The Road Less Travelled Compensation for Permanent Croft Improvements

Compensation to crofters for permanent improvements is one of the original principles on which crofting law was established. Together with security of tenure and controlled rents, the principle of compensation was introduced by the Crofters (Scotland) Act 1886 to protect crofters who had invested in their crofts.

Compensation is seldom claimed these days because most croft tenants prefer to assign their tenancy for a consideration, rather than to renounce their tenancy.

Compensation also falls due when a crofter is removed from his tenancy, or when a crofter dies and his interest in the tenancy passes to his estate (and the tenancy is then terminated under section 16 (3) of the Succession (Scotland) Act 1964).

It is important to note that the compensation provisions, which can be found at s.30-32 of the Crofters (Scotland) Act 1993, do not apply on assignation of a tenancy.

A list of permanent improvements can be found at Schedule 3 to the 1993 Act:-

1. Dwelling house (not a second house);

2. Improvements under notice of final resolution under Part IV of the Housing (Scotland) Act 1987;

3. Farm offices;

4. Subsoil and other drains;

5. Walls and fences;

6. Deep trenching;

7. Clearing the ground.

8. Planting tress other than under Section 48(4) of the Act;

9. Making piers or landing stages;

10. Roads from the croft to the public road or sea shore;

11. All other improvements which the Land Court judge as adding to the agricultural value of the croft as an agricultural subject.

12. Buildings or other structures erected under Section 5 of Crofters (Scotland) Act 1961 or Section 31 of the Act, being buildings or structures which are fixtures on the land, or works executed under the said section 5 or 31.

All of the above can be improvements providing that the improvement is suitable to the croft*, was paid for or executed by the crofter or any predecessors in tenancy, and either was executed not in pursuance of a specific written agreement (under which the Crofter was bound to execute it) OR it if was executed in pursuance of such an agreement, the crofter has not received any reduction in rent or other fair compensation.

*Beware, a large modern house may not be suitable to a croft of very low agricultural value.

Other Points to Note

• Improvements carried out by a sub tenant can be claimed by the tenant.

• Compensation has no place in relation to owned or owner-occupied crofts.

• Moveable equipment and farm machinery are not permanent improvements

• Although generally permanent improvements must be on the croft itself, there is caselaw to the effect that the crofter should be compensated for a peat road out with the croft.

• Equipment provided wholly by a landlord is not classified as a permanent improvement – this would be fixed equipment.

• Compensation cannot be claimed in respect of improvements made in relation to putting the croft to another purposeful use (i.e. a use other than “cultivation”) UNLESS the landlord confirms in writing that the exclusion does not apply.

How to Assess Compensation:

There are two methods of valuing the croft improvements, and the crofter (or executor of the deceased crofter) is entitled to receive the higher of the two:-

1. The open market method, and

2. The “incoming tenant” valuation – only applicable in some cases.

The “Open Market” Method is described by Flyn and Graham (Crofting Law, Azizandum, 2017 at page 96):-

“The value of an improvement shall be taken to be the amount, if any, which, having regard to the location of the croft and any other circumstances which might affect the demand for the tenancy thereof, the landlord might reasonably be expected to receive in respect of the improvement from a person who might reasonably be expected to obtain a tenancy of the croft if the croft were offered on the open market for letting with entry on the date on which the crofter renounced his tenancy, or was removed from the croft, or the tenancy was terminated.”

Improvements are valued at date of renunciation of the tenancy or removal of crofter and the value of any assistance or consideration given by landlord or predecessors in title must be deducted from the valuation figure.

Failing agreement, the value of any compensation shall be fixed by the Land Court.

Case Study

Lochalsh Estates v Macrae and Another

(RN/SLC/60/02 Order of 28/1/04)

This case involved a crofter who was removed from his croft due to bankruptcy (a breach of the statutory conditions which cannot be remedied). His trustee in bankruptcy claimed compensation from the croft landlord, Lochalsh Estates, and was entitled to utilise the higher of the two valuations mentioned above, namely the open market and incoming tenant valuations respectively.

It was agreed that the only improvement to be valued was the pre-1945 croft house, which was just about habitable but in poor repair and in need of fairly extensive modernisation and repair.

The landlord’s valuer set the open market and incoming tenant values at £35,000 and 31,500 respectively. The trustee’s valuer, on the other hand, was of the view that the open market value was £38,000.

The Court ultimately preferred the former, which had been carried out on the basis of what an incoming tenant would pay the landlord for the house, on top of the price for the land itself.

The alternative method, rejected by the Court, was to establish the costs of building a similar house now, and then to deduct an element for deterioration through wear and tear.

If you would like to discuss how I can help you, drop me an email (eilidh@camus.scot) or give me a ring (07876 513404).