Small landholdings in Scotland: legislation review

Compensation for Improvements

Issues Raised

108. Some small landholders believe that they are not adequately compensated for improvements. However, the tests are broadly the same as exists for other types of agricultural lease. Some landlords also argue that the estate cannot support small landholding improvements due to insufficient capital.

Legislation

109. When a small landholder renounces or is removed from the holding, they are entitled to compensation for permanent improvements made on the holding by themselves or their predecessors in the same family. ^[80]

110. The improvements for which compensation are payable include: dwelling houses; farm offices; drains and fences; and generally all improvements which in the judgement of the Scottish Land Court will be of value to any incoming small landholder ^[81] , which is similar to tests for other types of agricultural tenancies. In addition, in order for an improvement to be eligible for compensation it must be one that is suitable for the holding. Improvements are valued at such a sum which fairly represents the value of improvements to an incoming small landholder. ^[82]

111. When a small landholder gives notice of renunciation of their tenancy, parties may agree between them the level of compensation due to the small landholder for improvements. If agreement is not reached improvements are valued by the Scottish Land Court who will assess the compensation payable to the small landholder for any permanent improvements carried out by them during the tenancy (provided that they had not received consideration for them by the landlord, for instance in the form of reduced rent). ^[83]

112. No provision requires small landholders to seek the consent of the landlord or to give notice to the landlord of any improvements. The landlord may take comfort from the knowledge that it is only improvements that are of value to the incoming small landholder and are appropriate for the holding that qualify for compensation. ^[84]

113. If the small landholder renounces or is removed from the holding, the landlord is entitled to offset all rent due or to become due against any sum due to the small landholder for improvements. ^[85] Removal of a small landholder for breach of statutory conditions is not in itself an exclusion of the right to compensation.

Discussion

114. Criticisms about waygo appear to be about the monetary value assigned to improvements. No criticisms emerged about the waygo process itself. Therefore there are likely to be limited ways to address this through legislation. Indeed, the Court of Session has held that "the process of valuation is not a piece of legal reasoning, but a problem for experts, and that it is impossible to affirm that there is any one single formula which must be applied as the sole and exclusive principle in valuing permanent improvements". ^[86]

115. In addition, if improvements are not suitable for the holding, the compensation the small landholder receives on waygo may not reflect the cost incurred of executing the improvements. ^[87]

116. Criticism of monetary value assigned to improvements at waygo is an issue for all tenant farmers, not just small landholders. Such calculations are a matter for negotiation between the two parties concerned, or for judicial determination. ^[88] The production of non-statutory guidance may help to improve the process when agreement cannot be reached, but any such guidance would not be legally binding, and both small landholders and landlords should seek independent advice if there is a dispute.