Crofting law reform proposals: consultation analysis

2. Entry to Crofting

Croft tenancies for two people

Since 1912 any assignation^[3] of a croft tenancy can only be to one person. To support entry into crofting, the Scottish Government sought views on extending assignation of a croft tenancy to two people as a joint tenancy. The consultation paper notes this could make crofts more affordable and help with crofting entry and succession. For instance, two people could pool their resources to buy a croft tenancy, knowing they could both become joint tenants. There are, however, potential risks with joint tenancies such as disputes between tenants or increased fragmentation of crofts, and the proposal is therefore to limit the number of joint tenants to two, rather than an unlimited number.

Almost half the respondents left a comment to explain their answer. While the closed-question results indicated majority support among those answering, the most common view among those who commented was that this proposal would increase legal complexity, and not adequately address the stated aims. Other themes were that joint croft tenancies would benefit specific groups, or that they could increase conflict or legal challenges; there were also some ideas for approaches that could support the proposal.

Joint tenancies could increase legal complexity

Those who expressed concerns regarding the increased legal complexity, suggested it could result in increasing challenges for the Crofting Commission. Some reflected this could necessitate detailed advance agreements or lead to protracted negotiations when investigating breaches of duties.

The proposal will not meet its stated aims

Despite the proposal's overall support, many felt that it would not meet its intended aims. Comments in this theme included that the cost and availability of crofts were the real issues.

“Our main concern about this proposal is that it does not tackle the underlying issues that are making crofting inaccessible - namely the unregulated market in crofting tenancies that is pricing young people and families out. We need more crofts to be made available at affordable prices to ensure generational renewal and strong crofting communities. Joint tenancies may be useful to some people, but they do not address the issue of skyrocketing land and tenancy prices.” – the Landworkers’ Alliance

Joint tenancies could increase conflict or legal challenges

Several respondents highlighted the potential for legal challenges between joint tenants due to the potential for disagreements. Conflict could arise from, for example, the dissolution of partnerships, succession and crofter responsibilities. Attendees at the Portree and Tiree stakeholder events queried how testate and intestate succession would work for a joint tenancy, following the death of a joint tenant.

“If it is a joint tenancy this creates a far more complicated scenario when the tenancy is to be passed on to a member of the family on the death of one of the tenants. It would mean what is at present a relatively simple process becoming bogged down in legal arguments. particularly if the succession is contentious in any way. Another layer of legal expenses, as if there were not enough already.” - Individual

Suggestions on how to introduce joint tenancies

Approaches or frameworks to support joint tenancies in practice were suggested by several respondents.

The suggestions included:

• Restricting division of jointly owned crofts.
• Limiting the heritable tenancy to the duration of the partnership, with transfer to a further generation occurring only with Crofting Commission scrutiny and the preparation of written plans for the future of the croft in question.
• Providing template agreements to manage the relationship.
• Allowing joint tenants to each have a vote in grazings committee decision-making, a suggestion made by participants in the Barra stakeholder event.
• A process for dissolution of joint tenancies.
• Allowing ‘first refusal’ at an agreed price for the other joint tenant, if a person wishes to give up their half of the tenancy.
• Providing development assistance to new crofters along with incentives for existing crofters to handover and exit crofting.

Joint tenancies could increase fragmentation of crofts

Several felt that joint tenancies could, over time, lead to crofts being split following succession or to resolve disputes, which could lead to crofts becoming less actively worked, for instance, due to their small size.

Joint tenancies can benefit certain people

Joint tenancies have the potential to benefit certain groups, according to several respondents. Two thirds of respondents raising this theme agreed with the proposal. Some of these comments highlighted the benefits for unmarried couples; providing greater assurance and security to the partner not currently named as a tenant.

The value of the joint tenancy option in supporting succession and entry into crofting was also highlighted as a benefit. In these comments the potential for joint tenancies to improve gender equality and increase the number of women crofters was noted. Two respondents highlighted the proposal could enable horticultural partnerships.

“Yes, in principle, for instance, if the crofter became unable to manage the croft, it would enable their partner to take over the croft. In our case, we have two daughters... in an ideal world it would be great to assign the joint tenancy to them both. I'm sure there would be pitfalls with joint tenancies, but there are with the existing sole tenancy rule.” – Individual

Could fuel croft price increases

Several suggested that the potential for two people to pool their resources to buy a croft could fuel an increase in croft prices. For instance, one individual felt it “legitimises the free market in crofts” while another felt policies were needed to ensure incoming tenants only paid for the “reasonable value of improvements” rather than the market price.

Aligns with other policies

Several respondents commented that allowing joint tenancies aligned with other policies, notably those governing owner occupiers, land tenure, farm tenancy and business partnerships.

More information is required

The need for more detail about the proposals was highlighted by several respondents. From most to least mentioned, specific areas for further exploration included: determining the demand for joint tenancies; clarification of duties of joint tenants; clarifying arrangements in place upon the death of a joint tenant; and a statutory process for resolving disputes and dissolution of tenancies or sale of the croft.

“Consideration could be given to the extent to which the succession process should be controlled in circumstances where there are joint tenants. For example, whether the tenancy could only be transferred on succession following the death of a tenant either (i) by one joint tenant to the other; or (ii) by both joint tenants to a third party (albeit noting that it is unlikely in practice that two tenants would die at the exact same moment in the context of transfer by succession). Similar considerations apply in respect of how a lifetime assignation of one of the two shares would be possible, and any restrictions that would apply in this context; as well as the effect of a joint tenant seeking to terminate/renounce their interest.” – Law Society of Scotland

Other issues

Some respondents expressed support for joint tenancies without elaborating further, while some advocated for other initiatives that could support people to gain entry to crofting. One individual felt joint tenancies could simplify matters. Another called for the abolition of the Crofting Commission calling the system “archaic”, a point they reiterated across their response to multiple consultation questions.

Standard securities

The Scottish Government wish to ensure that tenants and owner-occupiers have an equivalent balance of rights and responsibilities within the crofting system. The respective rights of an owner-occupier and a tenant are very different as a matter of general property law; for example, only an owner-occupier can use the croft as security for a loan. An equivalent balance of rights would include a similar ability to borrow against the value of the land if owned; or the value of the lease if rented.

The Scottish Government sought views on whether, in principle, the power to grant a security over a croft lease would be supported.

Q1.6 Do you wish to add comments in regard to the proposed application of standard securities to crofts?

Over half of respondents left an open comment to explain their views on the proposed application of standard securities to crofts. However, most of those leaving an open comment in response to Q1.6 tended to highlight concerns or more negative views about the proposals. Potential lending issues was the most common theme in comments, followed by concerns about the potential for increasing croft purchase prices. Other themes included: general suggestions about securities; negative views on the proposals; or that more work is needed. Several expressed a view that the proposal could make it more challenging to enter crofting, particularly for young people.

While respondents were more likely than not to support the proposals set out in Q1.2 to Q1.5, only some of those who left an open comment expressed positive views, such as that the proposal could support people to become crofters.

“This may increase the amount of people able to purchase a croft.” - Individual

Comments on borrowing and lending

The most frequently expressed view on borrowing and lending was that lenders would be unlikely to lend to tenants due to, for instance, restrictions on crofts should the loan be defaulted, or non-compliance with crofter duties. This view also was noted by participants across stakeholder events.

Other respondents suggested ways to tackle defaulted loans, such as allowing lenders to sell tenancies on to recoup their money back in case of loan defaults, or for the Scottish Government to act as guarantor with the lender being required to sell the croft to the Government or Crofting Commission for assigning.

One suggested the need to ensure financial and crofting regulations align. The Crofting Commission noted that increased use of securities could result in capital inflows to buy and improve crofts, but also outflows through releasing equity for other purposes such as funding care for older relatives.

The proposal could increase the price of crofts

Many respondents raised concerns that facilitating commercial lending could fuel croft price increases, particularly as croft prices cannot be legally capped or restricted. This was also highlighted at various stakeholder engagement events. The majority of these respondents did not support the proposed application of standard securities to crofts. Their arguments included that this would exacerbate market forces, meaning crofts would be bought by those with the greatest financial means rather than those that could benefit, such as young local people.

“CLS does not support the facilitation of commercial lending to crofting as it could reinforce the marketisation of crofting which has made it so challenging for many to become crofters. CLS are concerned that introducing standard securities and joint tenancies will further contribute to the market in crofts and the complexity of crofting regulation, without addressing the fundamental issues of the obstacles facing young new entrants to crofting, especially the young people from existing crofting families.” – Community Land Scotland

General suggestions

General suggestions about securities and access to finance were shared by many respondents. These included:

• Incentivising the creation of crofts under the Land Reform Bill;
• Restricting the right to buy; creating specific loans;
• The Crofting Commission acting as guarantor for loans;
• Regulating the crofting tenancy market including capping the amount tenancies can be sold for.

Despite a fairly even split in yes/no responses, many expressed their disagreement or gave negative comments about the proposal to introduce standard securities. These respondents expressed mixed views about whether lenders should be able to assign the tenancy to a new tenant provided the landlord or Crofting Commission agrees.

More information is required

Several respondents called for more detail about the proposals and advocated for a greater focus on efforts to reduce market prices for crofts. Specific areas included further exploration of lenders’ appetite to provide loans; to determine the rights and responsibilities of tenants and creditors; and to devise mechanisms to take out loans.

“We consider that more detail would be welcomed on how the mechanism will work and related practical and commercial considerations, including how the bank’s interest would be dealt with following enforcement of the security. We consider that this area would particularly merit substantial stakeholder engagement, including with lenders and other relevant stakeholders, e.g. rural housing bodies operating in the crofting counties.” – Law Society of Scotland

Could create challenges for certain groups

Another view, expressed by several, was that the proposal could make it more challenging for certain groups to enter crofting. These comments highlighted the potential exclusion of those on low incomes, young people or those with a lack of savings, who may find it more challenging to raise funds. Community Land Scotland suggested that those who managed to raise the finance to purchase a croft would then have insufficient funds remaining to run croft enterprises.