DIVISIONAL COURT

(D J Houston)

MACLEOD v HITCHCOCK

(Application SLC 163/12 – Order of 26 November 2013)

CROFTING – FAIR RENT – PRINCIPLES INVOLVED – NEGOTIATED RENTS IRRELEVANT – PROSPECTS FOR DERIVING INCOME FROM NORMAL HUSBANDRY ACTIVITIES – AGRICULTURAL SUPPORT PAYMENTS – POTENTIAL FOR IMPROVEMENT – TENANT’S IMPROVEMENTS – GRAZINGS REGULATIONS – MISMATCH BETWEEN SOUMINGS IN REGULATIONS AND COURT’S ASSESSMENT OF STOCK CARRYING CAPACITY – POTENTIAL FOR PURPOSEFUL USE – ALLOCATION BETWEEN CROFT LAND AND GRAZINGS

The tenant of a croft in Harris, who was intending to acquire his croft land, applied to have a fair rent fixed for his croft under Section 6 of the Crofters (Scotland) Act 1993 as amended. The Court stressed the importance of clear identification of the extent of the subjects under consideration, including the rights in common pasture. The principles of fixing a fair rent were summarised. The prospects for deriving income from working or use of the land was important. There were two key elements – firstly stocking and cropping capacity and the potential for income to be derived from normal husbandry activities; secondly the scope for access to agricultural support payments.

Tenant’s improvements were to be ignored, but not the potential for enhanced use of the subjects through improvement by the tenant. Grazings Regulations determined the use to which shareholders were entitled to use the common grazing land. Soumings determined the maximum numbers of stock which shareholders were permitted to put on the ground. In this case there was a mismatch between soumings and the Court’s assessment of the capacity of the grazings land. Potential use of the grazings in modern times was assessed.

The rate set was to reflect realistic use to which prudent crofters might now put the land in terms of livestock rearing. It was also to reflect income which might be derived from support measures on the assumption that a prudent crofter would use his best endeavours to access public support funding. The Court considered it unlikely that total net income available to a prudent crofter would decline significantly over next seven years for which rents were normally fixed. In the particular circumstances, assessment of the stocking capacity of the in-bye land was carried out on the basis that the common grazings would not in fact be used.

The Note attached to the Court’s Order is as follows:-

Background and Introduction

[1] This is an application by John Macleod, the crofter at 8 Grosebay, Isle of Harris in which he asks the Court to fix the fair rent for his croft under and in terms of Section 6 of the Crofters (Scotland) Act as amended (“the 1993 Act” or “the Act”).

[2] We carried out an inspection of the in-bye croft land and the associated common grazings on Monday 30 September 2013 and heard parties in Bays Community Centre on the morning of Wednesday 3 October 2013.

[3] It is important when fixing the rent for any subjects that their extent both physically and in terms of associated rights is properly established. In the early stages of processing the application, there appeared to be some inconsistency between the extent of both the in-bye croft and the common grazings as recorded in earlier documents and as set out in the current application. However, on the basis of further material supplied by the applicant and concurred in by the respondents, we are now satisfied in this regard.

[4] Although we are asked to determine the fair rent, it was apparent from the outset that the figure which we set would be used as the basis for determining the consideration to be paid to the landlords by Mr Macleod for acquisition of his croft. As will be seen, we have fixed the fair rent for the croft, which includes the rights in the Cluer and Grosebay Common Grazings. In terms of section 6(3) of the 1993 Act, we are empowered to determine a fair rent for “any part of a croft”. Where a crofter has acquired his entire croft other than any right in common pasture, then in terms of section 3(5) such a right is deemed to be held in tenancy. We have not been asked to set any terms and conditions for said acquisition, but for the purposes of this application and to assist parties, we have, in the last paragraph of this Note, apportioned the rent between the croft land itself and the rights in grazing which may remain in tenancy.

Evidence and Submission

[5] The applicant appeared on his own behalf and the landlord respondents, Robert Charles Hitchcock, Mrs Janitha Susan Hitchcock, Caroline Mary Mackie and Peter John Mackie were represented by their Bays of Harris Estate factor, Derek Mackenzie, solicitor, Stornoway.

[6] As a preliminary matter, Mr Macleod advised us that since the last formal communication with the Court, he had contacted the Crofters Union for advice. He had also heard that a neighbour at 2 Cluer had bought his croft. In that case, the rent had been revised from £8 to £30, so Mr Macleod had offered to agree a revised rent of £40 with the landlord for the purpose of calculating a purchase price for 8 Grosebay. The factor’s response had been a figure of £85 – reduced from £95 previously – but this had not been acceptable to the applicant.

[7] We offered parties the opportunity of an adjournment for further negotiation, but Mr Mackenzie stated that he did not have instructions whereby he would be able to agree any lower figure. Both parties were content for the hearing to proceed and for the Court to fix the fair rent.

[8] John Macleod gave evidence that he was the crofting tenant of 8 Grosebay and had lived on the croft full-time since 1996. Prior to that he had been employed by the Electricity Board and based in Stornoway – but had invariably been back to the croft at weekends. The croft had been occupied by his family since 1745 and he had been brought up there.

[9] The extent of the croft land and the associated Cluer and Grosebay Common Grazings was reasonably accurately portrayed by the plans, Productions 5 and 6. These were copies of maps prepared by the Scottish Government Rural Payments and Inspections Directorate and dated 2010 and 2011 respectively. He accepted that the plans had been prepared to be used in association with subsidy and support scheme claims and that there may be small parts of the croft and the grazings which lay outwith the areas delineated on said plans. The only area of the original croft which had been decrofted was the site of a dwelling-house which had been feued to his brother.

[10] There were two other houses on the croft – his own house and a further small cottage close by which was also used for holiday lettings. His initial intention had been to purchase the site of his present dwelling-house. It had transpired that the small cottage was the statutory house site for the croft and not his own dwelling-house. He had considered the price proposed by the estate in respect of his own house site to be extortionate – he thought the factor had made a mistake. Although he had not originally wished to do so, he then decided to purchase the croft land. Parties had failed to agree terms for that, including the relevant level of croft rent to be used in determining the consideration.

[11] From an agricultural viewpoint, the croft land was unsuitable for any arable cropping. It was basically stone, rock and heather, with very little scope for improvement. In the past, small areas had been cultivated by spade – with potatoes and vegetables grown on lazy-beds. He had recently planted a few trees by way of diversification, but was less able to do physical work nowadays. The cottage, which was the original croft house and was sited next to his own dwelling-house, was used for holiday letting to subsidise the croft. The decrofted house which belonged to his brother was also used by the applicant for holiday letting.

[12] Present stocking consisted of two Highland cows – which he found were easy to manage and maintain compared with other breeds. They made good use of the rough ground – eating heather and rushes which other breeds would not contemplate. They were out-wintered and in his view they actually improved the ground. He had at one time kept some 25 to 30 Blackface ewes which were bred pure, but only a few were now kept because he was less physically able to manage them on his own. However, he agreed that the croft could probably support that number of ewes, together with two cows. Although the physical area of the croft was quite large, there was not a great deal of heather and other herbage on it.

[13] The change in weather patterns had made it almost impossible to make hay. He did not use any fertilisers and all winter fodder and supplementary feeds had to be purchased, with hay costing in the region of £12 for a small bale and concentrate feedingstuffs around £400 to £500 per ton delivered in 25 kg bags. When he had kept more sheep, he used a Blackface tup and might achieve a weaning percentage of between 50% and 60%. Although he had sold very few lambs in recent times, he thought that one might get £30 for a wether lamb.

[14] In bygone days, much more use was made of the common grazings. Up until about forty years ago, all crofters in the township put their ewes out onto the grazings in May. The sheep were effectively cleared off the in-bye croft and stayed on the grazings until the end of September. That facilitated use of the in-bye land for the growing of fodder and other crops for winter use. Crofters no longer used the in-bye for growing grain and sheep numbers had also diminished dramatically. Accordingly the practice of routinely putting stock onto the common grazings for the summer months had largely ceased. He could put his cows out there, but the land was rough and potentially dangerous and it would be difficult to check on them properly. He had experience of losing both cattle and sheep on the common grazings in the past.

[15] He made no use of the grazings at all, but perhaps two or three other crofters still put sheep out. This year he understood that it had been necessary to hire a shepherd to gather the sheep because of the extensive nature of the grazings and the lack of crofters available to assist. Whilst he thought the grazings would have carried their full souming perhaps seventy years ago, depopulation of the area combined with the difficult terrain meant that it was effectively impractical to use the land nowadays.

[16] Mr Macleod confirmed that he received Single Farm Payment for both his in-bye croft and for his share in the grazings. He also received Less Favoured Area Support Scheme payments. He made the claims himself and the Scottish Government officials allocated the proportion of the grazings on which each crofter was entitled to claim. It was anticipated that the support available to crofters would be less in the future. The income from the holiday lets was an important supplement.

[17] He thought that £40 would be a reasonable fair rent for the croft. He had no view as to the appropriate allocation of that rent as between croft and share in grazings, but he was aware of one croft purchase where the crofter had been left paying more for the grazings share following purchase than he had been paying for the both the grazings and in-bye together.

[18] Derek Mackenzie, the factor for the landlords, gave evidence that when the estate was approached by a crofting tenant about acquisition of croft land, it took the view that every holding had a basic rental value, irrespective of its size. To that rental value a further figure was added according to the extent of the croft. From the estate’s viewpoint, 8 Grosebay, which extended to some 120 acres, was a large croft. The croft at 2 Cluer of which Mr Macleod had spoken was about 17.7 hectares and following submissions from that crofter’s solicitor, the rent was eventually negotiated and agreed at £37 or so. 1A Cluer extended to some 8.559 hectares and had recently been purchased on the basis of a rent of £30. Both these crofts were much smaller than Mr Macleod’s.

[19] Values had moved on since the rent was last fixed in 1982. He did not doubt that the rent set at that time had been a fair one. Indeed the estate tended not to seek rent reviews other than in relation to proposed purchases. It was keen to avoid negotiated sales because of the danger of comparisons being drawn for future purchases and precedents being set. The estate’s view was that a rent of £85 was entirely reasonable for the croft at 8 Grosebay and at that level would not encourage future acquisitions based on low croft rentals.

[20] He fully appreciated that the ground was of inherently poor quality, but that had been taken into account in arriving at a rent of £85. Whilst £85 for a 47 hectare holding was not directly proportional in terms of a rate per hectare when compared with the other smaller holdings, he maintained his view that every holding had a base rental value irrespective of its size. His clients were trying to be fair in their approach to croft purchases. Each one was looked at individually and considered against the background of other recent sales.

[21] Mr Mackenzie had not walked over the croft and he was content to leave the determination of the fair rent entirely in the hands of the Court. As regards apportionment of the rent between the in-bye land and the shares in the grazing, that too was a matter for the Court, but the general practice on other estates on the island was to regard half the rent as being applicable to the grazing shares.

Inspection

[22] The in-bye croft extends to approximately 48 hectares (119 acres) and lies some 10 kilometres south of Tarbert. Access to the croft is relatively easy by way of the main A859 and then well surfaced minor public roads. Although access onto the land itself from the roads and from the track to the croft houses via pedestrian, livestock and vehicular gates is also easy enough, because of the nature and topography of the land, it is effectively only accessible on foot or, in parts, by quad bike.

[23] The croft land is broadly oval in shape, but the minor public road runs through the western side, thereby creating a separate enclosure of about 3.5 hectares on that side. The rest of the croft is bounded by the road on the west, a fence to the north and the sea to the east and south. In addition, at the south of the main croft, there is an island which extends to about 3.6 hectares and which can be accessed on foot at low tide.

[24] The main block of land rises from sea level to 74 metres (240 feet) or so on a rocky knoll at Aird Chollaim. Virtually all of the land is undulating, steeply so in parts, with extensive areas of rock outcrop throughout. The herbage – much of which is in a mosaic with the rock outcrop – consists mainly of heather and hill / bog grasses, with significant areas lying wet and is typical of the area. That said, there are some useful areas of grazing – particularly along the coastal slopes at the east and also at the south, where there is some internal fencing. There are a number of small areas which had clearly been cultivated in the past and which now support more productive grasses. Some light bracken cover is present, but not of any detrimental significance at the present time.

[25] The enclosure on the west side of the road exhibits much less rock outcrop, but the nature of the herbage is essentially similar to that on the main area and there is evidence of some earlier cultivation of small areas.

[26] We did not cross to the island, but observed the general nature of the land to be similar to that on the main croft, with rather more bracken cover in parts which might indicate potential for better grazing.

[27] Overall, the croft land is suited to grazing by sheep and cattle. However the intensity of grazing will be limited by the potential for tramping / poaching on the areas which tend to lie wet.

[28] The Cluer and Grosebay Common Grazings extend to some 830 hectares (2,050 acres) or so. They lie to the north north west of the croft land and can broadly be described, in terms of a plan view, as taking the form of a figure 8 with a north north west axis some 6.5 kilometres long by 1.5 kilometres wide at the broadest part of the top of the eight; 2.3 kilometres wide at the broadest part of the bottom of the eight; and 0.6 kilometres wide at the narrowest point. Any plan view however fails to take account of the steeply undulating topography of the ground.

[29] Our inspection was necessarily limited to accessing various strategic viewpoints from the main A859 which runs through the narrow point of the figure of eight and then skirts a part of the western boundary; from the minor public roads to Cluer at the south; and from the trig point at Grosa Cleit. We are satisfied that our overview is sufficient for present purposes. As with the croft land, the grazings are a mosaic of exposed rock and heather / hill grasses and herbs. Much of the herbage is growing on damp areas and there are several expanses of open water of variable extent.

[30] The proportion of exposed surface rock varies across the whole area as does the extent of undulation – with some areas relatively easy to traverse and others, through steepness, the broken nature of the rock and the wetness of the ground in between, almost inaccessible. Although we saw a few ewes at inspection, it is clear that there has been little stocking pressure on the grazings for some considerable time – with significant proportions of the herbage becoming rank and accordingly less useful for grazing livestock. Nevertheless, despite the harshness of the territory, in our view, it has the capacity to support significant numbers of sheep and some cattle during the growing season.

[31] The topography offers some shelter from the elements and although the highest point on Uabhal Mor is at some 360 metres (1,180 feet) a reasonable proportion of the grazings lies much closer to sea level and parts have a southerly or westerly exposure. Sheep and cattle would be able to access most parts of the grazing. However, practical access for shepherding purposes, though it can be taken from several points on public roads, would have to be on foot. Even then gatherings would require several people along with good dogs.

Discussion

Principles

[32] Over the years, much has been written about the appropriate methodology for determination of fair rents for crofting subjects, but the most recent Full Court case was Sutherland v Sutherland and Others 1997 SLCR 144. There is no need for us to rehearse the principles set out in that case here, it being sufficient to say that as far as croft land and common grazings are concerned, the Court would normally assess the stocking and cropping capacity of the land and apply to that a rate which reflected contemporary rates set in crofting cases across the crofting counties of the mainland and islands. The rate used in any particular case will take account of relevant features of the particular crofting subjects under review. In other words, in terms of section 6(4) of the 1993 Act, we “shall take into consideration all the circumstances of the case, of the croft and of the district”.

[33] As was discussed in Sutherland, the underlying basis for determining a fair rent for land under crofting tenure in the earlier cases was founded on a fair division of the net profits to be derived from the working of the holding as between the landlord and the tenant. The Court recognised, however that “the scale of operations on individual crofts is such that attempts to carry out assessment on a profit basis are very frequently unrealistic if not impossible in practice”.

[34] What was emphasised in that case was that the Court was obliged to assess the rent “unhampered by any element of competition” and was “not attempting to find a notional open market rent”. It came to the view (at p162) that “it is in practice necessary to adopt a comparative approach when assessing croft rents; to base this on assessment of the stocking and cropping capacity of the land; and to fix a fair rent by applying a rate to reflect the circumstances of the individual croft and any particular factors affecting profitability”.

[35] It has been made clear on many occasions that we are not to have regard to market rents for other agricultural subjects, or indeed to rents achieved for crofts which have been, in effect, exposed to competitive tender or otherwise negotiated. Whilst Mr Mackenzie explained the methodology used by the estate when assessing croft rents for the purposes of negotiating a sale, he – rightly in our view – did not attempt to suggest that such method was one to be applied by the Court. We did not take much from his evidence in this regard. We can understand the basis of the estate’s approach to calculating rents for the purpose of agreeing purchase prices. However, in the absence of further clear submissions, the theory of having a basic starting rent no matter the size of the croft is not one which we consider to be appropriate for determination of a fair rent by this court in terms of the 1993 Act.

[36] A fair rent can perhaps be described as a rent which might expect to be achieved where there was a completely balanced market – an equality of supply and demand. It is very much a hypothetical scenario. However, even in a balanced market, it might reasonably be expected that the level of rent established would reflect the present and anticipated prospects for deriving income from the working or use of the land. There are, in our view, two key elements in assessing those prospects. The first is the stocking and cropping capacity of the land and its ability to produce income from normal livestock and crop trading activities. And the second is the scope it offers for accessing agricultural support payments. In some cases, we may also have to consider the scope for deriving income from the use of the land for permitted diversified activities.

[37] It is only through having evidence of trends in, for instance, the profitability of relevant agricultural enterprises and, in modern times, levels of relevant state support for agriculture and crofting, that we are able to adjust rents over time and at any point in time so that those levels can be used to inform the rate to be applied in a case such as the present one. Otherwise, as in this case, where there was little by way of comparative or other evidence to assist us in our task, we have to draw on our experience in applications where the relevant material was available.

[38] As far as evidence goes, we had no difficulty with the credibility or reliability of either Mr Macleod or Mr Mackenzie as witnesses. However the extent to which that evidence has been of assistance to us in determining the rent in this case is limited – particularly in the case of Mr Mackenzie who, in effect, left the matter entirely to us. It may, however, be said that Mr Macleod clearly had considerable experience of crofting in the area and we have taken into account in our deliberations what might be regarded as the mixture of evidence and submission which we heard from him as regards stock carrying capacity, management and economics of the industry.

[39] Finally, it is important to note that where a crofter or his predecessors in tenancy have carried out improvements to the land, either through cultivation practices or the provision of fixed equipment, he is not expected to pay rent on those improvements. In this case, the landlords have accepted that all improvements to the land – both croft and common grazing – have been carried out by the crofters or their predecessors in tenancy. Whilst there was little evidence of any significant improvements to the common grazings, the in-bye croft showed signs of past cultivation of small areas and we noted, in addition to the houses and other buildings, extensive external and internal fences and a wind turbine. However as these are to be taken as tenant’s improvements, for the purposes of our assessment of rent we treat the ground as “bare land”, albeit with whatever potential it has for productive use, including enhanced use through provision of improvement by the tenant.

The land and its earning capacity

[40] Our task is to determine a fair rent for the croft of 8 Grosebay and that means that we are setting the rent for the in-bye land, of which Mr Macleod has full rights of occupancy as tenant, together with the associated share of the grazings rights in the Cluer and Grosebay Common Grazings. At the present time the croft comprises both those elements.

[41] As far as the in-bye land is concerned, we are satisfied that its physical extent is adequately shown on the plan, Production 5. Although this is a copy of the map prepared by the Scottish Government Rural Payments and Inspections Directorate (SGRPID) in connection with the Integrated Administration and Control System (IACS) and claims for support and accordingly cannot be taken to show the precise boundaries of the subjects, there is no dispute between parties as to the extent of the land. For the purposes of determining rent, the area shown on the plan appears to us to encompass all the land which would be likely to impact on the level of rent. Accordingly we have assessed the rent on the basis of the in-bye land extending to 48 hectares (119 acres), but make no determination as to its precise extent or precise boundaries.

[42] Similarly, in respect of the common grazings, the plan, Production 6, sufficiently defines the extent of the Cluer and Grosebay Common Grazings for our purposes. We understand from our own records that the grazings were last regulated by the then Crofters Commission on 11 July 2001. In the Regulations, the area is stated to be 842 hectares, whereas the SGRPID plan records the area as 830.12 hectares. It may well be that the latter plan has excluded certain elements from its computations, but for our purposes any minor discrepancy in area is of no consequence. For the purposes of this application, we have assessed the rent on the basis that the extent is of the order of 830 hectares (2,050 acres), but it may well be that the full measured extent is a little in excess of that figure.

[43] The rights in the grazings are split into 19 shares (including two one half shares according to the Regulations) with a total souming of 76 cows and 380 sheep. Accordingly Mr Macleod’s one share gives him a souming of 4 cows and 20 sheep. The Regulations [at paragraph 13(1)] indicate that one cow is to be deemed to be equivalent to eight sheep for the purposes of calculating soumings.

[44] We must have regard to the Regulations in force at the time of fixing the rent (in this case the 2001 Regulations), because they effectively determine the use which shareholders are entitled to make of the land for grazing. For our purposes, the soumings determine the maximum number of stock which shareholders are permitted to put on the ground. In many cases where we are asked to fix a fair rent for subjects which include common grazings, the souming bears comparison to our own assessment of the capacity of the land. However, there have been a number of cases – this being one – where we have found there to be a mismatch in that regard.

[45] Before assessing the productive capacity of the ground, we think it appropriate to say something about the use made of the common grazings. Traditionally, for most crofting townships, the rent of individual crofts was assessed on the basis of the stock-carrying capacity of the in-bye croft land – the arable and the outrun – and the rights which that croft had in the common grazings as one unit. That was how the majority of crofts were worked in times gone by. Indeed, removing grazing livestock from in-bye land in the summer months was once seen as essential in order to allow for production of winter keep and / or to reserve the best grazing for the more productive categories of stock.

[46] Mr Macleod’s evidence was that whilst very little use was made of the Cluer and Grosebay common grazings nowadays, that had not been the case prior to the middle of the twentieth century. Increasingly in applications coming before us for determination of a fair rent, we are encountering situations such as the present one, where the grazings are not used at all or only used by a very small proportion of the crofts in the township with rights in the grazing.

[47] A question therefore arises in modern times, where physical use of common grazings rights has been dramatically reduced, as to what extent, if any, that element of the croft rent applicable to the grazing rights should be adjusted in respect of the reduced use. Mr Macleod’s evidence was to the effect that the ‘full souming’ would have been appropriate in times gone by. The question for us – at least as regards that element of rent deriving from the profitability of livestock rearing on its own without public support measures – is therefore two-fold. Firstly, assuming it is practical to manage the grazings in terms of stock management, what could they actually carry – whether for the summer months only or even for the whole year? Then, secondly, having determined that figure, to what extent is it realistic to expect present day crofters to actually use the land?

[48] We think that in cases such as this it is still appropriate to make an assessment of the potential present day stock carrying capacity of the common grazings, but to apply to that a rate for the purposes of determining the fair rent which reflects the realistic use to which prudent crofters would put the land. As will be seen, the rate reflects two elements – firstly, the income which might be derived from the livestock rearing itself, and secondly, the income which might be derived from support measures.

[49] Up until relatively recently, many support measures were linked to the numbers of stock kept. That is no longer the case, with the majority of public funding being “de-coupled”, so that the funding is paid on an area basis. The actual rate varies, although it is likely in most cases to have been determined on the basis of historical use of the land by stock. Not only that, but we are well aware that the basis for future support is the subject of ongoing debate.

[50] We have had some evidence in other cases as to levels of support and the changes which have occurred since the move away from headage basis commenced. In the absence of detailed evidence, we have had to rely on the rates set in those earlier times and adjust them both in relation to the economics of livestock rearing and in relation to the changes in the support mechanism. As far as this case is concerned, we do accept that practical use of the grazings is extremely difficult nowadays and that has been reflected in our determination of that element of the rate which relates to the output from the livestock enterprise itself. However, we see no reason to make any significant adjustment in respect of the income from public support measures.

[51] Rents on other crofts have been assessed on the basis that income from subsidies was being received in respect of the land being utilised by livestock or available for use by them. In the present case, we are, in effect, assessing the appropriate rate for the use of the subjects only for the grazing potential which they have in the summer months, because for all practical purposes, none of the in-bye land or grazings is capable of producing worthwhile quantities of winter keep in modern times. That was the tenor of Mr Macleod’s evidence and we accept it. However, we cannot ignore the potential for realisation of supplementary income from public funding – which may well involve conditions being met for the full year.

Agricultural support payments

[52] We have held in recent cases that it is entirely appropriate to take domestic or European support into account. At the time of Sutherland, much of the support in terms of income (as opposed to assistance with capital projects) came from ‘coupled’ subsidies. Payment to farmers and crofters engaged in livestock rearing was largely on a headage basis : per cow or per ewe. Although it may be said that at that time there was targeted support in certain areas for farmers and crofters who were prepared to run their enterprises in accordance with specific guidance with a view to achieving environmental enhancement, generally speaking it did not have a major impact on the profitability of livestock rearing enterprises or of the holding itself.

[53] That situation has now changed and we are aware that support, at least until recently, has been available in the form of the Single Farm Payment Scheme (SFPS), Less Favoured Area Support Scheme (LFASS) and the Scottish Rural Development Programme (SRDP). It is widely known that the arrangements for that support are presently under review. The nature of and eligibility criteria for future schemes is not clear.

[54] Mr Macleod suggested that future support for crofting agriculture in particular was likely to decline significantly. It may be said that support schemes are voluntary and that receipt of payments under SFPS is dependent on possession of entitlements. We understand that access to LFASS payments requires some degree of active farming of the relevant land and is dependent on assessment of stocking rates from an earlier period. It also appears that there are some difficulties for new entrants to the schemes and, in addition, some schemes, such as the outgoing Scottish Rural Development Program (SRDP), involve competition for the funds available.

[55] It is important that we comment on those features of agricultural support and the relevance of them in determination of fair rents for crofting subjects. Firstly, Mr Macleod presented no factual basis for his view that support for agriculture and crofting in particular would decline in future. We recognise that the Common Agricultural Policy budget is under constant pressure and distribution of funding from it is subject to continuing review, but we see no basis for a finding that a significant drop in overall funding is likely to come about in the next few years.

[56] Secondly, although some doubt was expressed in Sutherland as to whether subsidies should be regarded as part of the income of the croft to be shared with the landlord, we are satisfied – particularly following the case of Morrison-Low v Executors of T H Paterson 2012 SC 373(the Moonzie case) – that such income does fall to be regarded as a relevant part of the income. In recent years, croft rents have been determined on that basis.

[57] Thirdly, even though present and future schemes may be voluntary, may impose certain conditions on the applicant and may involve an element of competition for funds, it is our view that the rent should be based on what a prudent agriculturalist or crofter, faced with the particular set of circumstances in any case, would do to secure income from his enterprise. We are entitled to assume that he will use his best endeavours to access financial support from the Scottish Government or such other public sources as are reasonably available to him.

[58] The fact that there may be changes in the nature and level of such support available over the next seven years for which croft rents are normally fixed is certainly not, in our view, a basis for ignoring it. We are satisfied that support will continue, though perhaps not at levels seen in the past and almost inevitably on modified terms. In short we think that with that support, together with the trading income from breeding and rearing of hill livestock, it is unlikely that the total net income available to the prudent crofter, though variable from year to year, will decline significantly over said seven year period. We do not consider there to have been any evidence put before us upon which we could reach such a conclusion.

[59] We have therefore proceeded on the basis of our existing practice of including the potential income from support payments in our assessment. Because a significant proportion of the net income from the use of the landlords’ ground is no longer directly linked to actual stock numbers using that land, in our determination of the rent we have not treated the stocking rate as the sole and primary determining factor. Nevertheless the income from the livestock enterprise remains an important element in the viability of crofting agriculture. Accordingly the numbers and categories of stock which the land can support continue to be relevant.

[60] In short, whilst returns from crofting agriculture may be under pressure, it is not right to base the rent on the actual level of stocking and the claims for support of individual crofters, but to make our assessment on the basis of what a prudent crofter would do in the given set of circumstances.

[61] Mr Macleod told us that he was in receipt of SFP and LFASS payments and that such payments were linked to both the in-bye croft and his share in the grazings. We consider that the prudent crofter and shareholder at 8 Grosebay would seek to obtain such income and on the basis that the landlord had provided the land upon which such a claim was founded, he might reasonably expect to receive a share of that income in the form of rent in respect of the land.

Assessment – In-bye

[62] Where, as here, both croft and associated grazings are being rented as a unit, we are considering the output of the livestock enterprise on an annual basis. In-bye land will normally provide both grazing and winter keep, whereas the grazings are normally only used in summer. The potential for the croft to provide winter keep – beyond some limited grazing by out-wintered stock – is restricted by the characteristics of the land. Thus our assessment of the appropriate rate to be applied takes into account the significant cost of purchasing concentrate feeds and fodder. It also, of course, takes into account the remoteness of the subjects from supply points and markets, which results in heavy additional costs of transport when compared with significant tracts of the mainland. Therefore, in this case, it is largely the potential income to be derived from the use of the actual land for grazing only which we are to add to the support income when assessing the rent for the land. That said, as in many cases, the stock on this croft are out-wintered and accordingly the land is being used for the whole year.

[63] Given our view that a prudent crofter in the locality of this croft would nowadays be unlikely to utilise the grazings, we think it appropriate to assess the actual stocking rate of the in-bye on the basis that the grazings are not physically used. That does not mean that we are ignoring the grazings rights, but simply that the existence of the rights is of no assistance to us in determining the realistic stocking capacity of the in-bye croft itself.

[64] Although the croft extends to over one hundred acres, having regard to the evidence of Mr Macleod and from our comprehensive inspection of the land, it is clear that a considerable proportion is either bare rock or has accessibility problems. In addition, many of the areas which support plant growth are inherently damp, thereby subject to potential poaching especially by cattle. That said, there are numerous useful areas of grazing, both hard ground and other ground which, though wet, are capable of producing reasonable quantities of summer grazing for hill and upland stock. Some of the better areas may have been enhanced by earlier improvement and by grazing management facilitated by fencing.

[65] Whilst stock may be out-wintered on the croft, we accept the evidence that in practice all fodder and concentrate feeds have to be purchased. Thus the croft land, in effect, only provides summer grazing and, depending on management, some roughage during the winter months. No doubt the croft might carry more stock in the summer if it was not subjected to any over-wintering, but we are satisfied that for the purposes of calculating a fair rent, a realistic stocking rate is around 42 ewes or the equivalent thereof.

[66] Mr Macleod did give evidence of the letting of one house on the croft for holidays, but we had no guidance as to what we should make of that evidence. Given that all improvements have been carried out by the tenant or his predecessors, it is really only the diversification opportunity provided by the land which falls to be considered. However, we do recognise that there is some limited potential in that regard and have allowed for that in the rate which we have used.

[67] Having regard to rates used in other cases, we think that an appropriate rate to be applied to the stocking rate figure in the circumstances pertaining here is £1.85 per ewe.

Assessment – Grazings

[68] We are in no doubt that the practical utility of much of the common grazing for grazing of stock is limited in modern times when the availability of crofters and others to tend, gather and handle stock is curtailed. On the basis of the evidence, that situation is unlikely to change in the foreseeable future. Accordingly, as outlined earlier, we have taken that into account in our assessment of that element of the rent attributable to the potential for physical use of the land for grazing.

[69] That said, the fact is that the grazings land is available for use by all the shareholders and that a landlord is entitled to a fair rent whether they use it or not. But the real question for us is to what extent the land can be used purposefully by the shareholders with a view to providing income. It appears that the majority of the shareholders do not put stock on the ground at all. From what we saw at inspection, it is apparent that those who do use the grazings are not putting any significant degree of stocking pressure on them. The failure of tenants to use the land is patently not the fault of the landlord. However, Mr Mackenzie clearly accepted that the land had limited potential.

[70] We are satisfied from the evidence and our inspection that the grazings are capable of supporting grazing livestock. There are worthwhile tracts of accessible hill grass / herb and heather areas which could still provide useful grazing and become more productive as a result of that grazing. We accept that they could only realistically be put to grazing use in the summer months. We also recognise that some supplementary feed may be required in some years and at certain times to make the best use of the land. Accordingly our assessment is based – as far as stocking levels are concerned – on such use.

[71] We had little by way of evidence as to appropriate stocking rates in modern times. We have had to rely largely on our inspection of the ground and our experience of other cases to reach a concluded view as to what the land is capable of supporting by way of agricultural production. The tenor of the evidence was that whilst the common grazings were naturally poor in terms of their productive ability, they were capable of carrying limited stock numbers even in their present state. We were not addressed as to the basis of the soumings as determined in the Regulations, but are somewhat surprised that they are as high as they are.

[72] As far as carrying capacity is concerned, our assessment of the grazings of 2,050 acres is that, for the summer months only and assuming that it had been subject to appropriate grazing management over a number of years, it is capable of carrying up to 600 acclimatised Blackface ewes. In terms of the Regulations that might be stated as equivalent to 46 cows and 234 ewes. The souming as set out in the Regulations is 76 cows and 380 ewes. In our view, that sort of level of stocking could only be sustained for a limited part of the summer months. Use at that stocking rate for any longer period would, we think, require very careful management and additional supplementary feeding at certain times. We also think that whilst – as suggested by Mr Macleod in evidence – judicious grazing with cattle can improve the overall nutritional value of the ‘sward’, the proportion of cattle in the souming seems particularly high.

[73] However, insofar as we require to make an assessment of the stocking capacity of the land for fixing the rent we are of the view that a realistic assessment is 600 ewes or equivalent and that results in an assessment of 32 ewes or equivalent for 8 Grosebay.

[74] Having regard to all the circumstances, we consider that an appropriate rate to be applied for the grazings share in this case is £1.25 per ewe.

Decision and Summary

[75] We have set out above the matters which we consider to be relevant in arriving at a fair rent for the subjects of this application. In reaching our figure, we have had regard not only to the potential profitability of hill livestock breeding enterprises in their own right, but also to the associated levels of public support which may be accessed through the use and / or availability of the land provided by the landlords. It is based on levels set in recent times across the crofting counties, adjusted to match the circumstances here.

[76] Taking all those matters into consideration, we determine the rent payable for the croft of 8 Grosebay at £118.00.

[77] As indicated earlier, for the assistance of parties it can be taken that we consider an appropriate split of said rent to be £78.00 for the croft land and £40.00 for the grazings share.