FULL COURT

(Lord McGhie, D J Houston, J A Smith)

NORTH BERWICK TRUST v MILLER AND OTHERS

(Application RN SLC/220/06 – Order of 2 July 2007)

AGRICULTURAL HOLDINGS – CONSENT TO NOTICE TO QUIT – PROPOSED DEVELOPMENT FOR HOUSING – NO PLANNING CONSENT IN PLACE – NEGOTIONS WITH DEVELOPERS – TRIGGERING RIGHT TO BUY – DISCRIMINATION ON GROUNDS OF WEALTH – VALUATION – PROSPECTIVE PLANNING CONSENT – FULL PLANNING PERMISSION – OUTLINE PLANNING PERMISSION – “HOPE” VALUE – HARDSHIP – NORMAL INCIDENTS OF SECURITY OF TENURE – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1949 – AGRICULTURE ACT 1958 – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1991 SECTIONS 22,23, 24 – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 2003 SECTIONS 26 to 29 – EQUALITY ACT 2006 – HUMAN RIGHTS ACT 1998 – TOWN AND COUNTRY PLANNING (SCOTLAND) ACT 1997

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

The applicants, as landlords of a holding adjacent to North Berwick, sought consent to two separate notices to quit under the provisions of section 24(1), paragraphs (b) and (d) respectively of the Agricultural Holdings (Scotland) Act 1991. They expected to be able to develop the entire holding for housing but the circumstances were such that they would be unable to obtain the planning permission necessary to allow them to serve an “incontestable” notice to quit under section 22(1)(b) because the steps necessary to obtain such planning permission would trigger the tenant’s right to buy. They served two notices: one based on hardship and the other sound estate management. The Court issued one note covering both. The Court dismissed the application based on sound estate management and that decision is currently subject to appeal. Some of the issues raised by the appeal are common to both applications and this is a short report seeking to deal only some points of potential importance arising from the 2003 Act but not issues likely to fall within the scope of the appeal. A further report will be issued in light of the outcome of that appeal.

The holding is situated at the edge of the built-up area of North Berwick. The landlords entered into an options agreement for the development of the holding. The tenant had registered a notice of interest in acquiring the land under section 25 of the 2003 Act. The effect of the notice was that the landlords were no longer able to promote and market their land as envisaged in the options agreement. The land was zoned for development but to obtain suitable planning permission, it would be necessary to reach various agreements for disposal of parts of the subjects and negotiate and secure approvals and wayleaves and thereafter undertake advance infrastructure works. Further, as the proposals were taken forward, the landlords, or the developers would want to start negotiations with other potential developers and with the utilities for rights of access over land. It was thought that any such negotiations would trigger the tenant's right to buy. Accordingly, the landlords would be unable to obtaining planning permission as a prelude to serving an incontestable notice to quit under section 22(2)(b) of the Act without triggering the tenant’s right to buy.

The landlords contended that there was a relevant hardship arising, not from the ordinary operation of security of tenure, but from the right to buy. But for that right, the landlords would have been able to promote the land for development and obtain planning consent for development of the whole holding. They would thus have been able to serve an incontestable notice to quit. The landlords asserted that it was known to both landlord and tenant at the time the lease was entered into, that, in due course, the land would have development potential and that the landlords would require to obtain vacant possession for such development and could do so utilising section 22(2)(b) as matters stood at the time. If consent to the notice to quit was not granted, the landlords would be unlikely to be able to realise the development value of the land and accordingly would suffer greater hardship. The net proceeds of the development of land would be available to the trustees to invest and apply for the purposes of the trust. The income from such investments would be significantly more than the present rental income from the farm which is the trust's main income. The tenant was said to have a substantial alternative farm business.

The landlords argued that a landlord who had no other asset could not fund the steps necessary to obtain planning permission without triggering the right to buy. Such landlord was accordingly at a disadvantage compared to a landlord who could afford to do this himself. This gave rise to a situation where the provisions of the Act could be seen to be in breach of the applicants’ rights under Art 1 of the First Protocol and Article 14 of the Convention unless section 24(1)(d) was construed in a manner which allowed this application to be considered competent.

HELD (1) that the right to buy under section 26 of the 2003 Act was indeed triggered at a very early stage though not by discussions between the landlord and the tenant (2)

that although discrimination on grounds of wealth could fall within the scope of Article 14 of ECHR, it was not engaged in the circumstances. (3) that on a valuation for the purposes of section 32(2) (f) (ii) of the 2003 Act, the value arising from the prospect of obtaining planning permission would fall to be included; and (4) the applicants had relevantly set out a case of greater hardship which would require to be decided after proof

Authorities

A v United Kingdom (1985) 7 EHRR CD141
Bell v McCubbin [1990] 1 Q.B. 976
Chuch of Scotland General Trustees v J Willox’s Trs 1958 SLCR 15
Clamp v Sharp 1986 SLT (Land Ct) 2
Copeland v McQuaker 1973 SLT 186
Davidson v Barrowman 1978 SLCR App 155
Edmonston v Smith 1986 SLCR 97
Forsyth Grant v Wood 1963 SLCR App 170
Gibson v McKechnie 1961 SLCR 11
Graham v Lamont 1970 SLT (Land Ct) 10
Guthrie v Bowman 1998 SLT (Land Ct) 2
Hutchison v Buchanan 1980 SLT (Land Ct) 17
Leask v Grains 1981 SLT (Land Ct) 11
Lewis v Moss (1962) 181 EG 685
Lindsay-MacDougall v Peterson 1987 SLCR 59
Lovie v Davidson 1988 SLCR 13
M.A.F.F. v Jenkins 1963 2 All E.R. 147.
Macdonald v Hilleary 1993 SLT (Land Ct) 26
McGill v Bichan 1970 SLCR App 122
McLaren v Lawrie 1964 SLT (Land Ct) 10
McRobie v Halley 1984 SLCR 10
Morrison v Rendall 1986 SC 1986
National Coal Board v Naylor [1972] 1 WLR 908
Panton v Secretary of State for Environment etc [1998] EWHC Admin 1138
Patrons of Cowane’s Hospital v Rennie 1966 SLCR App 147
Peace v Peace 1984 SLT (Land Ct) 6
Prior v J&A Henderson Ltd 1984 SLT (Land Ct) 51
Purser v Bailey [1967] 2 QB 500
Regina (Carson) v Secretary of State for Work and Pensions([2005 UKHL 37, [2006] 1 AC 173
Ritson v McIntyre 1982 SLCR 13
RW Macdonald’s Exrs v Taylor 1983 SLCR 9
Stevenage Development Corporation v Ivory (cited Muir Watt)
S & M v United Kingdom (1994) 18 EHRR CD172
Smoor v Macpherson 1981 SLT (Land Ct) 25
Trustees of Mrs Benington Wood v Mackay 1967 SLCR App 135
V v South Lanarkshire Council 2004 SLT 372
Wandsworth LBC v Michalak [2003] 1 WLR 617 at [20]

Textbooks

Right Hon. Lord Gill, Law of Agricultural Holdings in Scotland, 3rd edition
Scammell & Densham’s Law of Agricultural Holdings, 8th edition
Muir Watt, Agricultural Holdings, 13th edition and 14th edition.
Lester & Pannick, Human Rights, Law and Practice

A full report is expected to be issued in light of the decision in the appeal currently pending before the Court of Session and due to be heard in February 2009. This report sets out excerpts only:

Events triggering right to buy

“Before considering the parties’ main submissions it is convenient to refer to a matter raised by the Court in course of the debate. As will be apparent from the above summary, the applications proceeded on the basis that any negotiation with the developer with a view to ultimate sale of the subjects would necessarily trigger the tenant’s right to buy. In traditional analysis of conveyancing practice a distinction may be drawn between the stages of exposure for sale, negotiation of missives and transfer of the property. The statutory provisions were not entirely straightforward and, as it was not clear why the legislature might have decided that the right to buy should be triggered at the earliest possible stage of negotiations or discussions - which might never bear fruit - the Court raised the question as to whether there was room for doubt about the proper construction. The parties helpfully produced full submissions dealing with this point.

Despite the approach taken in the application, Sir Crispin did suggest that it would be possible to read the legislation in a different way. He said that it would simplify many issues if the Court was able to accept that view. However, in light of the whole submissions we are satisfied that that the basis upon which the application was presented is sound and that under current legislation, the right to buy is, indeed, triggered at a very early stage. As the applicants, in their Statement of Facts, accept that any discussion with the developer would trigger this right and as this is admitted, it is strictly unnecessary to say more. However, as both parties took time to deal fully with this issue, it is right that we comment briefly on the relevant provisions.

We adopt much of Sir Crispin’s careful analysis which started by examining the provisions of section 26. The first obligation on the owner is said to arise at the stage when he “proposes to transfer the land or any part of it to another person”. On the face of it, this provision suggests a positive and immediate intention to effect a transfer. The words “to another person” might be thought to reinforce this. Plainly, the owner could not transfer the land to himself and the inclusion of these words may be thought consistent with the view that the section appears intended to refer to a stage when a transferee had been identified. This would be a reasonable approach. The landlord would be given an opportunity to test the market and determine whether he wanted to go ahead with a sale. In a context such as the present it would allow proposals to be refined. A developer might not want all the land that was available. A deal might be done which would turn on ultimate sale to house purchasers rather than a transfer to a developer, as such. One important advantage would be to allow the deal to go ahead subject to planning permission. If no planning permission was given a landlord might have no desire to sell. There would be no proposed transfer. Even without the reference to “another person” we are satisfied that, on a plain construction, section 26, if it was to be taken on its own, would not impose an obligation to give notice at a stage when negotiations were taking place with a developer.

For completeness it should be added that although it is possible that the reference to “another person” was intended to have this effect or was mere surplusage, we consider that the better view is that this was intended to make it quite clear that proposals to transfer to the tenant - for any reason - would not trigger the right to buy procedure. We were told in course of debate that there had been a concern that if a landlord opened any sort of discussion with his tenant this would, in itself, give the tenant a right to buy which he could then enforce through the statutory machinery if the negotiations fell through. This cannot have been the intention of the Act. There would be no purpose in giving notice to the tenant if negotiations were with him. Further, there might be many circumstances in which a landlord would wish to consider the option of selling to his tenant and it is, we think, consistent with the overall purpose of the Act that the legislature would have wished to encourage such an approach. In the context of an obligation by the landlord to give notice to the tenant the reference to “another person” is, perhaps, best understood as intended to make this clear. As will appear, that is consistent with the view we take of the effect of section 28 on construction of section 26.

Section 27 sets out a number of exceptions to the obligation under section 26. We are satisfied that they do not cast any doubt on the plain construction discussed above. Indeed, we consider that such construction is, if anything, supported by the provisions of section 27(1)(g)(v) which plainly recognised the distinction between the stage of missives and the stage of transfer.

The actual right to buy is conferred on the tenant by section 28. Subsection (1) seems quite straightforward. The right to buy arises when the landlord gives the notice he is obliged to give under section 26 or “takes any action with a view to the transfer of the land” when he should have given notice of his proposal to do so under that section. At first blush, this seems to confirm the view that the right to buy arises when the landlord is at the stage of putting in hand the transfer. That view is supported, to some extent, by the provision that the tenant’s right is to buy the land “to which the transfer relates”. Where land is offered for development the precise land to be transferred might not be known until an agreement was concluded.

We need not look at subsection (2) which gives the tenant a right against any transferee, except to observe that it is consistent with the apparent scheme of section 26 and 28(1). Up to this point, accordingly, it might be thought that a landlord’s right to decide not to proceed to sell to anyone was fully preserved. But subsection (3) makes it clear that the above analysis is flawed. The provisions of that subsection spell out what is meant by the stage of taking action with a view to transfer of land. The subsection directly in point is subsection (3)(b) and this provision itself, referring to the owner entering “into negotiations with another person with a view to the transfer” may not be entirely free from ambiguity. In a normal sale, the stage of negotiation would precede the stage of transfer and there would seldom be much scope for “negotiation” in the normal sense of the term, at the latter stage. There might, however, be discussion of the detail of the mechanics of transfer and, in the whole context, the term “negotiations” might have been adopted simply to cover any discussion of steps necessary to bring about the transfer itself. As the Act ought not to be construed as depriving the landlord of his existing rights without reason, such a construction might well have prevailed.

However, there is no doubt that statutory provisions must, if possible, be read as a whole and the proper construction of one provision may be clear from the terms of other related provisions. It seems to us that any ambiguity in subsection 28(3)(b) is removed by the terms of subsection (3)(a). That provides that action is taken with a view to transfer when the land is “advertised or otherwise exposed for sale”. This demonstrates that the working distinction between the stage of negotiation and the stage of transfer is to be ignored for the purposes of the Act. Although Section 28 seems to have the effect of changing the stage when notice is required by the landlord from the stage of a proposal to stage of action, there is no practical significance in the distinction. Effect can readily be given to the scheme of the Act by treating the stage of taking the defined action as demonstrative of a proposal. It must have been assumed that a landlord would not take action with a view to the transfer unless he proposed to transfer that land. That must be what is meant when the latter expression is used in section 26.

It may be added that we also heard discussion of section 29 and the apparent lacuna in its provisions. The section provides that the tenant may exercise his right to buy if he gives proper notice. The tenant’s notice is to be given within 28 days of receipt of the notice given by the landlord under section 26. There is no explicit provision covering the situation where the tenant learns of a landlord’s proposal to transfer when no formal notice has been given. The omission may not have been an oversight. Where a landlord proposes to transfer and fails to give notice, the very fact that he goes ahead with a transfer will normally put matters beyond doubt. At that stage the tenant has, for a period of three years, a right to buy. It is plainly in the interests of the landlord and of the transferee to have the tenant’s position clarified as soon as possible. The provisions are a powerful incentive to the landlord and his transferee to ensure that notice is given in the circumstances where there is no doubt as to the intention. The circumstance which is not provided for is where a landlord has, in terms of section 28, triggered the right to buy by advertising the subjects for sale or by entering negotiations. If his efforts prove fruitless and he decides not to go ahead with any transfer, it is not clear how the tenant is to exercise the right given to him by section 28(1). It is unnecessary for us to attempt to deal with that question for the purposes of the present case. But we recognise that it is a question which might arise in the context of an attempt to give notice to quit in reliance on section 22(2)(b) if it transpired that the grant of planning permission had been preceded by negotiations falling under section 28(3).”

The Court also dealt with the topics of “Discrimination” and “Valuation”

“Discrimination

We are satisfied that discrimination on the ground of wealth is covered by the term “property” in Article 14. However, before any question of breach of that Article can arise it is necessary to identify what it is that is said to cause the breach. This is essential to determine whether the discrimination relates to the rights and freedoms given by the Convention; to decide whether it is an area of discrimination which is within the ambit of the government’s discretion; and to decide whether any appropriate mechanism exists to allow the Court to remedy the problem. In making such identification, it is necessary to be alert to indirect consequences.

We had difficulty in identifying which rights and freedoms under the Convention were said to have been affected by the discrimination alleged in this case. The applicants contend that in the right to buy provisions there is an inherent potential discrimination. However, viewing the problem in terms of the right to buy, it is difficult to identify a relevant breach of the landlords’ rights. It is clear that there is no direct discrimination in these new provisions. The intention of Parliament was that the tenant would have a right to buy if a landlord decided to sell. That, no doubt, constitutes an interference with a landlord’s rights which might engage Article 1 of the First Protocol. But that interference was not said to constitute any breach. It was for a legitimate aim and the method was not said to be disproportionate to the aim. If there is no fundamental breach, we are not persuaded that a breach can be identified arising from the fact that a rich person might, in certain circumstances, be able to avoid the right to buy altogether. Provided the general scheme of the legislation is justified, there will not be a breach simply because it affects some individuals in a different way from others.

Although the argument was couched in terms of the right to buy, the provisions directly affected are those of section 22(1)(b). It was said that a rich person can more easily put a tenant out than one with limited resources. In the present context, this was because a rich person might hope to obtain planning permission without seeking third party assistance. A person who requires third party assistance to fund the exercise is liable to have to pay for that assistance in one way or another. He will inevitably make less of his assets.

That is an obvious and commonplace distinction but we heard no submissions suggesting that this impeded enjoyment of any specific right or freedom set forth in the Convention. The fact that the rich can make more of business opportunities than the poor, was not, in itself, said to be a breach of Article 1. The argument in the present case was specifically aimed at the impact of the right to buy provisions on the problem. The argument before us proceeded on the basis that any involvement of a third party would necessarily trigger that right. We did not hear discussion of alternative funding packages which might have avoided any requirement of sale to the developer and for present purposes it must be assumed that no such arrangements would have been possible. On the hypothesis that any involvement of a developer would necessarily trigger the right to buy provisions, it can be seen that this does create a distinct difference between the impact on an impoverished landlord and that on one rich enough to fund his own development.

The potential problems are plainly created by the inter-play of section 22 and the right to buy provisions of the 2003 Act. The submissions before us were couched in terms of construction. It was not suggested that any issue of incompatibility arose for us. It was not suggested that the problems could be resolved by any particular construction of section 22 or of the new right to buy provisions. The contention was that the entirely separate provisions of section 24 could be construed in a way which would have the effect of avoiding the problems of the impoverished landlord. Mr Kermack made a striking reference to this proposal being equivalent to changing the “eye of the needle”. He put the matter another way in saying that it would be wrong to avoid discrimination by changing the result as opposed to changing the discriminatory provisions. That would be changing the destination as opposed to the route. However, we are satisfied that a proper approach to human rights requires the courts to be alert to indirect effects. It cannot be said that it would never be appropriate to overcome potential discrimination by looking at the end result. Care is always necessary in considering argument by way of analogy. Analogies, however striking, tend to beg the question. Dealing with the effects of discrimination clearly requires a more sophisticated approach.

We accept that it is possible to identify an area of contrast between the impact on a rich landlord compared with that on the impoverished one. But, that is not to say that the overall effect is outwith the scope of proportionate means to achieve a legitimate aim. In any event, even if it be assumed that there is a potential breach of Article 14, we are not satisfied that there is any provision which is properly susceptible to a new construction to meet the point. Although the right to buy provisions are complex and obscure in parts, we have found no ambiguity in the provisions which would readily allow them to be construed in a way which would remove the potential difficulty. We see no basis upon which section 22(2(b) could be given a construction which would avoid the problem. That is the provision directly involved. We were urged to construe section 24 in a way which would have the effect of avoiding any risk of discrimination. However, the provisions of that section are remote from the provisions which are said to create the problem. We accept Mr Kermack’s submission that it would be inappropriate to attempt to cure the discrimination by a contrived approach to construction of section 24. Some of the difficulty can be illustrated in relation to section 24(1)(d). It is well established that “hardship” requires consideration of the parties’ whole circumstances. In the nature of things an impoverished landlord would more easily establish greater hardship than a wealthy one. It can, therefore, be seen that the provision is intended to allow the courts to discriminate on the grounds of wealth or property. Further, there is the test of section 24(2)(a). A landlord with numerous holdings and substantial wealth might find it harder to demonstrate that he was being reasonable in seeking to remove a particular tenant. The circumstances which may require to be examined in relation to both hardship and the reasonable landlord are of infinite variety. But, it is clear that the landlords’ proposals in the present case would require positive discrimination under that section in favour of an impoverished landlord as a remedy for a theoretical risk of discrimination arising essentially from the application of the provisions of another Act on quite a separate section.

Accordingly, even on the assumption that the overall effect of the statutory regime can be accepted as having a potential unjustifiable discriminatory effect on a landlord’s rights under the Convention, we are not satisfied that we can resolve that in the only way contended for by the applicants. Further and in any event, we are satisfied for the reasons discussed below that it would have been open to the landlords to proceed under section 24(1)(e) at a stage before planning consent had been granted. They would have faced difficulties of proof and perhaps difficulties in relation to the new provision at section 24(2)(b). However, the existence of this avenue makes the argument on discrimination even more difficult. We are satisfied that it should not go to probation.

Valuation

Before proceeding further with analysis of the issues arising under section 24, it is appropriate to deal with the issue of valuation and, in particular, the contention that where a tenant was able to exercise a right to buy he or she would be entitled to acquire the farm at a value which excluded any value attributable to the prospect of use for housing. It was suggested that the provisions of section 34(2)(f)(ii) of the 2003 Act, in excluding from valuation “any factor attributable to any use of the land which is or would be unlawful”, had the effect of excluding what is commonly referred to as “development value” because that was based on the expectation of a use which was not lawful at date of valuation.

We did not hear full submissions on the point. When we invited discussion under reference to the provisions of the Land Compensation (Scotland) Act 1963 Sir Crispin said his position was that it was unnecessary to resolve the question. It was sufficient for his argument that, on any view, the price the landlords would receive for vacant possession with planning permission would be significantly higher than the price paid with a sitting tenant. If the landlord were able to serve a valid notice to quit they would realise a higher figure. We do not doubt that. But we think that if section 34 was to be construed as demonstrating that Parliament had positively decided that the landlord was to lose right to development value it would be impossible to accept loss of that value as relevant to any question of construction or as a relevant element of hardship. In other words, it would not be appropriate to use these provisions solely to avoid a result which was part of a deliberate policy of Parliament. If the provisions were not to exclude development potential in assessment of price, the argument based on hardship would remain. In a sense, it requires a balance between rights of the tenant and the needs the landlords. The argument based on hardship might lose some of its weight. The landlord would get a lower price with a sitting tenant but the drop in value would be directly attributable to the right given to the tenant. In any event, to understand the issues in this case, we think it necessary to take a view of the impact of the provisions of said section 34(2)(f)(ii).

There do not appear to be any explicit provisions in the new legislation dealing with development value or with the specialities of farms with development potential. Indeed, we understood parties to be agreed that the legislature appears to have had in mind the straightforward situation of a typical rural farm being sold with a sitting tenant who would be expected to continue farming. We are satisfied that there was no positive intention that the provisions of section 34(2)(f)(ii) would exclude development value. We are satisfied that such an important point would not have been left to inference. It may also be said that if Parliament had recognised that farms could have a development value far beyond the value for use for agricultural purposes and had deliberately decided that the tenant should have sole benefit of that value, there would also have been some change to the provisions of section 22(2)(b). Where there is an identifiable development value attributable to an actual grant of planning permission, the landlord can simply bring the tenancy to an end without more ado. It could hardly have been intended to leave the landlord all the benefit in that situation if it was intended to remove the benefit in circumstances which depended upon a voluntary decision to sell.

But, in any event, it seems to us that, although every valuation depends on the terms and assumptions underlying it and there is a risk of begging the question, a “normal” assessment of value would indeed reflect the terms of the section. The familiar role of such a provision is to exclude any element of value from any existing use which is unlawful. Although the terms “hope value” and “development value” can be used fairly broadly, a distinction may be drawn on the basis that “hope value” is more accurately used where planning consent has not yet been obtained. The value will reflect the risk. The term “development value” is often reserved for use after planning consent has been obtained - although it is not uncommon to apply it after land is zoned for development in a local plan. Of course, more sophisticated terms may be used to distinguish different stages of the development process. We are satisfied that no question could arise under section 34(2)(f)(ii) of a valuation assuming use without appropriate consent. But equally we are satisfied that the section does not require the hope of obtaining planning consent to be excluded as an element. The fact that the relevant value, described at that stage as “hope value”, falls short of full “development value” is precisely because the valuer has to take account of the risk of being unable to use the land for the proposed development because consent may not be easily obtained. In short, the valuation accepts the need for compliance with the provisions of section 34(2)(f)(ii). The valuer assesses the potential value expected from lawful use and discounts from that to allow for any risk that consent for such use may be delayed or that the use may not be possible. That is a radically different thing from allowing for the possibility of land actually being used for an unlawful purpose.

It might also be observed that even with planning permission, use of any house as a dwelling would be unlawful until completion certificates had in fact been obtained showing that it had been constructed in compliance with the relevant building warrant. This, of course, is a matter of routine and we do not imagine that it has ever been suggested as a factor relevant in assessment of value. But, if section 34 did indeed require to be read as excluding from the valuation all use not currently permitted, it would mean that even the grant of planning permission for housing would not allow the development value to be included for the purposes of the section. That would be absurd.

The relevant provision in section 34 can also be compared with the provisions of section 12(4) of the 1963 Act. This provides that: “Where the value of the land is increased by reason of the use thereof …. or is contrary to law …. the amount of that increase shall not be taken into account.” In the present context we see no reason to distinguish between the terms “unlawful” and “contrary to law”. We recognise, of course, that sub-section (4) of section 12 required to be construed in light of the other provisions of the section including the express reference in section 12(3). This makes it clear that the potentiality of the land is to be taken into account. However, we are entirely satisfied that if the Scottish Parliament had intended such a radical approach as the exclusion of development potential, it would have said so in clear terms. Any possible ambiguity must be resolved in favour of the rights of the existing owner.

In short, we are satisfied that, where a sitting tenant exercises a right to buy, the value of the land for the purposes of section 34 will have to be assessed on a basis which includes development potential.”

The Court dealt with other matters and went on to discuss “planning permission” in the following terms:

“We think it unnecessary to express a concluded view on the novel problem presented by the apparent understanding of the Scottish Parliament that section 22(2)(b) requires full planning permission to have been granted and is not satisfied by a grant of outline planning permission. However, some comment is necessary in relation to the effect of this on section 24. The relevant provision was, of course, originally an enactment of the United Kingdom Parliament and the subsequent views of any body, other than the courts, as to the construction of such enactment would normally be irrelevant. We consider that we would be free to ignore the views expressed in the Scottish Parliament as to the effect of section 22(2)(b) unless, and only insofar as, necessary to give proper effect to any amendment made by that Parliament. As we see it, our task is to look at the amended Act as a whole. If a new provision could only be made effective by giving an existing provision a construction it would not have had before amendment, it might be necessary to treat it as having been amended by implication.

We heard no submission on the point and it is sufficient to say that it may well be that that the construction of section 22(2)(b) as presented to the Scottish Parliament, both by way of explanatory memorandum and in a statement to the Rural Development Committee, was misleading. Although there are contexts in which a distinction between outline and full planning consent may be important, it has been authoritatively decided that outline planning permission is sufficient for the purposes of section 22(2)(b): Gill paragraph 17.05; Paddock Investments Ltd v Lory (1975) 236 E.G.803. Any other construction would appear to serve no purpose. The provisions deal with matters arising between landlord and tenant. In that context, it must be sufficient that the body charged with responsibility for control of change in the public interest has determined in principle that a change from agriculture to housing is appropriate. Neither the landlord nor the tenant would be expected to have any direct concern with matters such as the detail of size, shape and construction of individual houses - which would, of course, be typical of issues of concern at the stage of full planning permission.”

The Court dealt with the substantive issue of “greater hardship”

“Greater hardship - section 24 (1) (d)

We did not find persuasive the tenants’ various challenges to the potential operation of paragraph (d) based on examination of the landlords’ general circumstances. We need not go through the authorities giving examples of situations where greater hardship has been discussed. We have little difficulty in accepting, for the purposes of the debate, that the applicants can be taken as standing in the shoes of the original landlords. The land has, since the outset of the tenancy been held for the benefit of the citizens of North Berwick. We accept that the interest of beneficiaries under a trust is a relevant element in the balance of hardship.

We cannot read dicta in the Patrons of Cowane’s Hospital case as holding that such interest is necessarily too remote or irrelevant. As we read it, the Note of the Court shows a weighing of the factors advanced by the parties. The Court commented that the hardship relied on was novel in that it was not the hardship of the trustees but the hardship reacting on the beneficiaries actual or potential. The hardship was indirect and not primary. But it went on to look at the facts. It concluded: “In the whole circumstances, the Court hold that greater hardship would be caused to the tenant than to the landlords if the consent to the Notice to Quit were given. As observed above, the hardship sought to be established is not upon the Patrons or Applicants but upon the beneficiaries whose selection and benefactions depend upon the discretion of the Patrons. This aspect creates a real difficulty for the landlords.” In the context of a paragraph purporting to reach a conclusion based on examination of the whole circumstances we do not accept that it is possible to read this dictum as equivalent to a conclusion that in law, alleged hardship based either on the effect of beneficiaries under a trust or potential beneficiaries under a trust is irrelevant. The Court in that case appeared to weigh the contrasting circumstances of the parties. It set out circumstances of real hardship for the tenant if he had to leave. Against that, the indirect nature of the consequences to the landlords undoubtedly made their position difficult.

However, if a court found on the facts that the tenant would suffer no identified hardship from loss of a portion of a farming enterprise and if the discretionary trust had been a family trust allowing the trustees to benefit the more needy or deserving of a number of children, we have little doubt that the court would be free to find greater hardship on the part of the landlord. It is a matter of fact, not relevancy, although we do not say that there will never be circumstances where a court might hold at debate that a particular interest was simply too remote to consider. We think it clear that where land is held in trust, the interests of beneficiaries will always be relevant in an assessment of comparative hardship. In many cases, particularly in relation to private trusts, the interests of the beneficiaries may have the same weight as if they had direct title. Clearly, in a case like the present, where the benefit is not focussed on identifiable individuals, the weight of hardship will be significantly reduced. But, in our view, it remains an important element in the balancing exercise. We accept, too, that the nature of any understanding at the outset of the tenancy may be relevant and would require clarification at proof. While we would not normally expect to be able to attach much weight to such a factor, it may be of more significance in a case like the present where public purposes were involved and the implicit suggestion is that the tenant was selected because one of the partners was a public figure.

Although we have some difficulty in accepting that simply impeding a landlords’ plans could be a source of hardship we accept that the benefit of being able to realise a planned development value of an amount very significantly in excess of the agricultural value is a relevant factor to take into account in comparison with the benefit to the tenant of continuing occupation as a tenant.

In short, we accept that the landlords have identified a number of factors to put into the balance on their side which might, in the ordinary way, be expected to tip that balance in their favour when compared with a tenant who does not live on the holding and operates it simply as a minor element in a much larger farming operation. These would be matters for exploration and assessment at a proof.

However, we must have regard to what it is that causes the hardship. It is that element which causes the difficulty. In the present case, the landlord wishes to sell the land. The essential hardship founded on is that the operation of the new Act will reduce the price he will obtain because of the operation of the tenants’ pre-emptive right to buy. The landlords stressed that it was not the “ordinary incidents of security of tenure” which caused the problem. It was the operation of the right to buy which prevented them from implementing their plan to rely on section 22(2)(b). But, that right is simply another right given to a tenant. In the present context, we are not persuaded that there is a relevant difference between rights given in respect of security of tenure and rights to acquire title. Where the Act has intentionally given the tenant a right there is an apparent difficulty in accepting that right as a relevant factor in hardship. That the tenant may be a wealthy farmer in his own right and the landlord a trust set up for public benefit is simply an irony. The landlords’ primary intention is to sell. They would get a better price if they could to so without the tenant’s right to buy. They would get an even better price if the circumstances were such as to allow them to serve an incontestable notice to quit. But the problems are created by the provisions of the Act. Can, and if so how can, such difficulties be taken into account in assessment of greater hardship?

The peculiarity of the present position is that there is no difficulty in accepting that if the landlords had been in a position to obtain planning permission without involvement of a third party, they would have been able to terminate the lease. It is correctly said that the existing provisions allowing a landlord to terminate a tenancy have not been expressly restricted in any relevant way. Many landlords would be able to obtain planning permission for a development without triggering the right to buy. Indeed, it may be accepted that when the predecessor of section 22(2)(b) was first enacted, planning consent would be regarded as a relatively straightforward operation. Parliament may have assumed that if a landlord wanted to sell the land for housing he would face no procedural difficulty in the stage of obtaining planning permission.

For reasons discussed above we are satisfied that Parliament must have intended that, even on a sale of a farm intended to continue as a farm, elements of value attributable to the potential for development would be taken into account in fixing the purchase price. Both landlord and tenant would, in effect, share that element of value which might be referred to as long term hope value. It must also be assumed that Parliament was fully aware of other statutory provisions and recognised that there might be various circumstances when the landlord would be able to bring the tenancy to an end and then sell free of any tenant’s rights. They chose not to interfere with such provisions. It may, therefore, reasonably be assumed that the main reason behind the creation of the tenant’s pre-emptive right to buy was to allow the tenant to have full control of his own farm as a farmer. The new provisions did not make any overt attempt to protect the tenant in circumstances where he would not be continuing to farm.

In short, there is no indication of any attempt to provide a scheme uniting the provisions relating to notice to quit on the one hand and right to buy on the other. We must proceed on the assumption that both are valid and should each be applied according to their terms.

Mr Kermack did appear to contend that the greater hardship provision could never be used to allow a landlord to free himself of the rights given to tenants. But, of course, the whole purpose of the provision is to allow the notice to quit to have effect and bring the tenant’s rights to an end. Sir Crispin did accept that the normal incidents of security of tenure were not ordinarily regarded as an element of hardship and Mr Kermack based the second part of his submission on this proposition, contending that if the basic security of tenure could not be a hardship then the right to buy could not be relevant either. If Parliament has expressly conferred a right on one party it is obvious that this will normally have an adverse effect on the other. It cannot have been the intention of Parliament that the adverse effect should, of itself, be sufficient to allow the landlord to end the tenancy. However, it is equally obvious that the intention of the provisions of paragraph (d) was to allow the Court to over-ride the tenant’s rights of security of tenure in certain circumstances. It is, accordingly, important to see what is meant by the proposition that the ordinary incidents of security are not an element of hardship.

Authority for the proposition was taken from a dictum in Clamp v Sharp where it was observed: “As the Court have said in other cases, the normal operation of security of tenure depreciating the capital value of an agricultural holding, does not of itself, constitute hardship so as to justify the granting of consent. For, so to hold, would undermine the very purpose of the security of tenure legislation itself.” It is important to note that the proposition was limited. Mere depreciation attributable to security of tenure did not “of itself” constitute hardship. However, it is plain from the whole discussion in that case that depreciation in capital value might have been an important factor if the landlord’s other circumstances had demonstrated “hardship”. Had Mrs Clamp been in “dire need” of the additional funds available from sale of the holding with vacant possession, that would clearly have been treated by the Court as relevant. Far from excluding a right to rely on paragraph (d) in a case where the hardship is in part caused by the mere existence of the tenants rights, Clamp v Sharp is an example of the Court looking to see whether the protection given by the Act to the tenant produces real hardship to the landlord. As we have said, it is obvious that the intention of the legislation is that the Court could over-ride tenants’ rights. The security of tenure is not easily lost but, if the Court is satisfied of greater hardship that security may come to an end.

In other words, accepting that the rights of pre-emption given by the 2003 Act can be treated as being in the same category as the tenant’s other statutory rights, including those of security of tenure, the normal adverse impact of these rights on a landlord or on the value of his interest in the land will not be factors indicative of hardship. But, where some additional circumstance or combination of circumstances are relied upon it will be necessary to weigh the factors bearing on the hardship of the parties.

In addition to the factors discussed above which are relied on as justifying a finding of greater hardship for the landlords, it may be relevant to have regard to the landlords’ particular negotiations with their developer. These may have locked them in to a situation where they cannot advance without triggering a right to buy. We think there is some justification for the view that Parliament may have thought it a comparatively simple process to bring a tenancy to an end for development by acquiring planning consent. There is nothing to indicate that the very early trigger of the right to buy provisions was intended to hamper that process. The complication of that process in modern times may not have been fully understood. We think it impossible to leave out of account that the present landlords find themselves in a position which was probably not intended by the legislation. That may not be a factor capable of being weighed in the balance of hardship but it goes a little way to counter the blunt proposition that the tenant’s rights under the Act are not in themselves a hardship.

On the basis of matters canvassed at the first debate we were satisfied that we should allow the averments in the application slc-220-06 relating to paragraph (d) to go to probation. The Court would have to weigh the impact of loss of the tenancy on the respondent against the impact of loss of the full development value on the applicants and their trust purposes. As discussed above, a concern arose when our consideration of the full implications of section 24 led us to consider in particular the implications of paragraph (e). If Parliament, in the language of paragraph (e), deliberately intended to exclude a proposal for development as a ground for notice in all circumstances where planning permission was required and none had been obtained, it might be thought more difficult to allow the same result to follow under the guise of hardship. The conclusion we have reached as to the proper scope of paragraph (e) removes that difficulty.

Another difficulty arises on the basis that if the applicants could have proceeded under reference to paragraph (e) they would not have required recourse to (d). We have had to consider whether the existence of another statutory option might have a bearing on our assessment of greater hardship. However, we are satisfied that no issue of relevancy arises and that there is no reason why a landlord should not seek to demonstrate that the situation falls under (d) even if it might also fall under (e). The provisions of section 55 clearly envisage a situation where an applicant might succeed under both (d) and (e).”

For landlord applicants: Sir Crispin Agnew, QC, Messrs Gillespie

Macandrew, Solicitors, Edinburgh

For tenant respondents: Mr L Kermack, Solicitor, Edinburgh