Rent review: the storm before the calm

On 11 June 2014, the Land Court issued its decision in the first major review of rent (for Roxburgh Mains Farm) since the Moonzie case: Capital Investment Corporation of Montreal v Elliot SLC/94/09. The court concluded that the rent should rise with effect from Whitsunday 2009 from £27,500 to £48,982 – an increase of some magnitude.

The case is interesting to lawyers for a number of reasons:

• Following the Court of Session guidance in Moonzie, the court fixed the rent primarily by reference to the open market letting, at Martinmas 2009, of a comparable farm (Palace) on the Roxburghe Estate, on a LDT, suitably adjusted, cross-checked against a number of agreed sitting tenant rents. It did not have to look beyond the comparable evidence, therefore did not consider extensive evidence led in relation to hypothetical budgets.
• The court found the open market rent for Palace to be considerably higher than the actual rent, given that the landlords had, as a matter of policy, favoured a new entrant at a rent at the lower end of the range of offers received.
• It held that the rent of Palace had been distorted by scarcity, but was not persuaded that the extent of the distortion could be measured by a formula: that approach had no statutory foundation. Instead, it made broad judgments based on its expertise as a specialist court, and hypothesised what rent Palace would have fetched in a reasonably balanced market.
• On the other hand, as most of the offers treated Palace as a standalone unit, the court made no deduction for marriage value.
• It did, however, apply agreed adjustments to reflect the different repairing and replacing obligations for the two farms, and certain fixed equipment provided by the tenant at Palace.
• Although, in principle, the court agreed that a 1991 Act tenancy should be more valuable than a LDT, based on the offers received for Palace it did not find scope for a premium, the majority of bidders having made their best possible offers for the LDT.
• The court was satisfied that an upwards adjustment for single farm payment was appropriate, on the ground that, had Moonzie been decided when the rents of comparables had been negotiated, higher rents would have been obtained.

(Note: The court considered a number of other practical matters, e.g. soil characteristics, water supply, buildings, cottages and the ability to grow potatoes, but none of these involved legal considerations.)

The court held that the rent it had arrived at was unaffected by current economic conditions in the relevant sectors (cereals and livestock).

Postscript

The court indicated that it shared the industry’s anxiety for quicker and cheaper determination of rents. It suggested (no doubt with regard to the time taken up by evidence on budgets, when the rent was decided on comparables) that greater attention should be paid to its guidance on what evidence is relevant, parties taking a lighter, more broad brush approach.

Whether or not in direct response to the court’s comments, but certainly in light of the extent of the increase awarded, the National Farmers Union Scotland, Scottish Land and Estates Ltd and the Scottish Tenant Farmers Association have since agreed that rent increases should, at least until the Agricultural Holdings Legislation Review Group (AHLRG) issues its final report later this year, not exceed RPI and that a party aggrieved by a rent review should have the right to refer it to a panel of “three wise men” – a representative of each organisation. I find it difficult, however, to see the panel intervention as anything other than a form of ADR, which in terms of the 2003 Act requires a reference by both parties.

AHRLG – interim report

As envisaged by my last briefing, the AHLRG issued its interim report on 20 June. There were no surprises. In short, it identified three targets for its deliberations in the second half of the year, with a view to making recommendations in December:

• To establish a stable and effective framework for 1991 Act tenancies, examining, in particular, rent and rent reviews, investment, improvements, compensation and waygo, retirement and releasing land to tenancy, succession, assignation and the fulfilment of parties’ obligations.
• To create a new and flexible framework to stimulate diverse tenancy arrangements for the 21st century.
• To create the conditions and processes through which good landlord/tenant relations can be re-established, by providing leadership, mediation and cheaper/quicker forms of conflict resolution.

The AHRLG will also advance the debate on right to buy (given a whole chapter in the interim report), possibly on some limited “deterrent” basis, short of making it absolute.