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DRAFT CROFTING REFORM (SCOTLAND) BILL: Consultation Paper

4 ISSUES FOR CONSIDERATION

Background

4.1 The consultation on the White Paper evoked ideas and issues taking the scope of discussion on crofting legislation beyond what was originally envisaged. Some of these have been reflected in provisions included in the draft Bill others are measures which could be included in the Bill. This chapter discusses these issues and invites comments on the relevance of the measures included in the draft Bill and on whether the other measures discussed below should be developed for inclusion in the Bill.

Croft Boundaries

4.2 It was suggested that a simpler mechanism is required to deal with disputes over croft boundaries where croft boundaries of uncertain provenance have become accepted by neighbouring tenants and the landlord. The aim would be to avoid boundary disputes arising after many years of inexact or absent fencing. The intention is to provide that so far as tenanted crofts are concerned a boundary which has existed and been accepted by the parties as the de facto boundary for twenty years should become legally binding. This could only occur where there was no adequate documentation showing a different boundary.

Consideration 4.3 Where de facto boundaries have been accepted for 20 years it does not seem that to acknowledge these as the actual croft boundaries would lead either to hardship or injustice. It would encourage crofters to be careful over boundaries and ensure that these are properly delineated and recorded. This proposal would reduce the scope for expensive boundary disputes and relieve the Land Court of a number of difficult cases where documentation is poor or non-existent and decisions have to be made without satisfactory evidence. The relevant provisions can be found at section 22 of the draft Bill.

Do you agree that it is appropriate to provide, as at section 22 of the draft Bill, that in the absence of clear documentary evidence to the contrary a croft boundary which after 20 years has become the accepted boundary should be accepted as the legal croft boundary?

Deemed Crofts

4.4 The current legislation provides at section 3(4) and (5) of the 1993 Act that tenanted rights in a common grazing, runrig land and apportionment which are not part of a croft (i.e. they are tenanted separately), should be deemed to be a croft. This wording has allowed confusion as to whether the deemed croft should be entered in the Register of Crofts, thus giving the tenant all the associated rights and duties of a crofter under the current Act.

4.5 Section 7 of the draft Bill therefore makes new provisions for recording details of such land or rights in the Register of Crofts.

Are you content with the provision at section 7 of the draft Bill which would extend the information held in the Register of Crofts?

Energy Developments on Croft Land and Common Grazing

4.6 The upsurge of interest in energy development on common grazing has resulted in proposals that crofting legislation should be amended in order to facilitate development in the interests of crofters. Crofting tenure imposes certain burdens on land and gives crofters rights over that land which are not acceptable to developers or lenders. So in normal circumstances anyone proposing any kind of development on croft land would proceed only after the land has been removed from crofting tenure. Energy developers are no exception and at present to leave land on which a wind farm is to be erected in crofting tenure would be an unacceptable financial risk.

Existing provision 4.7 The Crofters (Scotland) Act 1993 currently provides that development may be secured on common grazing through Land Court approval of resumption of the land, with compensation paid to crofters for loss of their rights and further payment of a share of the income expected from the development. Unless the crofters all agree otherwise, the payment in respect of future income must be a lump sum amounting to half the difference between the market value of the land resumed and the crofting value of that land. Where the development requires a particular management regime on surrounding land (e.g. no burning of heather), it may also be possible to resume specific rights in that area of grazing with compensation payable to the crofters. However, rights in common grazing which may be resumed do not appear to include the right to apply for an apportionment.

Apparent difficulties 4.8 Experts involved in wind farm development have identified as difficulties from their perspective:

• The question whether the Land Court would agree a deal arrived at between developer, landlord and crofters.
• The constraint of providing payment (which could be considerable) to crofters in a lump sum rather than annual instalments, should that be their choice.
• The concern that section 5(3) agreements may not bind successors.
• The inability to secure surrounding land from apportionment except by resuming that land from crofting tenure.

Agreements between crofters and their landlord

4.9 One of the major difficulties facing renewable energy developers was the prospect that crofters would assert their rights to do things on common grazing which would be harmful to the development. There were particular concerns about the right to buy, the right to plant trees and the right of muirburn. The Crofters (Scotland) Act 1993 provides at section 5(3) that a crofter cannot enter into agreements with the landlord by which the crofter is deprived of his rights except with the consent of the Land Court. This control over agreements which reduce crofters' rights exists in order to ensure that the crofters involved receive fair treatment.

4.10 Crofters can nevertheless, with the consent of the Land Court, agree not to exercise certain rights but, for two reasons, this type of agreement is of limited value. First, because such an agreement does not enable a crofter to bind successors to the tenancy to the agreement. Secondly where the development is on a common grazing in order for this approach to work all the crofters must agree.

4.11 We considered how we might resolve these difficulties and the draft Bill includes a specific provision at section 11 to allow crofters to make agreements binding on their successors. This approach will also assist with creation of new crofts because it will mean that the tenant of a new croft can agree not to exercise the right to buy the croft and/or the house and garden site and that agreement can if desired bind the crofter's successor to the tenancy. This makes it more likely that landowners will be prepared to create new crofts. The second problem is dealt with by means of an alternative mechanism discussed at paragraphs 4.16-4.22 below.

Do you foresee any difficulties inherent in allowing a crofter, subject to the consent of the Land Court, to enter into an agreement which would be binding on successors to the croft tenancy?

Resumption

4.12 Crofting law allows a landlord to resume croft land for various reasonable purposes. The right to resume is not absolute. The landlord must apply to the Land Court for consent to resume the land and the Court will only consent to the resumption if it is satisfied that the proposed resumption is for a reasonable purpose and meets certain other tests specified in the legislation. The draft Bill therefore includes a number of provisions on resumption which will facilitate development of croft land whilst protecting the interests of the croft tenants.

Reasonable purpose

4.13 Although the law provides that land may be resumed for a reasonable purpose it also provides some examples of activities which are considered to be reasonable purposes. Energy development is not one of these. So, whilst it might be expected that energy development might nevertheless be construed by the Court as a reasonable purpose, in the interests of certainty, section 24 of the draft Bill would amend the legislation to designate the generation of energy as a reasonable purpose.

Do you have any concerns about the proposed provision to designate the generation of energy as a reasonable purpose?

Compensation for resumption: Payment by instalments

4.14 The other issue relating to resumption was in connection with the payments of a share of development value to crofters. The existing legislation does not allow staged payments or, part-equity payment for value. So, a crofter need not agree to other payment arrangements and is entitled in law to insist on a single immediate payment. However, the financing of most renewable projects is dependent on the revenue stream after completion and based on an arrangement whereby the landowner gets a share of the annual revenue. The prospect of having to pay to crofters half the difference between the market value of the resumed land and its value as croft land, where the market value will reflect the potential revenues over the lifespan of the project, involves a potentially huge capital outlay. The liability to make a single capital payment at the outset would thus be a major disincentive to the development of croft land for energy development. The draft Bill contains a provision at section 24 that would allow the Land Court, on application by the landlord and where it considers it appropriate to do so, to specify that the crofters share of the development value will be payable in instalments and that the determination by the Court should be binding on successors in title to the landlord.

Do you agree that it is essential to make provision whereby in certain circumstances the crofters share of development value derived from resumed land should be payable by instalments?

4.15 There is also a strong case for providing that the entitlement to receive the instalments should be attached to the croft rather than, as in the draft Bill, to the person who is the tenant of the croft at the time the land is resumed. This approach would go a long way to ensuring that revenues from such developments are retained in the area affected by the development. However, a problem with this approach would be that the price of a croft tenancy in those circumstances could be well beyond the resources available to most prospective tenants.

Do you consider that the right to receive instalment payments made in connection with the resumption of croft land should be attached to the croft or do you wish the payments to be made, as provided in the draft Bill, to the person who was the croft tenant at the time the land was resumed?

Development schemes

4.16 All of the measures covered in paragraphs 4.9-4.15 above help with development of energy projects on croft land but although they deal with some of the difficulties the process remains complex and uncertain. There is therefore a significant disincentive to using croft land for such developments where there is an alternative. Consequently the proposal to allow for approval of a comprehensive development scheme has been devised and provided for at section 32 of the draft Bill.

4.17 In essence this approach would involve the landlord in preparing a scheme for the construction of a development on the croft land and applying to the Land Court for consent to that scheme as a whole. This would be done instead of the landlord applying to resume land or seeking to negotiate agreements with individual crofters. There would be no restriction on what the scheme might provide for in relation to crofts and common grazing and removal or modification of crofters rights in that property. It would require to put in place enforceable arrangements for securing payments to crofters, it might also alter or reduce the landlord's rights, it could bind a third party such as a developer and it could set in place arrangements for enforcing the provisions of the scheme. The draft Bill proposes strict criteria to be applied by the Court which are designed to protect the interests of the crofters collectively and individually. Furthermore the crofters will have a right to be heard by the Court on issues arising from the application. If the Court consents, the scheme would bind the landlord, the crofters and any third parties covered by the scheme (typically that would be the developer and whoever will ultimately be the owner of the development). There is no provision for the Court to alter or add conditions to a Scheme. The Court must either give or refuse consent.

Discussion

4.18 The development scheme approach is envisaged as a more flexible alternative to resumption which would be fairer to the crofters and would enable complex management arrangements to be created and dealt with quickly. Like resumption it does not depend on the consent of the crofters and thus avoids the problems inherent in minority opposition. However, the barriers to obtaining the agreement of the Court are substantial and such schemes are only likely to succeed if crofters have either been involved in negotiating the terms or are left no scope for demonstrating that the scheme is either unfair or offers unfair recompense. Because these schemes can only be used in situations in which resumption is available as an alternative there do not appear to be any European Convention on Human Rights (ECHR) issues.

4.19 In order to protect the interests of the crofters the draft Bill would require the Land Court to be satisfied that:

• the development to which the scheme relates is for a reasonable purpose as defined in the legislation for the purpose of resumption.
• the scheme would not be unfair (there is a definition of unfair in the draft Bill which makes it clear that if particular individuals are disproportionately affected that is unfair).
• there is fair recompense to each member of the crofting community for the effects of the development (the draft Bill makes clear that to be fair the compensation to individuals should be determined by the effect of the development on that individual).
• in relation to the croft land involved in the scheme that the compensation paid to each crofter is at least equivalent to the compensation that crofter would have received if the land had been resumed.
• the community would be likely to benefit financially.
• the benefit to the community would be at least commensurate with the benefit that the community could expect to obtain if the development went ahead by any other means.

4.20 It will be possible for members of the community to make representations to the Court if they believe the scheme to be unfair to them either collectively or individually. However, no individual or group will be able to prevent a scheme being implemented on grounds of principle. This will mean that those opposed to energy development will not solely be able to use crofting law to prevent a development for which planning permission has been granted.

4.21 The safeguards for crofters' interests are clear and, financially, at least equitable with those provided by the current legislation. It is also clear that the interests of individual crofters are advanced, in comparison with resumption, by the requirement that any scheme must be fair to all.

4.22 These new arrangements would be available for all proposals to develop croft land. This is because they have potential uses beyond renewable energy generation and it would be legislatively complex to confine their use to such projects.

The Executive would appreciate comment on the Development Scheme concept, including views on the need for such a measure and in particular on how the proposals in section 32 might work in practice.

Return of Apportionment to Common Use

4.23 It was suggested that where a crofter or owner-occupier has no further use for an apportionment or where an apportionment is no longer in use it should be possible for a crofter to apply to the Crofters Commission for return of the apportioned land to the common grazing in exchange for return of the grazing shares that crofter originally surrendered when the apportionment was granted.

4.24 Paragraph 16 of Schedule 2 to the draft Bill makes provision whereby the Crofters Commission can provide that apportionments are for a fixed period or subject to review from time to time and that the conditions applicable to the apportionment can be varied by the Crofters Commission on the request of the grazing committee, owner or crofter.

You are invited to indicate whether you believe the provisions in paragraph 16 of Schedule 2 to the draft Bill meet the need for flexibility over long-term management of apportionments.

Existence of a Croft

4.25 Consistent with the acceptance of boundaries after 20 years (discussed at paragraphs 4.2 and 4.3 above), it was proposed that where land has been registered as croft land and treated as croft land for 20 years, its status as croft land should be beyond legal challenge.

Consideration

4.26 This proposal which was not discussed in the White Paper would secure the status of land which has been registered as croft for twenty years and seems useful in avoiding instances where individual hardship may result from challenge, whether successful or not. It is 50 years since the 1955 Act was passed with its requirement for the registration of holdings as crofts. It seems that 50 years ought to be sufficient time to permit challenge to the status of individual holdings which have been recorded in the Register of Crofts. Section 33 of the draft Bill would amend section 53 of the 1993 Act to provide that the Land Court may not be asked to determine that a holding recorded in the Register of Crofts for more than 20 years is not a croft.

Views are invited on whether the legislation should provide that where land has been registered as, and treated as, croft land for more than 20 years its status as croft land should be indisputable.

Tenancy Options

4.27 One of the responses to the White Paper proposed that a croft tenant should be able to form a limited company to hold the tenancy of his croft. This would bring crofting tenure into line with tenure of agricultural holdings where companies can be tenants.

Consideration

4.28 One advantage would be to allow financial risk to be minimised (i.e. the tenancy would be operated as a separate undertaking from any other business interests which the tenant pursued). Insolvency in that other business would thus halt at the croft gate, protecting the tenancy. This could also encourage enterprise on crofts, particularly in the context of wider uses of crofts by tenants. It would also permit the tenant to introduce others into the management of the croft (e.g. allowing a wife or child to take a 50% share). A further advantage is that it avoids succession problems as the tenancy does not require to be transferred on death of the tenant.

4.29 As against this, a company tenancy could effectively become a tenancy in perpetuity with transfers of ownership of the company becoming the means of transferring the tenancy thus avoiding existing controls over assignation of and succession to a croft tenancy. It is unfortunately likely that this would become the main purpose of a company tenancy.

4.30 On balance, therefore, we suggest that this interesting idea should not be pursued as it would involve a fundamental change from the concept of requiring that the croft tenant should be a particular individual with appropriate skills.

Do you agree that legislation should retain the principle that a croft tenancy must be held by a particular individual?

4.31 Section 11 of the draft Bill modifies the conditions of tenure to enable unacceptable neglect or misuse of croft land to be identified and resolved. It revises the requirement that the croft should be kept in a fit state for cultivation and indicates that in determining whether the croft is being kept in a fit state for cultivation regard should be had to whether appropriate measures, identified in the draft Bill, are being routinely undertaken. An alternative approach which is worthy of consideration would be to apply the rules of good husbandry to crofts as they apply to tenanted farms. This would be a more rigorous approach for which there is already good case law.

Are the measures in the draft Bill which deal with misuse and neglect appropriate or should the rules of good husbandry be applied to crofts? In particular, are there cogent reasons why the rules of good husbandry should not apply to crofters as they do to tenanted farms?

4.32 It had been suggested that the law should be clarified so as to make it clear that a beneficiary who refused the tenancy of a croft would not be entitled to demand the value of the croft tenancy instead. Our view is that if the legatee refuses the tenancy that is a refusal of the bequest which then becomes null and void. As in the case where the Crofters Commission declares the bequest null and void we consider that section 10(5) of the 1993 Act then applies. That section provides that if a bequest becomes null and void the right to the croft is treated as intestate estate of the deceased crofter.

Do legal practitioners agree with our view that the consequences of a refusal of a bequest of a croft by a legatee is the same as if the Crofters Commission declare the bequest null and void and that in such circumstances the right to the croft becomes part of the intestate estate of the deceased crofter?

4.33 The White Paper proposed that "The executor should be empowered during the executry to act in place of a tenant for administrative purposes and for the benefit of the estate". In the bold text following paragraph 3.54 above we indicated that we believed that the Succession (Scotland) Act 1964 provides sufficiently wide powers to enable executors to act in place of the tenant. The original proposal in the White Paper was developed following discussions held with the Crofting Consultative panel that were the focus of discussion on a range of issues before publication of the White Paper. The White Paper therefore reflected real concerns about the role of the executor.
In view of that this consultation paper is inviting comment on any issues surrounding the role of the executor which any consultees feel needs to be dealt with in this Bill.

Please provide details of any problems expected to arise in connection with croft management during a period of executory which it is believed that an executor does not have power to deal with.

Common Grazing

4.34 The White Paper proposals on common grazing drew out three further suggestions:

• that grazings clerks be empowered to enter into management agreements on behalf of shareholders;
• that a simple majority of shareholders in a common grazing should be sufficient to introduce regulations which are mandatory on all shareholders;
• that grazings committees should be empowered to purchase grazings shares which are not attached to a croft and distribute them among their members.

Empowerment of grazings clerks

4.35 The proposal to extend grazings clerks' authority would allow a clerk to become an effective point of management of the common grazing, which could be useful where delay may impede arrangements with third parties and agencies. However, in order to ensure that the shareholders retain full authority, any such power would require to be permissive in the form of a delegation at their discretion rather than mandatory.

4.36 It is questionable whether this is an appropriate matter for legislation as it is clearly the case that grazings committees could, if they so wish, organise their constitutional arrangements to give the necessary authority to their grazings clerk. We believe in any case that the main problem is not so much finding someone to enter into agreements on behalf of the grazings committee but rather the problem lies in ensuring that all those with rights in the grazing comply with the terms of agreement once it has been entered into. There are measures in the draft Bill at section 31 which should allow grazings committees to ensure compliance with agreements they have entered into far more effectively than hitherto. We have therefore concluded that this measure should not be included in the draft Bill.

Do you agree that it is not appropriate or necessary to make legislative provision to empower grazings clerks?

Mandatory grazings regulations imposed by a majority of shareholders

4.37 The proposal that we should legislate to allow a simple majority of shareholders to impose mandatory regulations on all shareholders raises a question of the balance of need in making a common grazing work best. It would arguably be advantageous where the most active stockbreeders wished to join a particular animal quality or health scheme that they should be able to regulate the grazing so as to meet the scheme requirements. It is questionable whether this is an appropriate matter for legislation. The whole ethos surrounding the management of common grazing is one of mutual co-operation. It is certainly possible for a grazings committee to agree constitutional arrangements which can ensure effective management of the grazing and the draft bill provides at section 31 the means by which that management regime, once agreed and put in place, can be enforced. On balance, therefore, our view is that a measure to give a grazings committee power to impose grazings regulations based on a majority vote is not needed and should not be imposed by legislation.

Do you agree that there should not be legislative provision to empower grazings committees to impose requirements on shareholders by majority decision?

Purchase of grazings shares by the grazings committee

4.38 There are an unknown number of grazings shares which over the years have become detached from the crofts to which they originally belonged. It has been suggested that the law should be changed to allow the grazings committee to offer to purchase these shares on behalf of their members in order to distribute the grazing rights among the members of the committee. The proposal does not envisage that there should be any compulsion to assign on the part of the person currently holding the right.

Consideration

4.39 Where the existence of an unused grazings share and the person currently holding that grazings right is known there will clearly be active crofters interested in obtaining that grazings share. Such grazings shares already change hands on assignation or renunciation. They can also be sublet and are often unofficially made available to other individuals. In addition the grazings committee already has the power to temporarily re-allocate unused grazing shares. So although the idea that the grazings committee should buy out these shares so that they might be distributed to other active crofters seems attractive it does not appear to be necessary for the effective management of common grazing. Indeed there is a risk that it may be mostly used to prevent individuals getting exclusive use of these unused shares.

4.40 The reason that grazings committees cannot at present acquire such shares is that these shares are deemed to be crofts and the tenancy of a croft can only be held by an individual. To give effect to this proposal it would be necessary to provide that a grazing committee could be the tenant of a croft and assignation to the committee could then take place with the committee then being free to retain the share for communal use or divide and re-assign the rights to individual crofters. This would, however, breach the principle of crofting tenure that a croft must be held by an individual. In addition it would be a complicated and relatively expensive process so that in most cases given the very low value of grazing shares it would simply not be worth doing. Whilst legislation could be framed so as to allow a grazing committee to be a croft tenant it is questionable whether it is necessary given that there are existing effective mechanisms for dealing with unused grazing shares.

Is it necessary or desirable to legislate to allow a grazings committee to be the tenant of a croft?

Access Across Crofts

4.41 There are instances where the only practical or vehicle access to a croft is across that of a neighbour. This can result in difficulties when crofters fall out. The 1993 Act provides at Schedule 2, paragraph 11(e) that the landlord may open or make a road to provide access, but this is dependent on the landlord's willingness to become involved.

4.42 A partial remedy would be to enable a crofter to apply to the Land Court to direct the landlord to provide a right of access where there is no vehicular access and it appears necessary and appropriate to provide an access route over other land owned by the landlord.

Would it be appropriate to provide in the draft Bill that a crofter should be able to apply to the Land Court to direct the landlord to provide a route for vehicular access to a croft where none exists?

Extending crofting tenure

4.43 The White Paper indicated at paragraph 3.2 that Ministers had relinquished the concept of extending crofting tenure beyond the crofting counties. They believed it to be unnecessary because the provisions of the Bill which has since become the Agricultural Holdings Act 2003 gave the tenants of other agricultural holdings the same degree of security as crofters. In addition that Act has also provided a right to buy. It is now possible to create holdings in the rest of Scotland which in terms of tenant's rights and landlord's responsibilities can be identical to crofts without extending crofting legislation.

4.44 A particular issue relates to tenants holding land under the Small Landholders (Scotland) Act 1911. Crofting legislation made such holdings in the Highlands into crofts. So far as we are aware there are very few such holdings left in non-crofting areas. Most have become part of an agricultural tenancy or become owner occupied holdings. There may be an expectation that if crofting tenure was extended beyond the crofting counties any such holding would automatically become a croft and the tenant would have an absolute right to buy on the same basis as a croft tenant at a price approximating to 15 times the rent.

4.45 It should be understood that this matter is much more complicated. Just as in the crofting counties a tenant of a holding which is not registered as a croft would require to take Court action to prove that the property is a croft. Furthermore any legislation which would allow this to happen would need to take account of the European Convention of Human Rights which would require payment of compensation to the landlord to reflect the loss of value in the property in the event that such a property were to be re-classified as a croft. Inevitably responsibility for paying that compensation would fall to the tenant and it would be bound to take account of the loss of value that would result from the right to buy at a pre-determined price. In short there is no prospect that a measure of this nature would allow tenants of such holdings to acquire them for significantly less than the market value of the holding.

Land Reform Avoidance Issues

4.46 Ministers are aware of suggestions that landowners may seek to avoid the intention of the Land Reform (Scotland) Act 2003 by leasing or otherwise transferring property rights connected with their land prior to purchase by the crofting community. If this proves to be the case, this Crofting Reform Bill will be used to introduce measures to ensure that crofting communities buying croft land under the Act will be able to apply to purchase such resources.

4.47 In particular, consideration will be given to creating a crofting community right to buy any existing lease over the croft land which has been acquired through a crofting community right to buy. This would apply to leases other than those leases already specifically dealt with in the Land Reform (Scotland) Act and croft tenancies. Any such right to buy would be subject to the same requirements regarding public interest and compensation as apply to the right to buy the land. In addition we intend to consider whether any of the provisions of existing crofting legislation or any of the measures in this draft Bill could be used by a landowner to frustrate or delay a crofting community right to buy application and if necessary these provisions will me modified so as to prevent such use.

We would be grateful for information about ownership or management devices believed to have been put in place in order to frustrate attempts by a crofting community body to use the crofting community right to buy to acquire full control of relevant croft land. In particular information is required about how these mechanisms will operate.

Regulatory Impact Assessment

4.48 The Regulatory Impact Assessment of this legislation is included in this consultation document at Chapter 6. The purpose of that assessment is to assess the cost to business of the changes introduced in the draft Bill and to weigh these against the benefits brought by the draft Bill. For the purpose of the assessment we have assumed that crofts and crofting estates are businesses although certainly in the case of crofts perhaps the majority will not be operated as businesses.

4.49 The draft Bill is intended to deregulate many aspects of crofting tenure. It will reduce the regulatory burden on crofters and crofting landlords and in particular will remove some quite onerous responsibilities from crofting landlords. It will also extend the rights of crofters and landlords to challenge Crofters Commission decisions affecting their interests by appeal to a court. Nevertheless the assessment identifies some areas where additional costs might arise and discusses the impact of these on all relevant parties.

We would be grateful for comment on any or all of the matters discussed in that Regulatory Impact Assessment including views on the appropriateness of cost estimates and views on any other matters arising from the draft Bill which may have cost implications for businesses.

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