Tackling improvements

Practitioners will know that, to preserve his right to compensation at waygo, the tenant of an agricultural holding requires to give notice, under s 38(1) of the Agricultural Holdings (Scotland) Act 1991, “of his intention to carry out… [an improvement]… and of the manner in which he proposes to do so”. Section 39 allows the landlord to give counter-notice objecting to the improvement or the manner in which it is to be carried out. The tenant may then seek the Land Court’s approval of the proposed improvement. This may be given unconditionally or on terms (including a reduction in the potential compensation), or withheld.

These provisions were considered by the court in R & M Whiteford v Trustees for Cowhill Trust (Application RN SLC/174/08), 29 July 2009.

Messrs Whiteford, a limited partnership, were tenants of four Dumfriesshire farms collectively known as “Abbey Farm” and two further holdings, under a 40 year lease from 1987. They ran the holding collectively as a dairy farm. They served notice of their intention to install a “voluntary milking system” (VMS), comprising a number of robotic milking units. Following a counter-notice they applied to the court for approval.

Defective notice?

The landlords argued (i) that the tenants’ notice was so deficient in its description of the work and how it was to be carried out that it was invalid; and (ii) that the improvement would lead to over-capitalisation of the holding. The notice was attacked on several fronts, including that it did not disclose the number of VMS units proposed and, to summarise, that discrepancies on methodology between the notice, a later notice (subsequently withdrawn) and the planning application made it impossible for them to know the tenants’ true intentions.

The court held that, in deciding on the validity of a s 38 notice, it could not look beyond the four corners of the notice itself. The only criticism in that respect was failure to specify the number of units, which the court regarded as a point of detail, given that it was clear what kind of system was to be installed. (The omission was made good on the evidence, but this did not sway the court.) It did, however, observe that it is in the tenant’s interests to make a notice full and detailed, not only to avoid it being challenged as such but to avoid the risk that some element of the improvement is not eligible for compensation at outgo, because the landlord has been given insufficient notice.

Test for approval

On the landlords’ second objection, the court held that the test in assessing whether it should approve (unconditionally or on terms) or disapprove an improvement was the formulation in Gill, Agricultural Holdings (3rd ed), distilling previous case law: whether it was “reasonable and desirable” on agricultural grounds for the efficient management of the holding.

The court viewed this as an objective test to be applied without regard for what it thought the applicants should be doing or might do instead. In any given situation there might be a range of possibilities (from “adventurous” to “safe”), all of which were reasonable. However, it then appeared to contradict itself by observing obiter that it was entitled to refuse consent if, in all the circumstances (including the availability of the alternative), it considered that there was an alternative which was clearly preferable to the tenant’s proposal, albeit both were reasonable on their own terms. Although the court found that the VMS was not the only means available for improving the efficiency of Whitefords’ dairy enterprise and that what was proposed was financially the more risky of the options available, it was nevertheless reasonable and desirable on agricultural grounds for the efficient management of the holding and, accordingly, should be approved.

As a subsidiary issue, the landlords argued for a reduction in the tenants’ ultimate claim for compensation, since a clause in the lease that the two holdings were to be used “as livestock and cropping units” meant that the court, in applying the reasonable and desirable test, had to confine itself to Abbey Farm: the other units could not be used for grazing dairy stock, or growing feed for dairy cattle elsewhere, and could, accordingly, not be taken into account in assessing the carrying capacity of the holding for dairy purposes. The court, however, inferred that the restriction prohibited use as dairy units as such, but not use for anything to do with dairying, however remotely, and grazing and cropping for dairy stock was permitted.

The case, accordingly, covered a wide range of interesting points – in particular the court’s exposition of the test to be applied to a proposed improvement and its observation on the framing of a tenant’s notice in order to preserve the right to compensation, although this restates what I have always understood to be best advice.

Alasdair G Fox, Anderson Strathern LLP