Crofting making the news

Agriculture briefing: the Scottish Land Court has issued two decisions of note on crofting issues, one on change of use of common grazings, and one on a significant exercise in fixing croft rents

9th September 2019 | Adèle Nicol

In this article I will look at three interesting cases: two from the Land Court of particular interest on crofting issues, and one from the Supreme Court.

Invalid application

In Crofters of Aignish Common Grazings v Crofting Commission (SLC/11/19, SLC/130–132/18, 17 July 2019), crofters from four townships on Lewis sought to challenge the Crofting Commission’s refusal to change the use of the common grazings. Confirming the Commission’s decision, the court refused the applications.

The crofters had proposed to the grazings committee, under s 50B of the Crofters (Scotland) Act 1993, an alternative use of common grazings for a community wind farm project. The committee having agreed, the next step was to apply to the Crofting Commission for its approval.

It was argued for the crofters that when the proposal reached the Commission, s 58A – which sets out the criteria for the Commission to use when approving an application – should have been applied. However, this was not so. Section 58A was not engaged because the application to the Commission was invalid: the grazings committee should not have accepted the proposal. Under s 50B(2) the committee could not accept a proposal which would be detrimental to the interests of the owner. In this case, the owner of the land was The Stornoway Trust, which had spent years pursuing its own windfarm development proposal and as such would suffer detriment if the crofters’ proposal was successful.

Rent setting exercise

Borland v Crofters on the Lochend Estate (SLC/137/17, SLC/138/17, SLC/139/17, SLC/140/17, 7 June 2019), was “the most extensive exercise in fixing croft rents… in nearly two decades” (para 9). The applicant landlord sought to achieve “fair modern” rents across the estate (para 3).

The rents were fixed as set out in tables appended to the decision. The court assessed the productive and stock-carrying capacity per croft by reference to breeding ewes in the geographical and traditional contexts; reflected additional costs of transportation for sale in stocking density and rental value per head; and assumed that the level of subsidy payments would remain relatively static over the next seven years (para 60). Calculating the level of available subsidy that a reasonable crofter might pursue was accepted as a “very broad brush exercise” (para 60).

Two crofts were created only in 2013. As fewer than seven years had passed since 2013, the court was unable to alter the rent at present (1993 Act, s 6(3)), but was able to determine the rent “in contemplation of the expiry” of that period (para 63).

Methodology?

Under s 6(4) of the 1993 Act, the court must consider the “circumstances of the case… croft… and district, and… any permanent or unexhausted improvements… which have been executed or paid for by the crofter or his predecessors in the tenancy”, before determining a rent (para 23). However, the absence of a legislatively prescribed methodology for doing so gives rise to uncertainty over the approach to be taken.

A review of previous cases drew out two methods: the “profits” basis, whereby the net annual profit is ascertained or estimated and divided between landlord and tenant, and the “comparative” basis, whereby the rent for comparable crofts is used to arrive at a rent, making adjustments for differences in characteristics (paras 26-55).

Having moved in previous decisions from the “profits” to the “comparative” method, the court now questioned whether the latter was “anything other than a disguised ‘profits’ basis” (para 58), and considered neither to be the optimal approach because it was never able to make a determination solely on either basis “given the limitations of the evidence with which it generally has had to work” (para 57).

Although it considered the case law to provide a “repository of information, from the contents of which a base line for fixing new croft rents may be derived where no better evidence is… available” (para 59), the court expressed its “unease at the relative lack of transparency” in arriving at these decisions. It called for a thorough re-examination of the approach to be taken in fixing croft rents, but acknowledged that the opportunity is unlikely to arise due to the low values typically involved (para 59).

VAT deduction success

The third case of interest is Commissioners for HMRC v Frank A Smart & Son Ltd [2019] UKSC 39 (29 July 2019): the Supreme Court decided that a taxpayer can deduct, as input tax, any VAT incurred in purchasing entitlements to an EU farm subsidy where it is directly linked with the output transaction.