as to the necessity, from the tenant’s point of view, of preserving goodwill; “you did not argue with the boss”. It appeared that each year Mr Mackay threatened not to renew the lease. But, through long usage, the tenant had built the need for the land into his farming enterprise. The conclusion was that a significant element of this rent reflected scarcity. Mrs Bates was in error when she said that a grazier would not feel pressurised into paying an unfair rent because the Land Court was always available for the purpose of fixing a fair one. Her error neatly encapsulated the very different considerations which applied as between a grazing let and a secure tenancy.

(5) The rent had never gone down in 20 years, notwithstanding the volatility of farming and the evidence we had heard of bad years, including the Foot and Mouth years. That was a “signature” piece of evidence: it told the whole story in very short compass.

[371] Given all of these factors, in relation to both holdings, the Court would be entitled to hold that so much was required in the way of adjustment that evidence as to the applicants’ comparables could not be relied upon to justify any alteration in the passing rent.

[372] Mr Murchison then dealt with the Sinclair Estate holdings. They were comparable but the critical thing was the interpretation of the evidence. Mr Mackintosh’s classification of the land at Waas as arable was wrong. He had admitted it was more properly described as rotational pasture. The comparative figure from the Sinclair Estates evidence was, therefore, £25 an acre, producing a base rent, on 100 acres, of £2,500. Mr Mackintosh had first said that this figure did not include marriage value but had then accepted that it would include some element of marriage value. Mr Duncan had said it included marriage value. It was difficult to know for sure because we did not have enough information about the individual holdings. But at the very least it would be reasonable not to add the full additional allowance for marriage value. It would be unreasonable to conclude that marriage value would not play any part in the tenant’s assessment of the rent he would pay.

[373] Some of the Sinclair Estate holdings, the ones nearest to Waas and, therefore, most comparable, had buildings. An adjustment would be needed because Waas had no buildings. It was untenable that we could ignore the absence of buildings. Agreement of rent involved both landlord and tenant. It was not even clear that the landlord here entirely disregarded the buildings; production 96. But in any event a tenant would be acutely interested in what buildings he was going to get. There was a significant and distinct benefit in having a cottage available to rent; see the evidence of Mr Henderson and Mr Duncan.

[374] The Sinclair Estates evidence provided a “reality check” rather than a “cross-check” on the seasonal lets evidence. Properly understood the Sinclair Estates evidence suggested the passing rent for Waas was about right.

[375] Mr Murchison next dealt with Mr Bremner’s evidence. Without having seen the land he had assessed a rent of £25-£35 an acre as between landlord and sitting tenant, so to speak, and £35-£45 an acre on the open market through the Mart. The Mart rents were for six month terms and with no repairing obligation on the tenant. They were not, therefore, comparable to Waas. Within the £25-£35 an acre range, the Mart’s valuation depended upon the age of the grass. The lower end of the spectrum, £25-£30 an acre, was therefore more suitable for Waas, producing a rent of between £2,500 and £3,000. Marriage value was already in these figures because it would have been in the minds of parties agreeing these rates. Mr Bremner’s evidence was, therefore, another red flag as to the use of evidence from the grazings lets. The evidence suggested, therefore, that something else was going on in the rents of grazing lets, probably to do with scarcity or some unusual element of marriage value which needed to be filtered out. Mr Bremner’s figures did not reflect the works carried out by Mr Campbell at Waas. Mr Bremner’s evidence therefore also showed that there should be no substantial increase in the passing rent.

[376] As to economic conditions in the sector, a comparison between circumstances in 2002-2003 and 2010 was incorrect in principle. What we had to look at was the outlook in 2010. If it was positive we would have to reflect that when looking at comparables pre-dating the review date. In 2010 economic conditions had largely improved. But any tenant taking on a longer commitment would have to bear in mind the volatility of prices and what had been happening in the very recent past. Mr Duncan’s description of an improving position tempered with a degree of caution for past volatility was probably correct. The same economic conditions affected the hypothetical tenant on the Sinclair Estate, the various grazing lets and Culmaily, so no significant adjustment for economic conditions was required.

[377] Next, scarcity. It was abundantly clear on the evidence that demand “well exceeded” supply. Whenever a farmer relinquished the use of land another farmer was asking for it. Mrs Macdonald had given evidence of how difficult it was for young people to get land and of the big rents being paid at the Mart.

[378] As to distortion caused by scarcity, that did not refer to the payment of “silly money” for lets. That was not what sec 13 said. There were two scenarios when demand exceeded supply. One was a properly functioning market. That did not necessarily mean a market at perfect equilibrium. But in such a market there would be times when demand exceeded supply and other times when supply exceeded demand. That was not a distorted market, because a buyer could always wait to see if supply improved and a seller would be aware that he did not have a guaranteed buyer. The second scenario was that of a market with chronic over-demand and under-supply. The question was whether there was a “structural disequilibrium” between supply and demand. If there was, the market was distorted. This was similar to what Lord Gill had said (at para [98] in Moonzie) in reference to Aberdeen Endowments Trust v Will, supra, about the need to hypothesize a reasonably balanced market rather than an exact equilibrium of supply and demand. The market here was distorted by scarcity. The extent of distortion could be measured in terms of how much in excess of a budget rent the actual rent was.

(ii) The respondent’s case

[379] Under cross-examination it had been accepted by Mr Duncan that the way Culmaily had been dealt with had been less than perfect. But the relevant details were as follows:

(1) The rent was that agreed between the landlord and tenant of a secure tenancy;

(2) The grade of the land and the size of the comparable grade of land were equivalent to Waas; and

(3) Culmaily was fully equipped.

[380] Adjustments needed to be made. The adjustments which had been made were proportionate. Mr Murchison would deal with those more fully in chapter 3 of his submissions. The differential in the repairing obligations between the two holdings had to be dealt with. In the Land Court’s decision in Moonzie there had been mention, at para [39], of an 8% to 15% differential for this sort of thing, with mention of other cases involving a differential of up to 20%. A figure of up to 25% would be appropriate in the present case. The major differences were a right to resume and a right to timber at Culmaily. Given that there were neither trees nor buildings on Waas these powers would not adversely affect the rent at Culmaily relative to Waas. That left only a general right to resume land for various purposes. That was unlikely to significantly alter the rent offered by a tenant, who would know that resumption would be accompanied by a reduction in rent. The maintenance obligations for Culmaily were set out in far more detail than those for Waas although some of these could be subsumed in the general requirements to comply with statutory requirements and the rules of good husbandry in the Waas lease. But it was accepted that there were conditions placed on the tenant at Culmaily in excess of those at Waas. Mr Duncan had not been able to quantify that but it was plausible that the £800 differential between the passing rent at Culmaily and Waas would be more than sufficient to reflect this. Culmaily, however, remained part of a consistent picture showing that the passing rent should not be increased.

[381] The calculation of marriage value which had been used for Waas was a broadly coherent basis for dealing with things and produced an adjusted rent of £2,100. The tenant was not asking for the rent of Waas to be reduced to that; what he was doing was showing that the passing rent should not be increased.

[382] Mr Murchison then dealt with what Mr Duncan had called budget rents. The output of Waas, spoken to by Mr Duncan, was £22,000. He had made a 12% provision for rent. That was “an acknowledged budget provision”. The basic rent would therefore be £2,640. There would also be marriage value. The only methodology which had been suggested in evidence was Mr Duncan’s, which was that it should be calculated at 5% of gross income. Every situation would be different but that was a fair assessment of marriage value worth for a hypothetical tenant. So marriage value in this case would be £1,100. Together with the budget rent that produced a rent of £3,740, from which certain deductions, to be dealt with in chapter 3, would have to be made.

[383] Whilst it was accepted that a budget rent was a last resort for the court, a passing rent must be realistic and sustainable for the tenant to pay. The better guide was to rely on the material for Culmaily, Sinclair Estate and Mr Bremner, all indicating the passing rent to be in the right region. But the budget rent was another flag warning of the dangers of the landlords’ comparables.

(iii) Relevant factors for either case

[384] We should accept Mr Campbell’s evidence as to the improvements he had carried out. He was not to be rented on these improvements; sec 13(5). Even if we were to rely on the acceptance provision in the lease – that Mr Campbell accepted the fixed equipment as being in good order – two further considerations had to be taken into account.

[385] Firstly, the lease had been entered into (in the sense of being executed) eight years after the date of entry. By clause Six of the lease the tenant accepted the fixed equipment on the farm as being tenantable “in its present condition”. That would be its condition in 1998, by which time substantial work had already been done by the tenant. If the reference was taken as meaning the date of entry – Martinmas 1990 – the 1991 Act would not apply because it had not been enacted.

[386] Secondly, there was a discrepancy between the condition the tenant accepted the fixed equipment as being in and the condition in which he required to maintain it. The first was that the fixed equipment was “tenantable and suitable and sufficient”. The second was that the tenant was bound to maintain it in “a good and sufficient state”. The second inferred an element of improvement.

[387] If the Court were to accept Mr Campbell’s evidence as to the state of the fences at ingo, any tenant who was looking to take on this tenancy on these terms would factor in the cost of putting it right. Both external and internal fencing was excepted from the tenant’s acceptance of the fixed equipment as being in a tenantable and suitable and sufficient state such as to fulfil the landlord’s obligations. An incoming tenant to a rundown farm who was being offered a lease stating that he accepted the holding as being in good condition would undoubtedly discount the rent that he would offer. An allowance had to be made for putting the fencing right. Mr Campbell had made a reasonable farm out of a rundown one. He should not be rented on the work that had involved. There was no reason not to accept Mr Duncan’s figures – an annual allowance of £446, split £126 towards fencing and £320 to the betterment of the holding – in relation to that work. But in any event a significant deduction was required.

[388] Then subsidy. Mr Duncan’s evidence was critical here. He had said that potential tenants for this holding would probably not have subsidy in place. They would have to purchase it. That was different from the situation in Moonzie; para [97] of the Land Court’s decision and para [76] of Lord Gill’s opinion. Mr Duncan’s evidence was that the necessary entitlements would cost £10,000 (2.5 x the annual amount payable in subsidy). In 2010 subsidy reform had been in the offing, as any prospective tenant would know. Current arrangements were to expire in 2014 and entitlements purchased would be of no value thereafter. A tenant needing to buy subsidy would, therefore, want to write off the capital cost over four years. This feature was unique to Waas. It did not affect Seaview and Ornum & Heathfield because they would have been built in to their tenants’ operations for SFP purposes well before 2010. The court had to make an allowance for it. That could be done in one of two ways. One was to strip out marriage value. It was conceivable that an existing farmer who already had subsidy, perhaps for land held on a grazing let, would give up that let in order to acquire a secure tenancy. In that situation one would assess Waas without marriage value because the only party willing to offer the successful rent would not have another holding. The alternative approach was simply to deal with this on a budget basis. The capital cost of £10,000 written off over 20 years would result in a reduction of £500 per annum; over four years it would be £2,500 per annum. The differential of £2,000 should be deducted from the rent payable.

[389] Mr Murchison then dealt with marriage value. Marriage value clearly applied. That was also true of the applicants’ comparables and of the Sinclair Estates holdings. The figures given by the Mart would have some marriage value in them as well. As already mentioned Mr Duncan used a formula equivalent to 5% of annual gross income. Mr Mackintosh had suggested £1,400 but without any valid justification. We should prefer Mr Duncan’s evidence. Marriage value was difficult to calculate but Mr Duncan had at least offered the basis for an initial calculation. The result may have to be adjusted to ensure a realistic outcome. Given that both experts had accepted that the per acre rates for Sinclair Estate and the Mart already had marriage value in them, these rates should be applied to Waas without further adjustment.

(iv) Conclusion

[390] Mr Murchison invited the court to determine a rent at or very close to the passing rent as being a fair rent in terms of sec 13 as at Martinmas 2010. Expenses should be reserved meantime.

[391] Having completed his own substantive submissions, Mr Murchison addressed Mr Maclean’s. The critical issue was how the court dealt with Mr Duncan. Was there any obligation on us to discount his evidence? It was not being said that he had no relevant experience; it was accepted that he had appropriate experience in budgets and farm management. Although these matters were low in the hierarchy described by Lord Gill they were relevant. It would be wrong to characterise valuation experience as irrelevant but valuation for sec 13 purposes necessarily included assessment of the productive capacity of the holding and assessment of marriage value. The only way in which a valuer could compare two holdings was by assessing their productive capacity. An agricultural consultant was the person best placed to do that. Mr Mackintosh’s inability to formulate a basis for the calculation of marriage value and his confessed ignorance of budgets limited the matters on which he could comment. Valuation for sale was a different skill: the present exercise had as much to do with assessment of productivity as anything else. So we ought not to conclude that Mr Duncan did not have the competence or expertise required for the matter we had to determine.

[392] With reference to Hainey, the territory we were in was that described at page 19 of the opinion of the Court where it is said [that] if the witness has the appropriate competency and expertise, if he is discredited in evidence that goes to the weight of the evidence and is a matter for the jury”. It was a matter of deciding what weight to give Mr Duncan’s evidence, not a matter of disregarding it for want of competency or expertise. Mr Murchison expressed reservations on relying on a criminal case in this court. We were a specialist court more particularly suited to assessing and weighing evidence than a jury or any other civil court.

[393] As to Mr Duncan’s credibility, he had not been partisan or untruthful. He had been candid and honest. He had accepted the limitations of his experience. He had not concocted a case for the tenant. For example, his figures on uplift in productivity were very modest. He had exhibited a degree of independence. It would be unduly hampering the court in its task to exclude his evidence.

[394] Mr Maclean addressed us in relation to Mr Murchison’s submissions.

[395] As to the hierarchy said to emerge from Moonzie it was utterly inconceivable as a matter of law that what it meant was that if there was sufficient evidence at level 1 one did not go down to the next level. The directions to have regard to certain matters did not preclude the possibility of having regard to others. Nor did it mean that you had to accept the level 1 evidence. Mr Maclean agreed that other material could only be relevant in so far as it addressed the position of the hypothetical tenant. Yet sitting tenant and farm budget methods, although not open market assessments, were clearly considered relevant (in Moonzie) to the court’s task.

[396] There was no dispute that the preponderance of evidence was that Waas would be used for rotational grazing.

[397] In relation to seasonal grazing lets, Mr Murchison had addressed us on the generality of such lets, not the particular comparables being relied upon here. These comparables were not let at the significantly higher rents which Mr McCall had seemed concerned about.

[398] As to Sinclair Estates holdings, he had noted Mr Murchison as saying that the real question was whether these holdings would have marriage value. That was not the real question. The real question was what the actual arrangements were on the comparables as negotiated between real people. There had been a misguided attempt to move from the particular to the general. In order to work out what the hypothetical offeror would pay you had to feed in evidence of real life transactions. That is what comparables were.

[399] As to scarcity, it was doubtful whether we had heard evidence of scarcity, let alone distortion due to scarcity. Mere enquiries about the availability of land, such as Mrs Macdonald and Mrs Bates had spoken to, told one nothing about scarcity or distortion of rents. If scarcity was endemic and all of the evidence was of distortion, how did one assess what was normal? A phrase borrowed from Gilbert & Sullivan by his instructing solicitor illustrated the point: “when everybody’s somebody, then nobody’s anybody”.

[400] With reference to Culmaily, in his review of the reservations and obligations in the lease Mr Murchison had omitted the obligation to live on the farm. There was case law to the effect that this was an onerous obligation which could have a significant effect on the rent to be offered by a potential offeror. More importantly, Mr Duncan’s approach to Culmaily was wrong. Instead of taking the cumulo rent and adjusting it he had abstracted a particular area of 120 acres and used that per acre figure as a basis for comparison with Waas. In negotiation of rent involving different classifications of land there could be all sorts of trade-off between the various classes. That was a difficulty with Mr Duncan’s approach.

[401] Mr Murchison had asserted that the only evidence as to the state of the holding at ingo was Mr Campbell’s but that was not so. The terms of the lease recorded the holding as being in good order and no record had been made up. As a matter of general law it was not now open to Mr Murchison to adduce oral evidence from Mr Campbell to contradict the written evidence of the lease. So we should proceed on the basis that the holding was in good order at ingo.

[402] As to how we should deal with the state of the fences at ingo, he and Mr Murchison were completely at odds. What the hypothetical offeror would be offering for was the fixed equipment in its existing state, “warts and all”. It was not a question of factoring in the cost of putting the fencing right and using what Mr Campbell had spent as the measure of that. That was utterly misconceived.

[403] As to subsidy, he had recorded Mr Duncan as saying that the position varied; not that an incoming tenant would not have entitlements. But in any case, given that we were looking at the position as at 2010 and a new Common Agricultural Policy was five or six years away, purchasing entitlements would be a worthwhile exercise, in terms of the economic return.

[404] Regarding the admissibility or value of Mr Duncan’s evidence, it was accepted that he had considerable experience in farm budget analysis and Mr Maclean entirely agreed that in a case where a party wanted to illuminate open market value by reference to the budget method a valuer might well go to someone like Mr Duncan for advice in relation to budgets. But that did not obviate the need for expert valuation advice. The problem for Mr Murchison was that he had instructed someone with experience in farm budget analysis but not working in tandem with someone who could use the information from that exercise to assess how it played out in terms of value. Mr Murchison had said that the figures in Mr Duncan’s reports were fairly modest but how were we to know whether that was right: all we had was his ipse dixit.

[405] In a brief response Mr Murchison made three points. The figures for Sinclair Estate holdings were negotiated between real people and they included marriage value just because of their nature. Regarding Culmaily, it was right to say that Mr Duncan had chosen a section of the farm but it was a section with the same category of land as Waas and he had treated it as if fully equipped. He had made the adjustments at the wrong end of the equation but that only mattered where the holdings were of significantly disparate size. So far as subsidy was concerned, he understood Mr Maclean to be saying that this was material which was before the Court and that the Court had to take account of. Mr Maclean confirmed that that was his position.

DISCUSSION

Credibility and reliability of witnesses

[406] We deal with the expert witnesses below. We found all of the other witnesses credible and reliable. We should say that in Mr McCall’s case we did not think his evidence was in any way tainted by any “agenda” to do with his role as a tenant farmer and his former role in the SFTA.

Resolving some issues

(i) The evidence of the expert witnesses

[407] Mr Maclean submitted that as a matter of law we must disregard Mr Duncan’s evidence. That is because he had no expertise in the relevant field; HMA v Hainey, supra. In particular he had no expertise in valuation, in open-market letting or in the negotiation or fixing of rents.

[408] We think it would be going too far to exclude Mr Duncan’s evidence altogether. We are not persuaded that the law requires us to do so. That is because he did have expertise in relation to some matters which were relevant to our task. As will become clear below we found some of his evidence helpful. What is important is to restrict ourselves to the matters on which he could speak with some expertise and which were relevant to our task. These were largely budgetary matters. These are not wholly irrelevant to the determination of a proper rent. We therefore take account of his evidence to that limited extent.

[409] As to his general approach to arriving at a rent, it was wrong. He never seemed to see things from the perspective of what a hypothetical tenant would be prepared to pay for Waas on the existing lease. Much of his methodology was also wrong. For example he handled adjustments to the Culmaily comparable wrongly. Having adopted the wrong approach and the wrong methodology his result was almost bound to be wrong. Ultimately he accepted that a rent of £2,112 was unrealistic. He did not seek to defend it but neither did he come up with another figure which he was prepared to justify.

[410] But, as we have said, there were aspects of his evidence which we did accept. The most important was the calculation of marriage value. That was a matter within his area of expertise. His approach was directed at what marriage value represents, which is a sharing of overheads across a wider production base. The percentages he used were based on his knowledge of farm budgets and the economies of scale which are realisable. It was at the very least an honest attempt to quantify marriage value by use of a transparent and, so far as we could tell, logical process. Mr Mackintosh, on the other hand, offered no basis of his own for the quantification of marriage value. Instead he adopted Mr Duncan’s and added £300 of his own just because Mr Duncan was acting for the tenant and so was bound to underestimate marriage value. By taking that approach to Mr Duncan’s figure Mr Mackintosh perhaps betrayed an understanding of the duties of an expert witness not much different from that of which Mr Duncan was accused. It is for consideration in another case, should the same approach be used again, whether Mr Duncan’s formula is reliable but no meaningful challenge to it was offered in this case.

[411] We should also comment on Mr Duncan’s demeanour in the light of Mr Maclean’s criticisms. We saw nothing in Mr Duncan’s conduct in court which was worthy of censure. Had we seen anything of that kind we would have dealt with it at the time. Mr Maclean was sitting nearer to him than we were and he obviously has a different view. But we can only go by what we saw and heard for ourselves.

[412] As to Mr Duncan’s understanding of his role as an expert, we have doubts. He was not able to explain where his professed understanding of that role came from. We do not think he was adequately “independent, impartial and uninfluenced by those instructing him” to use Mr Maclean’s words, but we do not think he went as far as to become an advocate in his client’s cause. We do not impugn his integrity or good faith.

[413] So far as Mr Mackintosh is concerned, he certainly had the relevant professional qualifications and some experience of negotiating rents. His methodology was by and large sound but he was not as careful as he might have been in aspects of his preparation and in the giving of evidence. For example he did not ascertain at the outset the type of tenancy on which Seaview and Ornum & Heathfield were held. He was careless in acreages and with figures. He made no attempt to calculate marriage value for himself. Maybe it defies calculation. But it was just not good enough to take Mr Duncan’s figure and add on a few hundred (why £300?) of his own. He initially omitted to allow for marriage value at all in relation to Seaview despite the fact that it must have been clear to him that it has marriage value for the tenant.

[414] The result of all of that was that we could not simply accept his evidence in preference to Mr Duncan’s. Instead we had to constantly question its “fundamental soundness” in terms of Mr Maclean’s reference to Davie v Magistrates of Edinburgh, supra.

(ii) Whether grazing lets admissible as comparables

[415] Mr Murchison argued that evidence as to the applicants’ comparables was not admissible as a matter of law. If we understood it correctly his argument went as far as to say that these arrangements were not leases at all, far less leases of agricultural holdings.

[416] There is no dispute that grazing lets are not leases of agricultural holdings within the meaning of the 1991 Act. That is because they do not become within the definition of “lease” in sec 85(1) and are therefore outwith the scope of sec 1(1) of the Act. But that, of itself, is not fatal to their use as comparables. The Court of Session in Moonzie made no reference to them but made clear that the fact that we are directed to have regard to certain sources of evidence does not mean that we are not to have regard to others; para [62].

[417] If grazing lets are not leases but contracts bestowing the right to take grass then they are not comparables. But we do not accept that the arrangements concerning Seaview and Ornum & Heathfield are not leases. They bestow not just the right to take grass but the right to occupy the subjects for a defined period. So all the cardinal elements of a lease - parties, subjects, rent and duration – are present; Gray v Edinburgh University, supra. The fact that grazing lets have been held not to breach prohibitions on sub-letting seems to us to rest on the very temporary and insecure tenure which they bestow and, where such is the case, on the fact that exclusive occupation of the subjects is not enjoyed by the grazier. For example, in Morrison v Nicolson, supra, which was followed in Little v McEwan, supra, to which Mr Murchison referred, where four acres of ground were made available by a statutory small tenant to a neighbour for grazing purposes for part of the year, the position was described (at page 91) as follows:-

“There is no proof that Strachan [the neighbour] was at any time a ‘sub-tenant’ of the applicant. The applicant retained full natural possession, use, and control of this portion of his holding throughout the greater part of each year. Strachan had only a limited and temporary right of grazing his stock on this land for the season, or part of it.”

In Borland v Muir, supra, another case involving the “hiring out of grazings”, as the headnote to the report puts it, by a statutory small tenant, also followed in McEwan v Little,the matter was put like this (at page 22):-

“[A]ssuming that subletting of the holding of a statutory small tenant after 1st April, 1912, is prohibited …, it has always been held that letting either arable land or hill pasture, or both, for grazing horses, cattle, sheep, or other live stock, during any part of the year is not subletting the landholder’s holding or part of his holding. For example, if cattle or horses or sheep are taken in by the landholder to eat his grass, or sheep taken in to eat his turnips, that is nor a subletting of the land, but a customary and generally a profitable mode of consuming or disposing of the crops or natural produce of the holding. Subletting implies that the tenant is entitled to exclusive possession of the land … sublet to him, as against the person who has sublet.”

[418] Our understanding is that the tenants of both Seaview and Ornum & Heathfield enjoy excusive occupation and use of the subjects for the part of the year for which they are let. We see no basis for treating their arrangements as anything other than leases. Accordingly we hold that, as a matter of law, we are entitled to have regard to them.

(iii) Whether Moonzie prescribed a hierarchy of sources of evidence

[419] The conclusion we have just come to on the admissibility of evidence from grazing lets brings us to the next issue: whether they are inadmissible in this case because there are other sources of evidence higher up in the Moonzie hierarchy (on Mr Murchison’s view) which preclude us from looking at them.

[420] That some kinds of evidence, as broad general categories, are better than others is clear from Moonzie. Thus it is said that the best evidence will be evidence of open market lettings for 1991 Act tenancies of comparable holdings and that evidence of budgets is a last resort. So, if there is adequate, acceptable evidence as to the open market letting position we would be precluded from relying on budgets. But we do not take that as meaning that if we have evidence at one level, no matter how poor, it prevents us looking at evidence at a “lower” level, no matter how good. That would unduly hamper the court in a task already made difficult for want of evidence. The thrust of Lord Gill’s comments in the relevant section of his opinion (paras [57] to [62]) in Moonzie is to try to make sec 13 workable and is based on the premise that Parliament, in introducing the term “agricultural holding”, did not intend to make it unworkable. Excluding evidence of seasonal lets in this case would not make our task impossible but it would mean that we would be basing our decision on what is by far the most dissimilar of the comparables offered. Seaview and Ornum & Heathfield are far more comparable to Waas in terms of appearance, topography, location and use than is Culmaily. It would be perverse not to have regard to them as comparables for Waas.

[421] Accordingly we have come to the view that we are entitled to have regard to the evidence about Seaview and Ornum & Heathfield notwithstanding the existence of evidence about Culmaily.

Applying section 13

The review subjects

[422] Waas Farm is situated near Janetstown in the Hill of Forss area of Caithness, about five miles from Thurso. It extends to 117.45 acres, comprising 83.5 acres of arable and 33.95 acres of rough pasture. Mr Mackintosh and Mr Duncan agreed that two acres of rough pasture was equivalent, for renting purpose, to one of arable. That produces an adjusted acreage of 100.47. It has no buildings and fixed equipment is restricted to fences and drains. The land is relatively flat and, in terms of the MacAulay Institute for Soil Research land classification, is all Class 4(2). The soil is shallow and overlies a bedrock of slate. There are a number of disused slate quarries on the farm.

[423] The farm has been occupied by the present respondent under a 1991 Act tenancy since Martinmas 1990. The passing rent is £2,900 per annum and was agreed between the respondent and the present applicants’ predecessors as landlords in 2002. The rent per adjusted acre is, therefore, £28.86. Prior to 1990 the respondent occupied it for a number of years under a succession of grazing lets agreed with the then proprietor, Mr David Mackenzie. Mr Mackenzie had used the farm to grow oats, barley and root crops as well as for sheep and cattle rearing. The respondent has always used it, and continues to use it, as grazing for ruminants, both sheep and cattle. We accept that this is the use to which hypothetical bidders in 2010 would have intended to put it. The respondent works Waas in conjunction with several other holdings in the locality. He occupied the subjects during the SFP reference period and therefore receives SFP in respect of the farm. He also receives LFASS for his use of Waas. SFP amounts to £4,000 per annum and LFASS to £2,000.

The terms of the tenancy – sec 13(3)

[424] By Clause FOUR of the lease the landlord is obliged to provide “such fixed equipment … as will enable the tenant to maintain efficient production as respects both the kind of produce accustomed to be produced on the farm and the quality and quantity thereof” and to “effect such replacement or renewals of the fixed equipment as may be rendered necessary by natural decay or by fair wear and tear”. Excepted from this are the fences on the farm, both external and internal: the tenant is responsible for the erection of these and for the subsequent maintenance, repair and renewal thereof and is recorded as having accepted the existing fencing in its present condition. Similarly, by Clause SIX, the tenant accepted the fixed equipment on the farm in its then condition as “tenantable and suitable and sufficient to fulfil the Landlord’s obligations relating to the provision of fixed equipment under Section 5 of [the 1991 Act]” and the tenant is taken “bound to maintain the same in a good and sufficient state of repair and further undertakes in the case of the fixed equipment provided, improved or renewed by the Landlord during the tenancy to maintain such in a good state of repair (natural decay and fair wear and tear excepted) as it was in immediately after it was put in repair by the Landlord or in the case of fixed equipment provided, improved, replaced or renewed during the tenancy , immediately after it was so provided, improved, replaced or renewed”. There is no power of resumption in the lease, nor any irritancy clause.

The possible comparables

[425] Seaview: Seaview lies within a mile of Waas, within the Hill of Forss area. It extends to 79.9 acres, comprising 66.9 of arable and 13 of rough grazing, producing an adjusted area of 73.4 acres. It has no buildings. Like Waas it is relatively flat and is of the same soil composition and classification. Since 2008 it has been let under a succession of annually renewed grazing leases to a Mr MacIver, who uses it in conjunction with another holding in the locality. All of these lets have been by private bargain and have not involved open market bidding although Mrs Macdonald took advice from the Mart in 2008 as to what sort of rent she might expect to get. The land is occupied by Mr MacIver for all but a couple of months of the year. As with Waas, although formerly used for crops as well as stock, the present tenant uses it for ruminant grazing. The rent has always been £3,000 per annum. SFP and LFASS are payable to the tenant. There is no written lease but the tenant is obliged to maintain the fences, control the spread of rashes and reseed when asked to do so by the landlord.

[426] Ornum & Heathfield: Like Seaview, Ornum & Heathfield is situated in the Hill of Forss area and within a mile or so (certainly the Ornum part) of Waas. As the name suggests, it divides into two parts. Ornum is more similar to Waas, having the same topography and soil classification. Heathfield is better, being more low lying, better drained and of a better soil classification, Class 3(2) as opposed to 4(2). The total comprises, 77.69 acres, whereof Heathfield represents 40.77 acres. These figures are taken from IACS map, production 99, but the total corresponds to the figure in Mr Mackintosh’s report, production 95. Mr Mackintosh calculated the adjusted acreage as 83.77 but that is irreconcilable with a total area of 77.69 acres. In his earlier report (production 12) Mr Mackintosh states the arable extent of Ornum & Heathfield to be 66.5 acres. If that is so and the balance (11.19 acres) is rough grazing, the adjusted acreage would be 72 acres. From our inspection we consider that there is little in the way of rough grazing on Ornum & Heathfield and we proceed on the basis that the correct acreage to use is 77.69 acres.

[427] The holding has been let to a Robert MacIntosh on a succession of annually renewed grazing lets since 1996. No buildings are included, so, as with Waas and Seaview, the fixed equipment comprises only fences and drains. As with Seaview, all of these lets have been by private bargain, not as a result of open market bidding. The Mackay and MacIntosh families have known each other for three generations. Mr MacIntosh works the holding along with another farm situated between Ornum and Heathfield. He uses it as ruminant pasture. The leases run for 10 months of the year. Although the matter does not seem to have been spelled out very clearly in the evidence we understand Mr MacIntosh to be responsible for all maintenance, repair and renewal of fixed equipment. Mr MacIntosh receives all subsidies for the holding. Although Mrs Bates said a written lease was entered into each year none was produced. The rent is negotiated annually between Mr Mackay and Mr MacIntosh. The rent has increased over the years, £3,000 per annum being the earliest and lowest rent Mrs Bates was able to trace. In 2002 the rent was around £4,000. The rent paid in 2010 was £5,000. There is uncertainty as to whether that was for the preceding season or the following season. Be that as it may, we take Mrs Bates’ evidence that this payment was made in autumn 2010 as evidence that that was regarded as an appropriate rent for Ornum & Heathfield at or around that time. We have no basis for accepting any other figure.

[428] It appears that parts of Seaview and Ornum & Heathfield are under crofting tenure. Whatever regulatory issues, such as the validity of leases without the consent of the Crofting Commission, that gives rise to, we regard it as irrelevant for present purposes. It is clear that these holdings are let without regard to the fact, if fact it be, that they are partly crofts. Neither landlords nor tenants appear to take account of that. It appears to have no bearing on the rents being paid. We therefore take no account of it.

[429] Culmaily: Culmaily is situated on the east coast of Sutherland, some 60 miles from Hill of Forss. The farm extends to 970 acres, comprising 350 acres of arable, 120 acres of permanent pasture and 500 acres of hill. It extends over a gradient from sea level to 1,000 feet. The part of it most comparable to Waas is the 120 acres of permanent pasture. The farm has been held on a 1991 Act tenancy since 1971. It is fully equipped and has three cottages which the tenant is entitled to let out as well as three for the tenant’s own use. The current rent of £16,500 was agreed in May 2010. It was agreed by reference to different rental rates for the different classes of ground. The permanent pasture was rented at £25 per acre. The lease contains both resumption and irritancy clauses, a requirement that the tenant reside on the property and relatively onerous maintenance obligations on the tenant. The farm is not worked in conjunction with any other unit.

[430] Sinclair Estates Farms: These are not, strictly speaking, comparables at all. Although Mr Campbell gave evidence as to his own knowledge of some of the farms on the Sinclair Estate we are not in a position to make comparisons between Waas and specific farms on that estate. We understand the leases to include a range of types of tenure, including 1991 Act tenancies. On the basis of Mr Campbell’s evidence most, if not all, of them would seem to be equipped but again we have no detail. The evidence was not, of course, led as evidence of individual comparables but to show that a major landlord in the area lets hill ground at £10 to £15 an acre, pasture at £30 to £35 an acre and arable land at £35 to £45 an acre. “Arable” is defined (production 84) as land off which a barley crop “could be taken”. In the fixing of these ranges, which was done on advice from a local valuer, Lord Thurso takes no account of “any buildings or grants or aid, including single farm payments” (production 83) although in a later letter to Mr Campbell he says “It should of course be borne in mind that I know each of the farms well and therefore no discussion was necessary in respect of buildings or other aspects of value that might have been subject for discussion between 2 commercial professionals” (production 96).

Conclusion as to comparability

[431] Undoubtedly Seaview is the closest comparable. It is very similar to Waas. We regard it as a very strong comparable. Ornum & Heathfield is less similar because of the difference in soil quality at Heathfield. But it too is a strong comparable. Culmaily is so different from Waas that we do not regard it as a useful comparable. Mr Duncan himself obviously had such difficulty in making it work as a comparable that he did not produce an adjusted comparison of the whole farm with Waas but instead attempted a comparison of that part of it which was in terms of soil quality and use the same as Culmaily. He then attempted to adjust that for the absence of buildings on Waas but his methodology was flawed and we cannot rely on it. At the end of the day Mr Murchison sought to make use of Culmaily only as a warning against the use of evidence from seasonal grazing lets. We have come to the conclusion, however, that it is such a different farm from Waas that it is not capable of serving even that purpose. So far as the Sinclair Estates evidence is concerned it can only be used as a very rough cross-check on the result of other evidence.

[432] The result is that we regard only Seaview and Ornum & Heathfield as valid comparables. We now consider what adjustment is required to them to produce a net rent comparison for Waas.

Adjusting the comparables: Seaview
(i) scarcity

[433] The first question is whether scarcity has been shown to exist. The evidence showed that demand for land in Caithness has exceeded supply for as long as anyone can remember. There is not enough land available to let everyone who wants land have as much as he wants. There is not a perfect equilibrium in the market. It is, and was in 2008 when the Seaview rent was agreed, a landlord’s market. So we are satisfied that a degree of scarcity has been proved.

[434] The next question is “what degree?” We heard evidence of competition at the Mart among a limited number of people with only three or four bidders for each grazing let. It sometimes happened that a bidder was left without any land at the end of a series of sales. We heard no evidence from people who had bid repeatedly without success nor from anyone who had completely failed to get land, whether at the Mart or by private bargain, nor from anyone who had had to pay Mr Maclean’s “silly money” to get land. Although we heard of very high rents – in excess of £100 per acre – being obtained at the Mart it was for land of very much better quality than Seaview. Mr Bremner had not seen any evidence of people paying “silly money” for rents in Caithness. Mr Campbell gave us anecdotal evidence of people bidding more than could possibly be justified in budgetary terms for land and of some who ended up with no land at all but he was talking of a very limited number of unidentified people. We give very little weight to that evidence. As good evidence of what happens at the Mart we prefer the evidence of Mr Bremner.

[435] As to land let outwith the Mart, we heard that land coming onto the market is (and was in November 2010) quickly snapped up. But we did not hear of people who might have land to let being besieged by a number of people desperate to get land.

[436] Accordingly the picture is one of a degree of scarcity but not one of acute or severe scarcity.

[437] The next question is whether that degree of scarcity can be said to have distorted the rent being paid for Seaview in November 2010. The authorities tell us that the existence of a degree of scarcity does not mean that the rents being paid are necessarily distorted by scarcity: it is accepted that the absence of perfect equilibrium does not constitute distortion due to scarcity. On that matter the decision of this court in Moonzie was entirely endorsed by Lord Gill at paras [96] to [98]. The rationale of the decision is that insistence on perfect equilibrium would break the link with the open market; see this Court’s judgement in Moonzie at para [61].

[438] At what point then does scarcity result in distortion? In that connection Lord Gill in Moonzie endorsed the observations of this court in Aberdeen Endowments Trust v Will, supra, to the effect that the court should hypothesise a “reasonably balanced market”. That case is instructive to look at. In it two comparables were advanced by the landlords with 18 offers having been received for the letting of one and 24 for the letting of the other. In addition there was evidence that the letting of larger farms could attract up to 50 offers. It was not suggested that these farms had special features which would have attracted a premium peculiar to them. There was, therefore, clear evidence of very significant scarcity before the court and it is unsurprising that it took the view that this was not a reasonably balanced market. The evidence in the present case does not begin to compare with the situation in Aberdeen Endowments Trust.

[439] Mr Murchison argued that it was the chronic nature of demand exceeding supply that made this market a distorted one. A reasonably balanced market would be one in which demand would sometimes exceed supply and supply would sometimes exceed demand. Although initially attracted to this as an explanation of a market distorted by scarcity we do not find it convincing. The question must be whether at any particular point in time the market is distorted by scarcity. It may be suggested that the link is that a chronic condition of demand exceeding supply over a long period of years inexorably drives up rents. That is likely to be so but other factors are also at play, principally the ability of farmers to pay higher rents. We do not think that a long, even very long, period of rising rents necessarily reflects a market in which rents are distorted due to scarcity. What Mr Murchison’s submission comes to is that the market for land in Caithness as at Martinmas 2010 was distorted by scarcity because it has always been distorted by scarcity.

[440] The question for us, therefore, is whether the market for land in Caithness in November 2010 can be described as a reasonably balanced market. In order to answer that, in addition to the foregoing evidence, we should take account of what the expert evidence in the case tells us. Mr Mackintosh, the only witness professionally qualified to comment, thought there was no distortion due to scarcity. Mr Duncan makes nothing of scarcity in his reports. In his comments on the applicants’ comparables (production 100) he attributes any difference between the aggregate of a budget rent and marriage value for each of the applicants’ comparables and the rent paid to scarcity. On that view rents in a normal, reasonably balanced, market would be set at the sort of rent a holding could justify economically. There might be a good deal to be said for that as a matter of logic but it is not the way in which scarcity is to be calculated in light of Moonzie. In light of Moonzie, in our view, scarcity is to be judged by looking at the market itself. Accordingly we do not follow Mr Duncan’s approach in relation to scarcity. The result is that the only acceptable expert evidence in relation to this branch of the case does not support a conclusion that the rents in November 2010 were distorted by scarcity.

[441] On the whole matter, therefore, we hold that the market for grazing lets in Caithness in November 2010 was a reasonably balanced market. Perfectly balanced it was not; reasonably balanced it was. Even if we are wrong in that analysis the fact that the rent being paid for Seaview is significantly less than would have been obtained at auction persuades us that it cannot be said to be distorted as a result of scarcity. We accordingly hold that no adjustment of the Seaview rent to account for scarcity is required.

[442] Although, given our conclusion as to scarcity and distortion, the problem of quantifying the extent of distortion does not arise in this case, before we depart from the subject we would say this. It is for the party asserting distortion due to scarcity to prove it. If, of course, it appears to the Court on the evidence before it that distortion due to scarcity exists it must take account of it and deal with it as best it can. But where a party sets out to prove it we would expect there to be evidence as to an undistorted norm against which the allegedly distorted market can be contrasted. It ought not to be for the Court, working in a vacuum, to come up with its own best guess as to what a reasonably balanced market would produce. We are a specialist court but we have neither the knowledge of market conditions in the various parts of Scotland nor the valuation skills necessary to produce a properly informed and objectively justifiable assessment of the effect of distortion due to scarcity. If appropriate evidence cannot be found in the form of evidence of other markets in other parts of the country at the same point in time or in the same part of the country at a different time it should be done by expert evidence as to what a reasonably balanced market would produce. In this case that was attempted to be done by reliance on Mr Duncan’s evidence but we have rejected his approach for the reason already stated.

(ii) Marriage Value

[443] Seaview is a marriage value farm. We require to strip out the marriage value element so as to adjust the rent for purposes of comparison. In the circumstances of the case this is a somewhat artificial exercise given that Waas too is a marriage value farm and, using Mr Duncan’s approach and formula, marriage value forms the same proportion of rent as it does at Waas. However the value of doing so is that it makes what we are doing more transparent. Mr Duncan calculated the marriage value of Waas at £1,100 or £10.95 per adjusted acre. Applying the same rate to Seaview produced marriage value of £803.73 (£10.95 x 73.4), say £804. That produces a net rent for Seaview of (£3,000 - £804) of £2,196 which equates to £29.92 per adjusted acre.

(iii) different tenure

[444] In this section we consider whether an adjustment to the rent of Seaview is required because it is held on a grazing let rather than a 1991 Act tenancy. We deal with this in general terms in this section: we deal with obligations in relation to fixed equipment in the next section.

[445] The evidence of all of the witnesses who spoke to it was that grazing lets attract a higher rent per acre than 1991 Act tenancies. The Culmaily comparison, where the rent per acre for land comparable to Waas is £25, accords with that. But to assess what adjustment, if any, to make to the Seaview rent under this head we need to understand the factors which produce this situation. Mr Mackintosh was at a loss to explain it. Mr Duncan offers some reasons in production 100. These are (1) the “consumable” or speculative nature of grazing lets, enabling a tenant to pay a high rent for speculative or risky operations knowing that he is not taking on a long term commitment; (2) little or no maintenance obligations; (3) scarcity; (4) they may attract subsidy payments (for a person having unused entitlements); (5) premiums for marriage value and goodwill. In addition to these factors some of the witnesses were persuaded by Mr Murchison to accept that the weak bargaining position of a grazing let tenant might also be a factor.

[446] Do these factors apply to Seaview? Seaview has been let to the same tenant at the same rent since 2008. Accordingly, it is not a case of a “one-off” high rent lease for a speculative or risky venture. Firstly, the rent is a rent which the tenant had already sustained for two years prior to Martinmas 2010 and has now sustained for five. Secondly, the tenant of Seaview has taken on repair and maintenance obligations (for a season at a time) which the classic grazing let tenant does not have. Thirdly, as discussed above, we are not persuaded that the rent is distorted by scarcity. Fourthly, the availability of subsidy is not a point of difference between land held on the two different tenures. Fifthly, marriage value has already been taken account of above and we do not think there is any evidence of Mr MacIver paying a premium for goodwill. If anything, the evidence is the other way. Mrs Macdonald is happy enough to have Mr MacIver as tenant at the rent he is paying. She gave evidence, confirmed by Mr Bremner, that she could get a higher rent at the Mart but she prefers to have a tenant she knows and trusts. As to an imbalance of bargaining power, the point we have just made shows that, whatever may be true in the generality of cases, there is no imbalance here: Mrs Macdonald is anxious to keep Mr MacIver as her tenant.

[447] Accordingly, although what was said by witnesses is no doubt true as a generality and is no doubt true of the higher Mart rents spoken to by Mr Bremner, we do not consider that there is any basis for making a reduction from the Seaview rent in order to reflect the different tenure on which Waas is held.

(iv) fixed equipment and tenants’ obligations

[448] The extent of fixed equipment at Seaview and Waas is very comparable. On both farms it comprises fences and drains. The fencing at Seaview was put into good order by Mrs Macdonald prior to Mr MacIver taking the first of his grazing lets. The respondent, on the other hand, had to erect fencing. It would be difficult to adjust the Seaview rent to reflect this. We have not been provided with any evidence which would allow us to do so. But effect can be given to this by discounting the rent for Waas itself. We do that below.

[449] According to Mrs Macdonald, the tenant of Seaview carries at least the obligation to maintain and repair. The position with renewal and replacement of fixed equipment appears not to have been explored very fully. The respondent in his evidence cast doubt on the extent of the duties undertaken by the tenant at Seaview. That was on the basis of a conversation he had had with a fencing contractor doing work there. However, in the absence of the fencing contractor being produced as a witness, we have to prefer Mrs Macdonald’s evidence as to these matters. The respondent’s obligations at Waas have already been detailed. The landlord is responsible for such replacement or renewal of the fixed equipment, other than fencing, as is rendered necessary by natural decay or fair wear and tear. With the exception of fencing, therefore, the extent of fixed equipment provided and the tenants’ obligations to maintain it are broadly similar on the two holdings. We therefore do not think that anything to do with these matters requires an adjustment to the Seaview rent.

(v) quality of grass

[450] Mr Murchison objected to the use of Seaview as a comparable because its rent had been fixed on the basis of the various ages of grass on the holding. The advice given to Mrs Macdonald related to three categories of land, the categories being defined by the length of time since they had last been resown. The last time grass had been sown at the landlord’s expense on Waas had been over 20 years ago. There was no such category at Seaview in 2008. Therefore comparison was impossible.

[451] We think Mr Murchison’s point is mistaken. That is because it involves looking at Waas as at Martinmas 2010 but with all of the reseeding done by the respondent in the 20 years of his occupancy which preceded that stripped out. What should really be looked at is the state of the land and the age of the grass when the respondent took entry. The landlords are entitled to have that used as the starting point rather than what Waas would have been like in Martinmas 2010 had no reseeding been done in 20 years. What we know of the farm prior to the respondent’s occupancy is that it was a well run farm which produced top lambs and good crops. Mr Campbell says that the farm was somewhat rundown when he took over but he makes no complaint about the age or state of the grass.

[452] Even if Mr Murchison’s point is correct, however, the evidence in relation to Ornum & Heathfield, where no reseeding has taken place in 20 years, yet the net rent per acre is higher than the net Seaview rent, even after adjustment has been made for the better class of land at Heathfield, suggests that even land with grass of that age attracts rents such as that paid at Seaview, albeit the Seaview rent itself was based on much fresher grass.

[453] For all of these reasons, therefore, we do not think that Mr Murchison’s point invalidates Seaview as a comparable.

(vi) SFP

[454] Mr Murchison argued that a hypothetical tenant for Waas in 2010 was unlikely to have SFP entitlements. That would require us to adjust the rents of Seaview and Ornum & Heathfield to take account of the fact that the tenants of both of these receive SFP in relation to these holdings. We deal with Mr Murchison’s argument in our discussion of deductions in relation to Waas below. The result we arrive at there means that no deduction for lack of SFP is appropriate in respect of Seaview or Ornum & Heathfield.

Adjusting the comparables: Ornum & Heathfield
(i) scarcity, marriage value and goodwill

[455] We take these three matters together because of the way in which Mr Mackintosh and Mr Duncan dealt with them.

[456] The current rent for this holding is £5,000. Mr Mackintosh thought as much as £2,000 of that was marriage value. Mr Duncan’s formula produced the lower figure of £1168, although that was based on Mr Mackintosh’s marriage value assessment for Waas which was in turn arrived at simply by adding a few hundred pounds onto the figure produced by Mr Duncan’s calculation. Mr Duncan attributed the difference between his marriage value figure for Ornum & Heathfield and Mr Mackintosh’s to a combination of scarcity and a premium being paid by the tenant for goodwill.

[457] Since both witnesses agree that £2,000 should be stripped out of the Ornum & Heathfield rent we will do so. No one suggested a higher figure was appropriate. Given what we have already said about distortion due to scarcity generally, that figure probably comprises marriage value (which is certainly present) and an element of goodwill. That produces a figure of £3,000 or £38.62 per acre.

(ii) better quality of land

[458] The land at Heathfield is better than that at Ornum. Mr Mackintosh used a figure of 15% to reflect the difference. He said that derived from the MacAulay Institute although Mr Duncan and his source at the Institute were not aware of any published figure. Heathfield comprises 40.52 acres (52%) of the total of 77.69 acres. By our calculation the deduction falling to be made from £3,000 for the inferior quality of the land at Waas is £234 (£3000 x 52% x 15%), producing a net rent of £2,766 or £35.60 per acre.

[459] Mr Murchison argued that the fact that the land still had good productive capacity despite not having been reseeded for 20 years meant that a 15% adjustment for the better soil quality at Heathfield was inadequate. Our own very favourable impression of Heathfield would confirm that. It is not just a matter of better soil quality. The natural drainage of the land at Heathfield seemed to be very much better. On the other hand, we thought Ornum was poorer than Waas. There was certainly more water lying on it at the time of our inspection and it had the appearance of a generally less productive unit. But we are persuaded that a modest further deduction to the Ornum & Heathfield rent is appropriate given the better quality of Heathfield. We reduce the net rent per acre to £34 to reflect that.

(iii) different tenure

[460] In addition to the factors relied on under this head in respect of Seaview, Mr Murchison argued that the fact that the rent of Ornum & Heathfield had never been reduced in 20 years which spanned the Foot and Mouth crisis was eloquent of the reasons for which grazing lets were not to be taken as good comparables. That evidence, together with the evidence of Mr Mackay’s robust bargaining style, showed that the landlord always had the tenant over a barrel. It required a major adjustment to the rent for this comparable.

[461] We have already stripped out £2,000 to cover what is probably a combination of high marriage value and goodwill but may, on Mr Duncan’s evidence, include something for scarcity. Mr Duncan did not suggest that a greater deduction was appropriate. Is further adjustment required? We think all of the factors discussed in relation to Seaview apply, some with greater force, to Ornum & Heathfield. The same tenant has been in place for 20 years. He has full maintenance and repair obligations for the fixed equipment. As for the relative bargaining powers of the parties, whilst Mr Mackay negotiates in robust terms it was not said that he drove a hard bargain. What Mrs Bates said was that he would never ask for an unrealistic price and would never put the MacIntoshes off the land in favour of anyone else.

[462] Accordingly, as with Seaview, we consider that there is no requirement for adjustment under this head.

(iv) fixed equipment and tenants’ obligations

[463] The extent of fixed equipment at Ornum & Heathfield is similar to Waas. As also with Seaview, it comprises fences and drains. Given the period over which Mr MacIntosh has had seasonal lets we assume that all of the fencing there now has been provided by him. At all events he has all the obligations for erecting of new fences and subsequent replacement and repair and the obligation to repair or replace drains. There is no basis for a reduction of rent under this head.

(v) quality of grass

[464] This holding has not been resown in twenty years. Clearly no reduction is appropriate for landlord-sown grass.

[465] Accordingly the adjusted net rent per acre for Ornum & Heathfield is £34.

Sinclair Estate Evidence

[466] We do not have sufficient evidence of individual farms on the Sinclair Estate to enable us to use any of them as proper comparables. Mr Maclean invited us to use the evidence we have merely as a cross-check as to whether the result we arrived at on the basis of other evidence was realistic. Mr Murchison said we should use it as a “reality check” on the grazing let evidence. If we are to do the latter we had better do it now.

[467] But first there is a conflict of evidence to be resolved. In production 84, an email from Lord Thurso to the applicants, three rent ranges are stated: £10 to £15 per acre for hill ground, £30 to £35 for pasture and £35 to £45 for arable (defined as land off which a barley crop could be taken). Mr Mackintosh gave evidence that he had spoken to Lord Thurso and that the rates he had been told were £35 per acre for arable, £20 for pasture and £10 for hill ground. We prefer the evidence contained in production 84, spoken to by Mrs Ross. We do so (a) because it comes directly from Lord Thurso, and (b) Mr Mackintosh was unreliable on certain other figures; for example he had noted the rent of Seaview wrongly (he was also wrong about the Ornum & Heathfield rent but the figure he used was no doubt what he had been told by Mr Mackay) and also got some of his land classifications wrong.

[468] Mr Murchison’s submissions stated that Mr Mackintosh accepted that the appropriate rate to use when comparing Sinclair Estate farms and Waas was the rate for pasture and that the particular figure was £25 per acre. Our notes are to the effect that Mr Mackintosh resisted this suggestion and contended that Lord Thurso would have classified land such as that at Waas as arable, on the basis that it was land off which a barley crop could be taken. For our own part we think that the safest figure to take is the figure for pasture but the range of values we apply to that on the Sinclair Estate is £30 to £35 an acre, being the range given in production 84.

[469] Mr Murchison argued that an adjustment was required to reflect the existence of buildings on the Sinclair Estate farms. Mr Murchison is correct to say that this should be looked at not just on the basis of how the landlord approaches things but also from the tenant’s point of view. Indeed, for the purposes of the present exercise, what the tenant is prepared to pay and what he is getting for his money would be more relevant. It would tell us more about what the hypothetical tenant might be prepared to pay for Waas. But the problem is that we have no evidence from the tenants and no reliable evidence as to the extent of the fixed equipment on the various farms nor as to who provided it. One might think that a tenant would be willing to go to the top end of the range of rents quoted for a farm fully equipped with useful fixed equipment including a house but not pay very much more than the bottom end of the range for a farm with very little in the way of fixed equipment supplied by the landlord. But Lord Thurso says (at production 83) that he and his tenants “came rapidly to an amicable agreement, which was pretty much a mid-point between the two extremes [of the range]”.

[470] We can take very little from this evidence. The bottom end of the range coincides with the net rent per acre of Seaview. It is £4 per acre less than that of Ornum & Heathfield. It is, therefore, in the same “ball-park” as these rents. It does not seem to us, therefore, that this evidence operates as a red flag to warn us off the grazing lets comparables. We cannot adjust the Sinclair Estate rents below £30 per acre because we do not have enough information to entitle or enable us to do so.

Conclusion from comparables

[471] The net adjusted rent per adjusted acre for Seaview was £29.92. That for Ornum & Heathfield was £34. From our inspection we are satisfied that Waas is more comparable to the former than the latter. Seaview is probably marginally better than Waas but since this was not the subject of evidence we take it into account only to the very limited extent of rounding down the Seaview rent per acre to £29.

[472] Accordingly, what the evidence as to comparables points to is a rent of £29 per adjusted acre for Waas. That is subject to any adjustment which requires to be made in respect of factors peculiar to Waas itself.

Adjustments for Waas
(i) tenant’s improvements

[473] Subsection (5) of sec 13 forbids us from taking into account any increase in the rental value of the holding which is due to improvements executed wholly or partly at the expense of the tenant and which have not been executed under an obligation imposed on the tenant in his lease.

[474] “Improvement” involves a comparison with what was there before. Mr Maclean argued that in this case we could not look at the condition of the holding at ingo beyond what we were told in the lease. That was because the tenant had accepted the fixed equipment as “tenantable and suitable and sufficient to discharge the Landlord’s obligation relating to the provision of fixed equipment”. He could not now adduce oral evidence to contradict the written evidence of the lease. We agree but we do not think anything turns on that in the circumstances of this case. In the case of fencing that is because it is largely excepted from the foregoing acceptance of the fixed equipment as being tenantable. So far as the other improvements are concerned, that is because although the fixed equipment was accepted as tenantable, suitable and sufficient to discharge the landlord’s obligations it could still be added to or improved upon. The tenant should not be rented on these improvements.

[475] The improvements of which we heard evidence here were (a) the erection of new fences, (b) the renewal of existing fences, (c) the renewal of drains and (d) the provision of water troughs. We also heard evidence of the repair of fences and drains and the cleaning of ditches but these are matters of maintenance not improvement.

[476] In our opinion Mr Maclean was right to say that the correct approach is to assess what effect the improvements would have on what the hypothetical tenant would be prepared to pay and leave any increase out of account when determining the rent properly payable.

[477] We deal with fencing separately from the other improvements. That is because that is how it was dealt with in the lease and in the evidence, particularly in Mr Duncan’s report, production 78. The erection of new fencing and renewal of existing fences is an improvement and one which the respondent was not positively obliged to perform in terms of the lease. The erection of fences was clearly necessary at ingo but the lease left it up to the tenant to decide how much fencing to erect, where to erect it and to what standard. On the basis of information provided by the respondent, including productions 74 and 75, Mr Duncan assessed that 1749 metres of fencing had been erected at a cost of £1,875. Some criticism was made of this evidence in the cross-examination of both the respondent and Mr Duncan but it is the only evidence we have and we accept it. Mr Duncan’s approach thereafter was to amortise that cost over a period of 20 years.

[478] For a variety of reasons Mr Mackintosh felt entitled to ignore the cost of fencing (see production 95). The cost of the march fences was shared and some of it was on croft land and would attract assistance by way of grant. The cost, spread over the lifetime of the fence, would be minimal and could therefore be ignored. So far as the rest of the fencing was concerned there was no record of the holding at ingo to support the respondent’s evidence as to which works had been necessary and which not.

[479] Mr Maclean submitted that Mr Duncan’s approach was wrong as being at odds with the correct approach identified above. But these two approaches are not necessarily mutually exclusive. Because of the way in which fencing is dealt with in the lease the position has to be viewed as if the fencing at Martinmas 2010 had been as it was at ingo. The hypothetical tenant doing his calculations to see what rent he could afford to pay might adopt Mr Duncan’s approach. We certainly do not agree with Mr Mackintosh that the cost of fencing can simply be ignored. We do not think the hypothetical tenant would ignore it. The only evidence we have as to how effect should be given to it is Mr Duncan’s evidence. Given that his evidence is consistent with how the hypothetical tenant might approach the matter we see no reason to reject it. We see no basis for substituting what would be a much more impressionistic assessment of our own. Accordingly we have given effect to it and reduced what would otherwise be the appropriate rent by £126 per annum.

[480] Other improvements were in the way of provision of new drains, installation of water troughs, ploughing and reseeding. Mr Duncan dealt differently with these from the way in which he dealt with fencing. He considered their effect on the productivity of the holding. He assumed a 2% increase in productivity. We reject that approach. We do so (a) because it does not seem to be based on any recognised principles or conventions (why 2%?) and (b) because its accuracy has not been checked against the facts. We do not have any evidence of an increase in productivity, in circumstances in which such an increase ought to be verifiable. The evidence from Ornum & Heathfield, where no reseeding has taken place in 20 years, points to the enduring productivity of the land. Whilst Heathfield is of significantly better quality than Waas the same is not true of Ornum. In any event, as we have already mentioned, Mr Campbell himself made no complaint as to the quality of the land at ingo. We know from Mrs Macdonald that it used to produce “top” stock and crops. Accordingly we do not consider that a case has been made out for any reduction in what would otherwise be the rent properly payable based on increased productivity.

[481] The question remains whether a tenant would pay more for the holding knowing that such improvements had been carried out. We think it stands to reason that a tenant would. The new drains were obviously necessary. On our inspection it was clear that parts of the holding drain poorly. We have no reason to doubt Mr Campbell’s evidence as to the desirability of providing the water troughs. We think a tenant might well be prepared to pay slightly more knowing that he was not going to have to install these drains and troughs. On the other hand, under reference to what we have said in the immediately preceding paragraph we do not think any adjustment requires to be made for the effect of ploughing and reseeding. Accordingly the additional amount a tenant would be prepared to pay would be modest. The water troughs for Waas (production 47 also includes a water trough for Weydale) cost only £280.54 although that does not seem to include the cost of installing one of them (productions 46 and 47). Three invoices to do with draining or ditching are produced (productions 22-24). They total under £1,400. Any increase in rent to reflect avoiding that very modest level of expense is going to be small indeed. Without any pretence as to science we have made a deduction of £50 per annum to reflect it.

(ii) SFP

[482] Mr Murchison argued that a hypothetical tenant coming to Waas in November 2010 would be unlikely to have SFP entitlements. That is, we think, true in respect of a new tenant moving in. In order to have entitlements an incoming tenant would have had to have occupied an equivalent area of land during the reference period of 2000-2002 or subsequently purchased them. One would only purchase them if one had the prospect of acquiring land which would unlock their value.

[483] Among the range of hypothetical tenants is, however, the present tenant. The matter was not argued before us but we are of the view that the requirement in sec 13(3)(a) that we disregard “any effect on rent of the fact that the tenant is in occupation of the holding” does not prevent us from taking Mr Campbell’s interest in the holding into account; see this court’s judgement in Moonzie at paras 95-97. The present provision originates from sec 2 of the Agriculture Act 1958 when a strict open market test was introduced in contradistinction to the previous approach of fixing a proper rent as between the particular landlord and the particular tenant (see Gill at para 12.06 and the case of Guthe v Broach referred to there). But application of an open market test obliges us to have regard to the fact that at least one person in that market has SFP entitlements to match Waas.

[484] But we also think it likely that an incoming tenant without entitlements would consider it worthwhile to purchase them. The cost would have been £10,000 as at Martinmas 2010. The cost of entitlements is, obviously, related to their value to the purchaser. Farmers are not going to buy entitlements on which they are not going to make a return. It is within the judicial knowledge of this court that the cost of entitlements has reduced as the end of the present CAP regime draws closer. The return at Waas would be £4,000 per annum until 2014. So the return would justify the outlay although the profitability of the enterprise would be less than for a tenant who did not need to buy entitlements.

[485] Mr Duncan suggested that someone buying entitlements would want to write off the cost over a period of four years. This would have led to a £2,000 reduction in rent as compared with the rent a tenant with SFP entitlements might be expected to pay. That approach finds some support in what was said by this court in Moonzie at para [133] but what was said there was (a) obiter and (b) indicative of the budgetary approach to which the court was persuaded in that case. We think such a reduction is wholly unrealistic. We do not think a bidder wishing to have a realistic chance of obtaining the tenancy would approach matters in that way. It would be self-defeating. There would be no point in resolving to buy entitlements and then, because one had bought them, reducing one’s offer to a level at which one stood no realistic chance of getting the tenancy.

[486] On another aspect of subsidy, it is not only the current SFP arrangements which are relevant. In our view a hypothetical tenant would also have in mind the possibility that possession of land might continue to affect entitlement to subsidy under whatever CAP arrangements succeed the present regime. The acquisition of a 1991 Act tenancy would ensure that the successful offeror would be in a position to benefit from such subsidy not only post 2014 but under successive subsidy regimes thereafter, for such time as the possession of land remained a factor in eligibility for subsidy. Finally in relation to subsidy, actively farming the land would entitle the tenant to receive LFASS which is not entitlement-dependent.

[487] For the foregoing reasons we do not consider it appropriate to determine the rent on the basis that the successful bidder would not have, or be prepared to buy. SFP entitlements. In our view the contrary assumption should be made.

(iii) current economic conditions in the relevant sector of agriculture

[488] It is undoubtedly the case that economic conditions in the sheep and cattle sector were reasonably buoyant in autumn 2010. This was in marked contrast to the state of things at Martinmas 2002 when the passing rent was agreed. This on its own might be thought to justify an increase in the rent but the landlords have not urged us to increase what would otherwise be the proper rent on this account. This is probably appropriate given that conditions in this sector can be volatile and that the hypothetical tenant would have to think ahead for at least the next three years. Accordingly we make no adjustment in respect of the current economic conditions.

Result

[489] The result of the foregoing process is this:-

Rent @ £29 per acre (£29 x 100.47) = £2,913.63
Add marriage value (Mr Duncan’s figure) £1,100.00
Total £4,013.63
Deduct (i) tenant’s improvements – fencing £126.00
(ii) tenant’s improvements – other £  50.00
£   176.00
RENT £3,837.63

We have called that £3,838.

Is the result realistic?

[490] We have no doubt that a willing tenant would have paid a rent of this amount for a 1991 Act tenancy of Waas as at Martinmas 2010. It has been shown that similar land is being let in the locality at that sort of rent without security of tenure or the other advantages of a 1991 Act tenancy. We have been persuaded that we ought not fix the rent higher than the underlying rate for these units because of peculiarities which are said to make grazing let rents higher than 1991 Act tenancies as a generality. We have, however, declined to fix them lower for the reasons already explained. The rent arrived at is not out of line with the rate at which comparable land is let out on 1991 Act tenancies on the Sinclair Estate although not enough is known about these farms in terms of fixed equipment and marriage value to permit of their use as true comparables. It is higher, by £4 an acre, than the rate at which comparable land is being let at Culmaily but we have explained our reasons for preferring Seaview and Ornum & Heathfield to Culmaily as comparables. Given the economic conditions current in November 2010 we have no doubt that an open market letting of Waas on the terms and conditions of the present lease would have attracted offers in the region of which the rent has been set. An additional consideration is that the total subsidies payable are about half as much again as the rent we have determined.

Expenses

[491] We have invited written motions and submissions on expenses within 21 days of the date of intimation hereof.

Postscript

[492] Mr Maclean invited us to make comment on the factors which he identified as having caused the litigation. We have deliberately avoided taking any view on that at this stage. Any comment we deem appropriate will be made when we deal with expenses.