Decision of the Scottish Land Court

George Rodenhurst (Applicant) v Thrumster Estate Limited (Respondents)

Case reference SLC 26/11
before
Lord Minginish, Chairman, and Mr John A Smith
17 August 2016

[1] By our decision of 17 July 2015 we repelled the respondents’ defence under sec 13(2)(a) of the Crofters (Scotland) Act 1993 (“the Act”) and continued the application for a period of 28 days to allow parties to lodge submissions on the terms and conditions on which we should authorise the acquisition of the croft of Brickigoe by the applicant in terms of sec 13(1) of the Act. There has now been a fairly lengthy process of submissions being lodged, exchanged and commented upon by the opposing party.

[2] Our earlier order of 2 March 2015 excluded from the scope of the proof which led to our order of 17 July certain matters which the respondents wished to have excluded pending a decision on the merits of their foresaid defence. These matters were (a) the fixing of a fair rent; (b) whether the applicant should be required to grant a standard security and/or a sporting lease over the croft land; (c) liability for the respondents’ conveyancing expenses, (d) what servitude rights should be contained in any disposition of the land, and (e) any question to do with reservation of minerals. All of these matters now require to be decided.

What is being included in the sale

[3] The first matter we deal with is actually an additional one, raised in the respondents’ submission. The respondents seek to exclude from the sale, as not being part of the croft, (i) the solum of the road (and, we suppose, its verges) running through the croft to other parts of their estate, principally the farm of Oliclett and (ii) a body of water shown on production 60.

[4] In support of exclusion of the road, the respondents provide a copy of an undated valuation roll which shows three farms in Brickigoe, one occupied by a Wm Macdonald and the other two by a Wm Miller. They say that the road ran through between two of these farms, one on either side. They say nothing about the whereabouts of the third farm. The applicant says simply that this matter should have been challenged earlier, when the applicant produced his plan of the croft, and that it is too late to challenge it now. Neither side offer any information as to when the road was built, nor by whom, nor indeed what have been the arrangements for its maintenance over the years.

[5] In the answers originally lodged it was said that the respondents were “investigating the position as to whether the whole area over which an order is sought is in fact all part of the Applicant’s croft with a view to establishing whether it would be appropriate to bring proceedings to determine the boundary of the croft”. By the end of the adjustment process that averment had been removed: it does not appear in the version of adjusted answers received by the Court on 1 April 2015. The logical inference from that is that there was to be no challenge to the boundaries of the croft as averred by the applicant. Accordingly we agree with the applicant’s agents that it is now too late to raise this matter. The same applies to the body of water sought to be excluded.

[6] Accordingly, the subjects to be conveyed will be as shown on production 4, a copy of which has been made for the purposes of this order and lodged in process as production 68.

Fair rent

[7] The fair rent for this croft was fixed by this court in 2006 in the sum of £170. The applicant’s position is that it should remain the same while the respondents argue that it should be increased to at least £1,000 and perhaps as much as £1,650. Both have produced expert reports in support of their position.

[8] The applicant has lodged a report and two additional notes by David Brewster BSc (Hons), MPBR, SAAVA (Member). Mr Brewster gave evidence at the proof and had inspected the croft on 27 May 2015 in preparation for that. In his report, undated but received by the Court under cover of the applicant’s submissions of 10 November, 2015, he makes the point that the croft remains unchanged, for renting purposes, since 2006. No landlords’ improvements have been carried out and the tenant is not to be rented on his own improvements.

[9] Mr Brewster includes information about Thrumster Estate rentals obtained from the Crofting Commission but reports “an inability to get a fair comparison of the ‘open market figures’ as there is not enough detail on the specifics of the crofts being rented elsewhere on the estate”. Proceeding instead on a profits basis derived from Sutherland Estates v Sutherland 1997 SLCR 144, he notes that Brickigoe produces income from cattle, sheep and, in some years, hay and silage. He regards the nature of the land as a limiting factor in relation to income potential and notes that there is no income from diversified activities. By reference to Scottish Agricultural Colleges (“SAC”) Farm Management Handbooks for 2006/2007 and 2014/2015, and working on the basis of a stock carrying capacity of 100 ewe equivalent, he calculated a 2006 net farm income of around £1,338 per annum. On the basis of the approach taken in Sutherland he apportioned 20% of that to rent. Rounded up to the nearest £10, that produced a rent of £270.

[10] Addressing the years 2014/2015 and again using the SAC Handbook, he takes figures for income expected to be received on small sheep farms but notes that these are dependent on income from diversification and that, without diversification, the figures translate into deficits. His conclusion is that by 2015 units of the size of Brickigoe had ceased to be viable. “As a result”, he concludes, “it is unfair to request an increase in rent of this croft from £170 per year and it could be justified that a reduction in rent is more appropriate”.

[11] Mr Brewster’s first “Additional Submission”, received by the Court on 3 February 2006, mostly comprises a rebuttal of evidence from Aberdeen and Northern Estates (“ANE”) lodged on behalf of the respondents and discussed below together with a defence of his own methodology and its results. His position remains unchanged. Part of the submission is taken up with discussion of the Scottish Upland Sheep Support Scheme (“SUSSS”), relied upon by the respondents as justifying an increase in rent (see below). As we understand it the point Mr Brewster makes is that because of restrictions on the class of land on which SUSSS is payable (region 3 land) and on the density of stocking of such land for the purposes of the scheme, Brickigoe would be subject to a maximum of 38 eligible ewes at an estimated headage payment of £75 each, a total of £2,850. The submission also has things to say about fencing the croft but we deal with that matter separately.

[12] The evidence on fair rent lodged by the respondents takes the form of a report from ANE dated 23 September 2015. It is the work of their James Craig MRICS and Rod Andean MRICS and has been reviewed by their James Murphy MRICS. None of those has carried out an inspection of the croft and the report is expressly based on information provided by Mrs MacLeod, of the respondents, Mr Murchison, their solicitor, and Mr John Bremner of the Aberdeen & Northern Marts Group, of which ANE is part, who has some prior knowledge of the croft but, like his colleagues, has not carried out an inspection. Instead satellite imagery has been used to get a physical impression of the holding. On that basis it is assessed as comprising approximately 16.66 ha (41.16 acres) of in-bye grazing and 152.56 ha (377 acres) of heather hill grazing. The land is classified (in terms of MacAulay Institute classifications) as “a mixture of grade 6.3 with some grade 5 and some grade 4.1 land”, the grade 4.1 land correlating with the in-bye land shown on satellite imagery.

[13] This report expressly does not take into account any subsidy income that could be generated from the croft, including Basic Payment Scheme (“BPS”) and Less Favoured Area Support Scheme (“LFASS”). It is convenient to quote the following as encapsulating the valuers’ approach:-

“In preparing this report we have considered comparable rents paid for croft land and anecdotal evidence of rents paid for crofts in the local area. We have also considered the potential carrying capacity of the croft.

We are aware of anecdotal evidence of croft rents across the north of Scotland and these reveal a broad range of rents depending on factors such as quality of land, holding capacity and accessibility for example. We have identified a range of rents from in the region of £0.75 per acre per annum to £3.00 per acre per annum.

We understand from John Bremner that the subjects may have the carrying capacity of between 50 and 100 breeding ewes. We have therefore undertaken our calculations on the basis of a carrying capacity of 75 breeding ewes, which we feel is a reasonable stocking density for the subjects based on the information available to us.

We have also considered anecdotal evidence of headage payments for sheep grazing in the north of Scotland as well as previous Scottish Land Court decisions.

The land appears capable of providing grazing for livestock (particularly sheep) on the mixture of heather hill and in-bye land. The in-bye land is likely to be able to provide some improved grazing. We are not aware if the land is able to provide a crop of silage or not.”

[14] On the basis of that approach, they conclude “It is our opinion from the evidence provided and at our disposal in the timeframe we had to produce this report that a ‘Fair Rent’ as set out in the Crofter (Scotland) Act 1993 could be negotiated at £1,000 … per annum for the subjects as a whole”.

[15] Comparing the two valuation approaches, whilst we do not accept his evidence in its entirety, Mr Brewster is clearly to be preferred to ANE for the following reasons:-

(i) His greater knowledge of the holding: he has inspected it, ANE have not.

(ii) He identifies, by reference to a specific Land Court case, the approach to be taken and then applies it: ANE do not.

(iii) Mr Brewster calculates the rent on the basis of empirical evidence, in the form of the SAC handbooks: ANE make no attempt to relate their valuation to any extraneous, objective evidence at all (their “anecdotal” evidence is exactly that) nor does their approach involve any calculation, being instead entirely impressionistic.

[16] Given the shortcomings of the ANE report it is not surprising that Mr Murchison, in submissions received by the Court on 11 December 2015, took the approach of attacking aspects of Mr Brewster’s first report and adducing additional arguments to support an increase in rent.

[17] On the approach to be taken to the assessment of fair rents for crofts, Mr Murchison takes as his starting point what was said by this Court in Wagstaff v Ross & Ors 2013 SLCR 175 at para [60]:

“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. … 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 use of the land. The stocking capacity of the land and the scope it offers for accessing agricultural support payments are key elements in assessing these prospects.”

[18] He points out that some things have changed since the 2006 determination of a fair rent for Brickigoe, most notably the introduction of a new subsidy regime. The Court is not, therefore, in any way bound by or to its earlier decision. In relation to the SAC data relied upon by Mr Brewster, Mr Murchison points out that the data produced for 2006 is for the year 2004/2005 and not 2006/2007. He points out that the profit calculation for 2004/2005 incorporates a rent figure of £833 for a holding with a 100 ewe carrying capacity. Building on that figure, he argues that it is “not unrealistic to suppose that this rent figure would now be in excess of £1,000 per annum (having regard to the changes in the value of money as one is potentially entitled to do under reference to the decision in Hitchcock’s Trs v MacCuish 1982 SLCR 101)”. He submits that a consumer price index-linked increase would result in a rent of approximately £1,122.

[19] Mr Murchison further submits that a “more coherent and justifiable” use of SAC data would be to have regard to the latest information available in the Handbook for 2015/2016. He argues that further anticipated changes to the BPS and LFASS regimes will improve the economic position of a tenant such as the applicant. In particular, it is said that the addition of SUSSS will do so. Mr Murchison argues that the 2015/2016 Handbook data brings out a net farm business income per 100 ewes of £9,897, from which a deduction of around £5,000 may be made to reflect the crofter’s own labour, or the cost of hired labour, leaving a net sum of £4,897, of which 20% represents £979.40.

[20] The use of 20% as the relevant factor is, however, said to be too low because it is based on a speciality of the Sutherland Estates case, in that it involved the crofter’s affairs being run by a sheep stock club, with the risks and uncertainties a crofter might perceive that to involve. Mr Murchison suggests a 40:60% split of profits. If that is applied and SUSSS is included, on Mr Murchison’s conclusions a rent of £1,650 is appropriate. That is the result, he says, of applying the correct approach to the material produced by Mr Brewster. We are invited to “fully review the rent and to fix such figure as would properly constitute a fair rent in the light of all relevant material submitted”.

[21] But matters did not rest there. Mr Brewster produced the foresaid additional submission, then Mr Murchison a further note of submissions, then Mr Brewster a second additional submission. No second report was produced from ANE but Mr Murchison made clear in his Further Note that the position advanced by the respondents had been arrived at on the basis of expert opinion from Mr James Craig of ANE and factual information from Mrs Islay MacLeod and Ms Doreen Morgan, an agricultural consultant.

[22] The Further Note argues that, whilst farm incomes may be falling on average, it is wrong to apply averages to the fixing of rent for a particular holding. Moreover, according to An assessment of the post 2015 CAP reforms: winners and losers in Scottish Farming, published by the Scottish Government in association with SRUC (Scotland’s Rural College), the result of CAP reform was going to be that, whereas large farms would be worse off in terms of subsidy by about 20-30%, consequent redistribution of revenues would benefit sheep farms by around 6-7%. The income from SUSSS alone was calculated at 3,800 euros per annum, on the basis of it being payable on a maximum of 38 hoggs (1 hogg requiring four hectares of ground). Grants, including those provided by the Crofting Agricultural Grant Scheme and various environmental grants, would also be available, making the holding more attractive and, therefore, justifying a higher rent. It was estimated that Brickigoe could produce an income of £4,000 per annum under one such scheme and it would also qualify for Peat Land Management and Wader Grazed Grassland grants, as well as others to do with land management and the creation of woodland. There was always an element of profit in these grants. The fair rent previously contended for, and the reasons supporting it, were adhered to.

[23] Mr Brewster, in his second additional submission, argues that a rent review should be conducted on the basis of the holding as it is at the date of the review, including subsidies received (and only such subsidies, if we understand him correctly). He accepts that the croft would be eligible for a number of grants but they would be for tenant’s improvements and should not therefore be taken into account for the purposes of fixing a fair rent. He adheres to the view that the current rent of £170 is fair but only on the basis that the respondents are entitled to some return on the land let, not the profitability of the holding. Otherwise, given the current reduction in croft incomes, the rent would be a nominal £1.

[24] We now come to our decision. We consider first the physical characteristics of the holding. It totals, rounded up or down, 169 ha which comprise approximately 17 ha of in-bye and 152 ha of heather hill. We saw it for ourselves at inspection 30 April 2015. Subject to certain improvements carried out by Mr Rodenhurst in the interim, which have to be disregarded for the purposes of fixing a fair rent, it was then in substantially the same condition as reported on in the Court’s 2006 decision:

“This is a very exposed croft in open country, with little or no natural features for shelter. The croft is generally flat but rises slightly from the east side to the west side. The area below the road, especially field no 10, is boggy and wet, with a severe rush infestation. The fields above the road are permanent pasture, with reasonable fencing and one new length of fencing. Further inland, around field no 1, the ground again becomes boggy with old ditches, which are blocked and require cleaning. Further inland there is an area of muirburn with a large ditch which is not running freely and is overgrown. This area is drier, is not so boggy and the vegetation is mainly long heather and moorland grasses. Again severe rush infestation is a problem in some areas. The buildings, which are on either side of the road, are in a poor state of repair. They are not suitable for a modern efficient agricultural unit. It was not established on the evidence who had provided the buildings except that it had not been the Waugh family. The mill may well have been provided by the Estate. The former school is likely to have been provided by the local or parochial authority of the time. The former croft house could have been built by an earlier landlord or tenant. In any event they are now of no significant value and we deal with the croft as a bare land croft.”

[25] In general terms the hill land is of limited utility due to the high water table. This limits stock carrying capacity. The in-bye land, while also wet, is much more useful and can carry a reasonable number of stock.

[26] As was said in Wagstaff, the stocking capacity of the land and the scope it offers for accessing agricultural support payments are key elements in assessing the prospects of earning income from the land.

[27] As to the former, Mr Brewster tells us that the current stocking is 70 breeding ewes and five cows and followers. ANE took stock carrying capacity as 75 breeding ewes but that was simply the mid-point of the range of 50 to 100 breeding ewes estimated by Mr Bremner. From our own assessment we consider that a fair stocking capacity would be 85 breeding ewes.

[28] As to the latter, the level of future agricultural support payments, beyond the next two years, is even more uncertain than it was when parties made their submissions, as a result of the United Kingdom’s recent decision to leave the European Union. But it is reasonable to assume that some level of support will continue to be provided to farmers and crofters. No one suggests otherwise. So we proceed on an assumption that there is no serious risk of such support being removed or drastically reduced. On the other hand, we see no point in carrying out detailed calculations on the basis of income from particular schemes which may be here today and gone, if not tomorrow, in two or three years’ time. So what we have done is made a minor adjustment to what would otherwise be the fair rent to reflect some degree of uncertainty on this front.

[29] Against that background, we apply Mr Brewster’s approach of using the SAC Handbook as a source of empirical evidence. He did not have the 2015/16 handbook available to him when he prepared his report but we do. He used the table for “Specialist Sheep (LFA)” farms. We think the more appropriate table is that for “Extensive Hill” farms, which is to be found at page 167 of the 2015/16 handbook. That description corresponds more closely to the nature of the holding and it includes nothing for diversification or any other additional income.

[30] Assuming a 100% lambing rate and not deducting the cost of away wintering of ewe hoggs (on the view that such would not be necessary given the nature and extent of Brickigoe) it produces a gross margin of £1,561 for 100 ewes. For 85 ewes, therefore, the figure would be £1,327. Support payments fall to be added. The relevant figure is to be found in the “Whole Farm Data” table at page 352 and, adjusted for ewe numbers, it comes out at £4,159, producing a total gross margin of £5,486 for 85 ewes. It seems to us to be reasonable to allow £4,500 for the applicant’s labour (10 hours a week @ £8.50/hr, rounded up), given the extensive, low-density, nature of the operation and the inability to use quad vehicles on much of the hill ground. That leaves a divisible profit of £986 or £11.60 per ewe. Dividing that equally between landlord and tenant produces a rent per ewe of £5.80. However, it seems to us that a downward revision of that figure is required to reflect a degree of uncertainty as to future subsidy payments. Making such an adjustment, we consider that a rate of £5 per ewe is appropriate. That produces a rent of £425 per annum.

[31] This is not, of course, the approach that has traditionally been taken in croft rent cases so, as a check against what the approach taken in (at least some) previous cases would have produced, we revert to Wagstaff. In that case the rent arrived at equated to £2.80 per ewe but that was in respect of only seasonal grazing. Doubling it for year round occupancy of the land produces a figure of £5.60, almost exactly what we have arrived at on the foregoing approach.

[32] On the foregoing approach and for the foregoing reasons, we therefore fix the fair rent at £425 per annum.

Rights of access

[33] Since we have not permitted the matter of whether the solum of the road and verges is part of the croft to be raised at this stage, a reservation of a right of unrestricted vehicular and pedestrian access along the road and its verges in favour of the respondents and all those deriving right, title or interest from them is appropriate. It should be for the purpose of access to land remaining in the ownership of the respondents and the right should be exerciseable by their successors in title to that land. The title should include a condition that the access is to be kept free of all obstruction, including the erection of any additional gates across the road and the presence of livestock on the road, save for stock movement purposes, and a condition prohibiting the locking of the existing gate. A verge width of 1.5 metres (on each side), as suggested by Mr Murchison, is appropriate. Our order seeks to give effect to all of that.

Road maintenance obligations

[34] The disposition should entitle and oblige the respondents and their successors to carry out all repair work required to maintain the road and verges in a condition at least equal to its present state and entitling them to recover from the applicant and his successors a proportion of such cost according to user.

Fencing

[35] Since it is the applicant’s declared intention and the respondents’ wish that the whole croft boundaries be fenced, the title should contain such a real burden. Were it not for the applicant’s declared intention to do it – in so far as permitted by those, such as Scottish Natural Heritage, from whom he may have to obtain consent – we would not be minded to impose such a condition, given the size of the croft. Given that certain consents may be required and the scale and cost of the operation, we think a three year period is not unreasonable and we have so ordered. The burden should include a continuing obligation on the applicant and his successors to repair and replace said fence so as to maintain it in good, stockproof condition in all time coming but entitling them to recover one half of the cost of such repair and replacement (but not erection) from the respondents and their successors, the cost of replacement or repair necessitated by wilful or reckless conduct by one party or the other falling on that party in its entirety.

Standard Security under sec 13(4)

[36] We have ordered the granting of such a security. Although this is for the respondents’ benefit the need for it arises out of the fact that the applicant is buying the croft. Since that is happening against the respondents’ wishes it seems unreasonable to expect them to bear any part of the cost. Accordingly we have ordered that all conveyancing costs and outlays, including those incurred in connection with the granting of this security, are to be borne by the applicant.

Fishing and shooting rights

[37] There is already in existence a sporting lease between the respondents and Mrs Islay MacLeod. The title to be granted to the applicant should be subject to the terms of that lease.

Falconry

[38] The respondents request a condition entitling them and those authorised by them to enter onto the subjects disponed for the purpose of retrieving hawks, game birds and their kill. That is in our view appropriate, given that this is a situation which will inevitably arise from time to time.

[39] They also seek an entitlement to carry out “all usual and reasonable management activities on the ground for the purpose of maximising its sporting capacity”. We regard that as far too wide and uncertain to be capable of constituting an enforceable right or burden, so we have made no such order.

Reservation of minerals

[40] Section 12(3)(c) of the Act excludes any right to mines, metals or minerals from the definition of croft land which a crofting tenant can be authorised to acquire but an express reservation of minerals would do no harm. We have so ordered.

Reservations of right to return

[41] Although we have done our best to spell out the terms and conditions on which parties are to proceed, it may be that uncertainty or dispute may yet arise. The respondents have suggested that we authorise the Principal Clerk to decide such matters but we think it is for the Court to do so. There is power to the Principal Clerk to execute a conveyance in place of the landlord or a standard security in place of the crofter where they fail to do so within a reasonable time in secs 16(2) and 16(8) of the Act but not to do more than that.

[42] Although the terms of our foregoing order are quite detailed and appear prescriptive, they are not intended for verbatim repetition in the disposition in favour of the applicant. The wording can no doubt be improved upon by the conveyancers. As long as effect is given to our intentions our order will be regarded as obtempered.

Expenses

[43] We have pronounced our usual order in respect of the expenses of the application itself, as opposed to those of the conveyancing to follow hereon.