Tuesday, 1 January 2019

Stornoway Windfarm

There's been renewed debate recently about windfarms on Lewis except this time it's not about whether there should be large scale windfarms on the island but who should build and operate them - the landlord in partnership with a multi-national energy giant or local crofters in partnership with a community development trust?

It’s classic big guys v little guys, capitalism v localism stuff. I’m more interested in the legal issues than the political, though, and, especially with crofting law in the mix, it throws up enough legals to keep a roomful of lawyers employed full time. In this first post, I’m just going to write about the factual background and history and some basic underlying law. Anyone reading this who lives on Lewis will likely already know all the facts and much of the law, especially the crofting.

Note - I don't know how to do linked footnotes so footnotes are in bold square brackets like this - [1] - and you just have to scroll down to the bottom if interested. Sorry!

Click map to enlarge
History
Back in 2004, a company called Lewis Wind Power Ltd (LWP – see below for who’s behind it) entered into contracts with a number of landowners on Lewis to build what would have been the biggest windfarm in Britain. Involving 180 turbines (scaled back from an original 230 [1]) across a huge swathe of the northmost half of the island and attracting widespread local opposition, planning permission for this was eventually refused in April 2008, mostly on the grounds of adverse environmental impact (EU protected peatlands and nesting birds). But LWP didn’t give up their renewable energy ambitions on Lewis and moved to concentrate on a smaller scheme in a less environmentally sensitive area on land belonging to the Stornoway Trust about 3 miles west of Stornoway where there was also less local opposition. Long/short is LWP received planning permission [2] in September 2012 for 36 turbines 143.5 metres tall with an aggregate capacity of 129.6MW (Megawatts: I think that means that, if the turbines were all spinning at optimum speed, they could light up 1.3 million 100 watt bulbs). That permission was varied in 2016 to increase the size of the turbines to 145m giving tham an aggregate capacity of 180MW. [2A] But despite having had planning permission for a while, construction of the windfarm hasn’t started yet. This is for three main reasons which I’ll come to below but first who’s who.

LWP's Stornoway windfarm - click to enlarge
Who are LWP?
LWP started life as a joint venture between British Energy (BE), the privatised incarnation of the former state owned nuclear industry, and AMEC, an energy sector engineering company (not to be confused with Amey best known for building and maintaining roads). BE got into financial difficulties in 2009 and had to be bailed out by the Government who sold it to EdF (Electricit√© de France). This is the 85% French government owned electricity generator of France (where there has always been a much higher component of nuclear in the generation portfolio) turned multi-national. Thus, they own the Torness and Hunterston B nuclear power stations but also hold the contract for the supply of electrity to all Scottish public sector buildings (schools, hospitals etc.) so they’re no strangers here. [3] After being briefly known as AMEC Foster Wheeler, AMEC were taken over by Aberdeen based energy services firm The Wood Group in October 2017 which has since rebranded itself simply as “Wood”. So LWP is now a JV between EdF and Wood although it’s common to see just EdF referred to as the developer. (Paradoxically, it used to seem to be just AMEC that got mentioned.)

Strictly speaking, since 2016, the developer of the Stornoway windfarm has been a subsidiary of LWP called Stornoway Wind Farm Ltd. [4] This is to keep it legally separate from the 45 turbine/162MW windfarm project which LWP bought in 2016 called Muaitheabhal (“MOO-aya-val”) on privately owned Eishken Estate about 12 miles south of Stornoway. This is the one that was originally being progressed by Beinn Mhor Power Ltd, a company owned by the owners of Eishken, the Oppenheim family – it wasn't part of the original LWP scheme turned down in 2008. Also not built yet, and more recently being referred to as Uisenis (“OOSH-i-nish”) windfarm [6], it’s less controversial because it’s not on crofters’ common grazings. I'm going to continue to refer to LWP as that’s how they brand themselves at both projects despite the underlying corporate structure. And references hereafter to LWP’s windfarm are to the Stornoway one, not Muaitheabhal/Uisenis. [7]


The Stornoway Trust (SYT)
The owner of the land LWP’s Stornoway windfarm will be sited on is Scotland’s oldest community landlord. When the last private owner of the whole of Lewis, Lord Leverhulme (eponym of today’s Unilever), disposed of the island in lots in 1923/24, he gifted the entire parish of Stornoway [8] to its residents. The gift is administered by trustees periodically chosen by all residents on the Voters Roll in elections overseen by the Electoral Reform Society. As well as the real estate, the SYT has a cash endowment (investments etc.) of around £2.5 million. I don’t know whether SYT makes grants to local good causes – unusually for a community landlord, it doesn’t have a website offering such information. [9] I suspect it doesn’t for the simple reason that it seldom has enough of a surplus: running a crofting estate is not a profitable business and I imagine its management swallows up the income from the cash endowment with little left over. The rental income which would be received from LWP will be transformational.

You can see the SYT’s Deed of Trust on their Facebook page. It refers to benefiting “the community” but doesn't define what that community is. This might matter for reasons I’ll come back to. [10] I imagine it can’t be anything less than the residents of the whole of Stornoway Parish but could SYT reach further? In a Comhairle nan Eilean Siar (CnES – Western Isles Council) minute on the subject of a joint approach to the equity participation (more on this below) being offered by LWP to SYT and CnES in, respectively, the Stornoway and Muaithebhal/Uisenis windfarms we get the following hint (in para. 4.7) of SYT’s view on this matter:

an appropriate amount could be ring-fenced to the Stornoway Trust area to reflect the community’s expectation that the  [offer of equity particpation to SYT] was to benefit the host community, within Stornoway Trust boundaries. The remaining generation, or benefits could be disbursed across the Outer Hebrides, from the Butt to Barra.

Interconnector (HVDC Cable) and grid
The first reason why LWP haven’t built their windfarm yet is because the existing subsea cable across to the mainland isn’t big enough to carry all the juice it will generate. It's only capable of handling about 20MW but Scottish and Southern Energy Networks (SSEN) [11] plan to lay a new 600MW cable big enough to accommodate LWP and with plenty of room for future expansion. This cable is referred to as the “interconnector” or, in more technical language, the HVDC (High Voltage Direct Current) cable. [11A] It will run from Arnish just south of Stornoway to Dundonnell on Little Loch Broom in Wester Ross and run from there underground east to join the new Beauly-Denny HV line. After years of delay, the latest estimate for completion of this is in 2023 at a cost in the region of £700-800 million. [12]
The interconnector isn’t a done deal yet. Generators and suppliers of electricity (not the same people) pay to use the national grid (of which the interconnector will become a part) and pass that cost on to their customers, ultimately Joe Public paying his electricity bill. In the north of Scotland, the grid is owned by SSEN but operated by UK-wide National Grid plc (c.f. the railways being owned by Railtrack but operated by Abellio-Scotrail et al). SSEN and NG are both private companies albeit acting in a market heavily regulated in order to ensure security of supply of electricity at reasonable cost to consumers. The interconnector is not being delivered by Government at the tax payer’s expense like a new road or bridge. [13] I understand that, in order prevent a key player in the national grid being put at risk by ill-judged investment, SSEN are not allowed in terms of their operating licence to lay the interconnector speculatively: they have to submit a “needs case” to the market regulator Ofgem. That was done in August 2018. All this means that the interconnector will not happen until sufficient new renewable generation on Lewis to justify the investment risk it involves is more or less guaranteed to happen. LWP argue that their schemes (Stornoway and Muaitheabhal/Uisenis) are the necessary makeweights to deliver the interconnector without which other smaller players (community wind farm projects – see below) will not be able to proceed either.
As well as the interconnector to the mainland needing upgraded, the local electricty distribution grid within Lewis is almost full to capacity and will need to be improved to cope with further renewable development. I gather the already existing smaller wind farms on island can't operate to their full capacity and suffer periodic grid “outages” (meaning, I think, that the grid prevents them feeding more electricity into it when it has reached full capacity).         

Contracts for Difference
The second reason why LWP haven’t built their windfarms yet is that they don’t have a “Contract for Difference” (CfD) yet. This is the current scheme to subsidise low carbon (LC) energy generation. For new LC projects, it replaces the old Renewables Obligation Certificates (ROCs) scheme. I gather that windfarms in the Western Isles are simply not ecomically viable without these subsidies.

CfDs involve LC generators entering into a long term contract (“contract for difference”) with a thing called the Low Carbon Contracts Company (LCCC - a non-profit wholly owned by the UK Government) whereby, when the market price for electricty is low, LCCC pays the generator a top up to a price called the “strike price”. Conversely, when the market price is higher than the strike price, the generator has to pay back the difference. In so far as it produces an overall deficit to LCCC (which is the expectation), this is funded by a levy on electricity suppliers (who, of course, pass that cost on to their customers). [14]

CfD in action - from EMR Settlement Ltd
CfDs are awarded in periodic rounds to new LC projects as they are built. There were rounds in 2015 and 2017 and the next one is in May 2019 for projects coming on line in 2023-25. The rules as to eligible LC technologies differ in each round. New onshore wind farms were inelegible for CfDs in 2017 but those on “remote islands” (defined as those >10km from the mainland so including Lewis [15]) will be eligible in 2019.
 
Crucially, there is no automatic entitlement to a CfD at any given strike price (the price LCCC tops you up to when market prices are lower). Funds are limited so, in a competitive process I don’t understand all the details of, LC generators have to set their own strike price in a blind bid auction and the lower the bid, the greater the chance of success. It's like offering for a house at a closing date. The system is designed to stimulate competition and investment in the latest and most efficient LC technologies (the more efficient your generating kit, the lower the market price you can withstand before needing support, I guess). There's a clickable map of successful bidders in 2015 & 2017 with their strike prices here. Anyway, bidding for a CfD in 2019 is on LWP’s to do list and with a view to maximising their chances, they’re currently consulting on applying for a variation of their planning permission to permit a slightly fewer number of bigger turbines to increase efficiency: see here.  

Crofters and Common Grazings
I’m assuming if you're reading this that you know what crofts and common grazings are but, if not, see this footnote [17]

Anyway, the last – but by no means least – reason why the windfarm hasn’t been built yet is because the 1,700ha (4,200 acres) site LWP have leased from the Stornoway Trust to build it on is crofters’ common grazings. That means nothing can be built there (even if it has planning permission, grid connection and CfD etc.) until the Land Court gives its permission. There were hearings on this in the LC in Stornoway in the second week of December 2018 (which is why this has all hit the headlines recently) but I understand no decisions are expected for a couple of months. There appear to be nine different grazings embraced within the LWP lease which are used by the crofters of about twenty townships around Stornoway. [17A]

Crofting law – resumption and sections 19A and 50B
Ever since crofting law began in 1886 (following the Napier Commission) there has been provision for crofting landlords to resume croft land (in-bye or common grazing). That means that the crofter’s tenancy (or grazing rights in the case of common grazings) of the resumed land is terminated and it is also removed from the crofting law regime altogether (which means the Crofting Commission can no longer force the landlord to let it to a new crofter as it can in most other situations where a tenancy of croft land has terminated). Resumption has to be authorised by the Land Court who (in brief for now) will normally only authorise resumption for a development that already has planning permission. You can resume the whole of a croft (or common grazing) or part of one. In the case of partial resumption, the tenancy (grazing rights) continue in respect of the remainder. Partial resumption is in practice far more common (because a planning permission seldom covers the whole of the in-bye of a croft or an entire  CG) and resumption from common grazing is more common than resumption from in-bye.

Originally, the only compensation crofters got for resumption was a reduction in their rent but in 1976 a fundamental change was enacted whereby the crofters also became entitled to 50% of the capital value of the resumed land (calculated with vacant possession and the benefit of the planning permission). [18] In the case of resumption from common grazings, this gets shared amongst the crofters involved. However, it came to be realised that resumption on this basis is a bit clunky in the context of developments which the landlord is not going to sell but merely rent because they are temporary. This is because the landlord has to pay the 50% capital value up front before he has received any rent and there is no provision for the resumed land to revert to crofting (i.e. giving the CC back the power to compel its relet to a crofter) once the alternative use had ended. Resumption is also a bit heavy handed in the case of renewable energy projects (which are normally limited by their planning permission to a 25 year lifespan) on common grazings which can co-exist with crofting in that the crofters’ sheep can continue to graze right up to the bases of the turbines and the edges of dams etc. involved in hydro power. Therefore, in 2007, very much with renewable energy in mind, a new provision – section 19A – was inserted into the crofting legislation giving the Land Court power to allow temporary redevelopment of croft land on the basis that the affected crofters will receive 50% of the rent and their rights (and the CC’s powers) are merely temporarily rolled back enough to accommodate the development for so long as it lasts. [19]

With SYT’s consent as landowner, LWP made a s.19A application to the Land Court to develop its wind farm on the common grazings west of Stornoway in 2017. That is what was being heard in the town in the second week of December 2018.

Crofts at Sandwick east of Stornoway
Section 50B
It’s crucial to note that resumption and s19A can only be invoked by the landlord (or, in the case of s19A, someone authorised by him, typically a tenant). There is no provision for crofters to resume from the landlord, so to speak. Thus, while crofters in effect own half the value of their croft land, they can’t take the initiative to release that value. At least not through resumption or s19A: as regards in-bye, an individual crofting tenant can take the initiative by exercising his statutory right to buy (see footnote 17 for more detail). But crofters can’t buy common grazings except, since 2003, by mounting a community buy-out. And while that can be forced on a crofting landlord (unlike non-crofting statutory community rights to buy – e.g. Ulva – which only apply if and when the landowner wants to sell) it’s an immensely complex and expensive process and could be something of a sledgehammer to crack a nut. [20] To resolve this, therefore, another new provision was added in 2007 – section 50B – allowing crofters to apply to the Crofting Commission for permission to use their common grazings for purposes other than grazing. [21] Significantly, s50B does not require the crofters pay anything (lump or recurring) to the landlord for the value released by the change of use.

Legal structures – option agreements and leases
Though they can’t really use it yet due to the interconnector, CfD and crofting hurdles yet to be cleared, LWP have a lease of the 1,700ha windfarm site from the landowner, SYT. I’ve not seen the lease but I expect from my experience of these things in the past that the rent LWP will currently be paying is a relatively small fixed amount. Once (if) the wind farm is built and in commission, though, it will increase to be a proportion – typically around 5% - of the income LWP receives from the sale of electricity generated (plus CfD top-ups). LWP says (scroll the linked page up) it will be paying a rent to SYT “which we estimate could total more than £1.3m, depending on the CfD Strike Price secured and the wind farm’s energy output”. These variable rents are usually subject to a minimum related to the aggregate power (megawatt-age) of the turbines on site, typically around £1,000-1,500 per MW.

Wind farm leases are usually preceded by an option agreement in which the landowner gives the developer an option to take a lease all the terms of which (including most importantly the rent) have been pre-agreed and contained in the agreement, typically by annexing to it a draft of the lease with only its start date left blank. The option to take the lease must be exercised by the developer within a set period, typically about five years. The developer will usually pay the landowner a lump sum for the grant of the option as the price of the exclusivity arrangement he (developer) thereby secures for it is inherent in an option agreement that the landowner can’t deal with any rival developers during the option period. The theory is that the developer uses the option period to obtain planning permission etc. and then, when everything’s in place, he simply pushes the button on a pre-agreed deal. In reality, obtaining planning (and dealing with other imponderables like grid connection) often takes longer than anticipated and the planning process throws out unforeseen things so a degree of renegotiation is required. In the case of LWP’s Stornoway project, I gather there was no option agreement and they went “straight to lease”, no doubt on the basis of paying a smallish annual rent until the wind farm is built in lieu of the usual lump sum for grant of an option. Although not apparently applicable here, I’ve mentioned option agreements nonetheless because one occasionally encounters the jargon. The functional difference between having an option agreement and a lease you can’t actually use yet is small.

Point & Sandwick Trust (PST) – Beinn Ghrideag community wind farm
While LWP were busy progressing their projects, a local community development trust was set up in 2005 called Point & Sandwick Trust (PST) with the object of promoting:

"the social, educational, cultural and environmental wellbeing of the people of the Western Isles and in particular the residents of the areas known as Point and Sandwick i.e. the area otherwise known as Sandwick [about a mile east of Stornoway] and the Eye Peninsula ... defined as comprising the whole area from and including North Street [in the township of Sandwick] in the west to Tiumpan Head in the East.” [22]           

Looking east along the Eye Peninsula ("Point" or An Rubha in Gaelic) to Tiumpan Head in the distance - photo Chris Murray

PST quickly identified that the best way to generate money to further its aims was to build a three turbine 9MW community windfarm at a site called Beinn Ghrideag (“GREEDGE-ak”) near the junction of the old A858 and the Pentland Road on the common grazings of the township of Sandwick North Street. This received planning permission in 2012 and started generating in 2015. It cost £14.6 million mostly funded by commercial loans with a small (relatively - £900k) lottery grant. It’s subsidised under the old Renewables Obligation Certificates scheme as having come on line before CfDs started and I gather it just squeezed into the existing electricity grid on Lewis without having to wait for the interconnector although it’s plagued by a high level of grid outages. Nevertheless, the largest community wind farm in Britain, Beinn Ghrideag still manages to generate (literally!) nearly £1m profit a year for distribution to PST's good causes. It’s a multi-award winning exemplar of community effort at its best and what I personally find so admirable (if that doesn’t sound stuffy) is that I understand PST applies 70% of these surpluses to good causes throughout the Western Isles with just the remaining 30% focussed on their own Point & Sandwick area: they don’t have to do that and I’m sure would still have qualified for the lottery etc. grants if they were 100% focussed on P&S. [23]

Back in the dust dry world of the legals, the Beinn Ghrideag site was within the area leased by LWP. However, as PST’s proposal did not conflict with any of LWP’s planned turbines, LWP agreed to relinquish the site from their lease in order that the Stornoway Trust could lease it to PST. [24] A s.19A application was made for the site but, as there was no objection from the crofters sharing the common grazing the Beinn Grideag site is on, it was passed by the Land Court without difficulty.

LWP could have demanded some sort of premium for agreeing to step aside like this but they didn’t. They did however require that their legal fees for re-jigging the leases be paid by PST as is normal practice when you’re giving something away for nothing. There has nevertheless been criticism of LWP over the amount of fees charged (c.£50,000 allegedly), alleged delays on the part of their lawyers (two years - see here) and a sort of  “no competition” clause they imposed on PST (see their April and June 2012 Board Minutes here). I’m not going to say anymore about that here but may come back and write a further post about it.

Most of my information about PST and their Beinn Ghrideag community windfarm comes from their excellent website and particularly the commendably full board minutes published on it (here) which should be required reading for any other community contemplating a renewable energy project.

Beinn Ghrideag windfarm - photo Iain Nicolson

The four townships – more community windfarms
Inspired, no doubt, by PST’s success, the crofters of four townships in the Point and Sandwick area east of Stornoway – Aignish, Sandwick & Sandwick East, Sandwick North Street and Melbost & Branahuie – decided to progress their own plans for community wind farms involving a total of 21 turbines of 5MW each on their respective common grazings (CGs) west of Stornoway. This time, however, the community plans are in direct confict with LWP because the townships’ turbines would be on exactly the same spots as LWP’s to the south of the old A858 road. Out of the 36 turbines LWP have planning permission for, this would leave them with only the 15 on other common grazings to the north of the road. Needless to say, LWP are not best pleased.

Legally, the four townships’ plans would be achieved by way of s.50B applications (see above) to the Crofting Commission (CC) for permission to diversify their rights to use the CGs from traditional grazing into renewable energy generation. These applications were submitted in 2016 and 2017 but three of them were refused by the CC in September 2018. Aignish’s hasn’t been decided yet but I’d be surprised if it isn’t refused for the same reason as the others. That reason is that it’s a pre-condition of a s.50B application that the crofters’ proposed use is not “detrimental to the interests of the owner” i.e. SYT. The CC accepted SYT’s argument that the townships’ proposals would be detrimental to its (SYT’s) interests in that any one of the township’s proposals to pinch LWP’s turbines would threaten its deal with them. I’m going to say no more about that here because I’m going to return to discuss it more fully in a subsequent post. 

Community benefit and community participation
Ever since the first wind farms about 20 years ago, developers have paid “community benefit” (CB) to the local community. Tactfully described in a SPICE Briefing as a “gesture” to the community, the more cynical might have seen CB originally as a blatant sweeteneer in an attempt to mollify local opposition. It typically takes the form of payments to a local body to spend as it thinks fit or else the developer funds local projects directly. There is no legal mechanism to compel developers to pay CB and an offer (or not) of CB is not a “material consideration” in the planning decision making process. [25]  There was a suggestion that the UK Government might make an adequate offer of CB a condition of eligibility for a CfD for remote island wind farms but that was not taken forward: see here (pages 7-9). But whatever the origins and legal niceties, CB is industry standard practice encouraged by the Scottish Government (SG): see here. Specifically, the SG recommends a benchmark CB of £5,000 per MW per year. There is a register of CBs in relation to existing renewable energy projects here.

More recently, the SG (and UK Gov) have also been encouraging local equity particpation in onshore renewable developments – i.e. that local community bodies be allowed by the developer to invest in and take a share of ownership of the project: see here. This is as well as, not instead of, CB. And, just to be explicitly clear, the developer is not expected to give the community the equity share – the community has to fund it itself through borrowing etc. There doesn’t appear to be an SG recommended percentage of community equity particpation.

Thus, LWP are offering CB “currently estimated at” £900,000 per year (see here - scroll up) which figure would be exactly in line with the SG’s recommended £5k/MW. They have also agreed to let the Stornoway Trust purchase up to a 20% stake in the Stornoway windfarm and CnES up to 30% of Muaithebhal/Uisenis. Further details of these arrangements are hard to come by – I don’t know, for example, whether the proposal is for SYT to buy a 20% shareholding in Stornoway Wind Farm Ltd (i.e. joint ownership of the whole windfarm – a sort of pro indiviso ownership as the lawyers would say) or whether LWP would partially renounce their lease back to SYT in relation to 20% of the turbines so that SYT would acquire full ownership of them. As already noted, there are moves afoot for SYT and CnES to enter into a joint venture to exploit these stakes, whatever form they take (see here).

PST weren’t excused CB at Beinn Ghrideag either. I understand that SYT (who as both PST’s landlord as well as a local community body were in a position to compel this) made it a condition of their lease that PST  contribute £49,000 a year (£5.4k/MW) to SYT’s “Trust Benefit Fund” over and above the rent (see here). 

Lastly on this, it’s perhaps unfortunate that community benefit and community equity participation (CEP) often get mentioned in the same breath. This tends to confuse the two and lead to implications that, in offering to let a community buy a stake, developers are being somehow stingy - see here for an example of that. But – as already noted – CB and CEP are not alternatives: developers are expected to offer both.


Pro’s and con’s
The following is a *very* approximate comparison between the benefits flowing to the community from all sources with the LWP scheme going ahead (LWP scenario) and the four townships scheme going ahead and the remaining townships on whose grazings the LWP scheme is sited following suit and taking the rest of their turbines (community scenario). Both scenarios assume 180MW and a profit per year of £100,000 per MW. In the LWP scenario, it assumes SYT takes up their 20% stake and that the current figures being mentioned for rent (£1.3m) and community benefit (£900k) would accordingly be reduced by 20%. The community scenario assumes no requirement for CB and that crofters don’t pay any rent under section 50B: I say “assume” because, while s.50B does not require it, I have seen suggestions that they might pay a rent anyway but I’m not going to discuss that here because I may come back it in a later post. The community scenario also assumes that the crofters involved (being only human!) will reserve to themselves a cut equivalent to the 50% of the rent they would receive under the LWP scenario.      

LWP scenario
community scenario
Rent (80% of £1.3m)
1,040,000

Less crofters’ 50% of £1.3m rent
(650,000)
(650,000)
Community benefit (80% of £900k)
720,000

Profits from 20% (36MW) stake
3,600,000

Profits from 100% (180MW stake)

18,000,000
Total
4,710,000
17,350,000



                 
Criticism of SYT – communities within communities
The Stornoway Trust has come in for a lot of criticism for appearing to side with LWP and its multinational owners and stand in the way of local community effort which the figures above suggest could produce three or four times as much return for the community. The simple legal answer to that, though, is that SYT has no choice – LWP got there first and they have the legal contracts in place (the lease) to secure their position. To those who criticise SYT for having got into bed with LWP in the first place, it might be answered that, when the deal was done 15 years ago, the concept of community wind farms was still in its infancy and the big boys were the only game in town for a credible scheme to unlock the renewable energy potential of your estate. Back then, SYT might have been criticised for not dealing with them.

But even if SYT had a free hand, there may be another issue for them. The LWP scenario retains the whole return to the community (c.£5 million pa) under SYT’s control whereas the four townships’ focus seems to be going to be 30% PST (a subset of the parish) and 70% the wider Western Isles. Now if it is the case that SYT’s focus area is just SY parish, could the parts of the parish outside PST potentially lose out? I doubt it’s possible to make an exact arithmetical calculation of the pro’s and con’s for the wider parish but it might narrow the gap enough to the point where the merits of buying in to an established windfarm with a track record as opposed to the risks inherent in starting from scratch begin to tip the balance. Anyway, if I were a trustee of the SYT – conscious of OSCR beathing down my neck – this is all something I’d be wanting some reassurance on before agreeing to go all-in with the townships. [26]

What would *he* have thought ...?
Footnotes 
[1] I’ve seen varying reports of the exact numbers of turbines in the original scheme refused in 2008. This probably reflects minor adjustments from time to time in an attempt to mitigate concerns in particular localities.
[2] Strictly speaking, these windfarm permissions are consents by the Scottish Ministers under section 36 of the Electricity Act 1989 as is required for any electricty generating staion over 50W. Section 36 consents act as planning permission with the local planning authority (Comhairle nan Eilean Siar/Western Isles Council) having been a statutory consultee. You can find the s.36 consent here: type "Stornoway" into the "Search by project name" box.
[2A] You can find the variation in the same place.         
[3] See here. Less good for EdF's public image is their ownership (in partnership with the Chinese to variously reported extents) of the controversial Hinkley Point nuclear power station project in Somerset.
[4] What actually happened was that LWP changed its name to Stornoway Wind Power Ltd and EdF and AMEC transferred their 50% shareholdings in it to a new company called Lewis Wind Power Holdings Ltd in which EdF and AMEC (now Wood) each have 50% shareholdings.
[5] Blank
[6] Both names are odd choices because the windfarm is not on Muaitheabhal (a hill) or anywhere near Uisenis (a headland).
[7] Uisenis Power Ltd is now another wholly owned subsidiary of Lewis Wind Power Holdings Ltd. You can see the details of all three companies at the Companies House website:-
[8] The Leverhulme gift also included a sliver of the Parish of Lochs to the south of Stornoway Parish but not, I think, any part of Lochs where anyone lives, just bare moorland, so I’m going to continue to refer to the Stornoway Trust estate as “the Parish of Stornoway”.
[9] SYT's website is “coming soon”  
[10] The document linked to is headed “Scheme for the administration of the Trust constituted by Deed of Trust, dated 12th November, 1923, and registered in the Books of Council and Session on 21st January, 1924, granted by the Right Honourable William Hesketh, Viscount Leverhulme, as amended by Stornoway Trust Order Confirmation Act, 1975 and as further amended by Decree of the Lords of Council and Session dated 30th November, 1993 - The Stornoway Trust.” If I were senior counsel sitting down to write an opinion on the interpretation of the Scheme, I’d be wanting to see that Deed of Trust, Act and Decree in order to check that the Scheme fully replicates them all and/or whether any of them might contain anything which might assist resolving any ambguities in the Scheme, like what exactly “the community” it refers to is.
[11] SSEN is the latest trading name of Scottish Hydro Electric Transmission plc, a subsidiary of SSE (Scottish and Southern Energy), the privatised incarnation of the old Hydro Board merged with English generator Southern Energy.
[11A]. In the electricity law, an interconnector is defined as a cable between GB and another country or Northern Ireland (Electricity Act 1989, section 4(3E)) so strictly speaking the new cable across the Minch is not an interconnector.
[12] More info about the interconnector here
[13] I gather Government are not even going to make a contribution towards the interconnector and even if they were minded to do so, this would bring them up against EU rules against State Aid (a convenient excuse, no doubt! Until March.)
[14] I struggled to find a single, comprehensive layperson’s guide to the CfD scheme but try this.
[15] Reg. 2(4) of The Contracts for Difference (Miscellaneous Amendments) Regulations 2018, S.I. 2018/895 
[16] Blank
[17] Crofting
Crofts are a type of agricultural smallholding, unique to the north of Scotland. There are about 21,000 crofts in total with a typical size ranging from about 0.5-2.0 hectares (1-5 acres) each.
Crofts are usually grouped in villages called “townships” of typically 20-30 crofts. All the crofters in a township have the right in common to graze their animals (and cut peat for personal use) over a nearby area of land belonging to a local landowner called a “common grazing”. (Crofters can also apply for permission to plant trees on grazings - see footnote 17A below.) Sometimes more than one township shares a single grazing. Common grazings are usually large areas often extending to thousands of hectares. A crofter’s individual 0.5-2.0ha holding of which he has the exclusive use is called “in-bye” in contexts which require a distinction from his joint right with his neighbours on the common grazing but the word “croft” refers to the in-bye and the crofter’s rights over the common grazing together. (The foregoing description of crofting is subject to inevitable exceptions from the norm, for example very large crofts, crofts not in a township and/or not having any common grazing etc. A few are, in fact, what might otherwise be regarded as smallish “ordinary farms” which happened to get caught in the statutory definition of a croft framed in 1886 and too complex to go into here.)   
Crofting is regulated by a quango called the Crofting Commission (CC) and crofters are subject to statutory duties to use their crofts properly, not neglect them and to live within 16km (10 miles) of their in-bye. The CC has power to deprive a crofter in breach of these duties: in effect “use it or lose it”.
Crofts are usually held in tenancy paying a nominal rent (£5-10/year is typical) to a landlord who is usually also the owner of the common grazing. However, these tenancies have security of tenure which means the landlord cannot terminate them except for failure to pay the rent or breach of the conditions of tenancy. But it’s not worth the landlord’s while ever to do this because (apart from the public opprobrium it would attract), whenever a croft becomes “vacant” (doesn’t have a tenant), the landlord can’t use it for his own purposes but is compelled by the CC to re-let it to a new crofter who gains the same security of tenure and so the process begins over again. Due to their enduring nature, crofting tenancies can be bequeathed and sold (“assigned”). Purchasers (“assignees”), but not legatees, require to be approved by the CC. Crofting landlords are not under any obligation to maintain houses or other infrastructure on tenanted crofts as “ordinary” residential and agricultural landlords are.
Since 1976, crofting tenants have had the right to buy the freehold of their inbye (not their share of the common grazing) from the landlord at fifteen times the rent, a modest sum. However, the rate of uptake of this right to buy (about 30% overall and only about 4% in the Western Isles) has been low compared with Council house tenants. This is because crofters who’ve acquired their freeholds (“owner occupiers”) don’t thereby escape from compliance with the “use or lose it” and residence duties enforceable by the CC (who in case of breach have the right to compel an owner occupier (o/o) crofter to let it to a new crofter who would gain security of tenure). Thus, as crofters have little to fear (or lose) from their landlords, they don’t gain very much additional freedom by becoming o/o’s so long as they don’t plan any changes to the croft. They do, however, have the right to apply to the CC to “decroft” parts (or, theoretically but unusually, the whole) of their croft – that is, have it released from the statutory “use it or lose it” duties. But decrofting has to be justified to the CC and can’t be taken for granted. (There was recently a high profile case where decrofting was refused for a housing development which already had planning permission on an o/o croft at North Ballachulish.) But where decrofting is possible, the commonest scenario of a crofting tenant exercising his right to buy (including in the Western Isles) is that he gets planning permission for a development on part of his croft, buys that part, decrofts it and sells it on to a developer at full vacant possession value. Any such sale within 20 years of purchase from the landlord is subject to a clawback to the former landlord of 50% of the uplift in value. (The foregoing doesn’t apply to croft houses. They can be bought from the landlord at a nominal sum ignoring the value of the house itself (assuming the usual case that it was built at the expense of the tenant (or, more usually, a previous tenant) rather than the landlord). The crofter then has an absolute right to have the house (and garden) decrofted. Thus, most crofters, even in the Western isles, have bought their houses and decrofted them leaving just the rest of the in-bye in tenancy.)
Jurisdiction over crofting matters (typically disputes between crofters and landlords with each other and/or the CC) is vested in the Land Court rather than the ordinary courts (Sheriff Court and Court of Session).                       
There is a Crofting Register with a searchable map of crofts (in-bye and common grazing, tenanted and owner-occupied) but only about 25% of crofts (in-bye) and not all CGs are on it yet because compulsory registration is only triggered on the occurrence of certain events (including assignation and transfer to heirs). Thus, the fact that a piece of land doesn’t appear to be identified on the Register as croft land doesn’t guarantee that it’s not.

[17A] From information submitted by SYT in connection with the section 50B applications I got from the Crofting Commission, they are the common grazings of the townships of  (1) Garrabost & New Garrabost (G&NG); (2) Holm; (3) Newvalley, Guershader and Laxdale Lane (NG&L); (4) Sheshader; (5) Aignish; (6) Sandwick & Sandwick East (S&SE); (7) Sandwick North Street (SNE); and (8) Melbost & Branahuie (M&B). The ninth is the "Stornoway General" grazing which is shared by the townships of (a) Bennadrove; (b) G&NG; (c) Holm; (d) Lower Bayble; (e) M&B; (f) Newmarket, Laxdale & Coulregrein; (g) NG&L, (h) Portnaguran, Newlands & Broker; (i) Portvoller; (j) Sandwickhill North Street; (k) Shulishader & Newlands; (l) Steinish; and (m) Upper Aird. In so far as some of the townships sharing Stornoway General also have their own grazings (amongst nos. (1) to (8)), I understand the latter are apportionments to these townships made in the early 1990s for the purposes of crofter forestry schemes under section 50 of the Crofters (Scotland) Act 1993. These townships also retain shares in Stornoway General.
[18] Crofting Reform (Scotland) Act 1976, s.9 now re-enacted as section 21 of the Crofters (Scotland) Act 1993 (a consolidation Act). Strictly speaking a crofter’s entitlement is to 50% of the difference between the market value and the crofting value of the land resumed but the latter is usually negligible.
[19] Section 19A of the Crofters (Scotland) Act inserted by s.30(1) of the Crofting Reform etc. Act 2007. Resumption is still theoretically possible for a temporary development especially as the resumption provisions (1993 Act, ss.20 & 21) were amended by the 2007 Act to allow temporary resumption (1993, s.20(1B) inserted by 2007, s.22(1)(b)) and with the crofters’ 50% share of value to be paid in instalments (whether the resumption is temporary or permanent – 1993, s.21(1A) inserted by 2007, s.22(2)(a)). But differences between temporary resumption with instalments (TRWI) and s.19A remain which I won’t go into now except to say that, for a wind farm on common grazings, the Land Court would be likely to look askance at TRWI and be more amenable to s.19A.
[20] The crofting community right to buy (CCRTB) is contained in Part 3 of the Land Reform (Scotland) Act 2003. It is exercisable by crofting community bodies (CCBs) and the consequence of a CCRTB is that the crofters of the land purchased simply acquire a new landlord, the CCB. It will exactly the same rights (e.g. to apply for resumption and s.19A) as the former private landlord except that it would presumably exercise these rights (or not) in a way more in tune with the crofters’ collective aspirations.
[21] Crofters (Scotland) Act, Section 50B inserted by s.26(2) of the Crofting Reform etc. Act 2007.
[22] PST is incorporated as a company limited by guarantee (originally called Point Power & Energy Company Ltd and now called Point and Sandwick Development Trust) and this is a quotation from its Memorandum of Association which you can see here             
[23] The 70% WI/30% P&S split doesn’t appear anywhere on their own website or Companies House file (that I could find anyway) but it’s referred to in the Scoping Reports for three of the “four townships” community wind farms (which I’m coming to presently). You can see an example of one these Reports here - see para 1.3.3
[24] The lease of the Beinn Ghrideag site is actually to PST’s trading subsidiary, Point and Sandwick Power Ltd.
[25] Community benefit (CB) not being a "material consideration" is a reference to the statutory formula that applications for planning permission must be decided by the planning authority (PA) “in accordance with the development plan unless material considerations indicate otherwise” (a gloss on s.25 of the Town and Country Planning (Scotland) Act 1997). Thus, if a wind farm applied for would not be in accordance with the relevent development plan, the PA will not be swayed by generous offers of community benefit. Equally, a wind farm which is in accordance with the plan couldn’t be refused just because the developer hasn’t offered CB. I can’t put my finger on why CB (or absence thereof) is deemed not to be a “material consideration” (MC) – I would have thought that, as a matter of fact, it is a MC and just because the Scotgov says it’s not doesn’t make it so. There must be some statutory or judicial principle of planning law about this I’m not aware of because I’m no expert on planning. I recall from practice 15 years ago that it used to be common to see the CB arrangements explicitly set out as conditions of the planning permission and recorded in Section 75 Agreements whereas the Scotgov documents linked to here are at pains to stress that discussions about CB are to be kept separate from the planning process so far as possible. So there seems to have been some intervening change here.
[26] I feel that the syndrome of landowning charities finding themselves conflicted when there’s a mismatch between the residents of their land on the one hand and the beneficiaries of their charitable purpose on the other is something the Scottish Land Commission perhaps needs to have a look at. There was that thing a few years ago I forget the details of now about a charity which owned rented houses in Lorne Street in Leith who decided that the best thing to do to maximise their asset was to kick the tenants out and flog the houses with vacant possession. There's also the community landlord of South Uist, Storas Uibhist, who came under fire for dragging one of their crofters into the Land Court over whether land he was occupying (Snishival Mill) was actually part of his croft. Their defence was to the effect “We’re a charity obliged to steward our assets for the whole community.” (See here last sentence) Charities don’t always have the luxury of being charitable!

Thursday, 6 April 2017

Devolving the Crown Estate

Devolution of the Crown Estate in Scotland (CEiS) was one of the recommendations of the Smith Commission set up to agree further devolution of powers in the wake of the 2014 Independence Referendum. The Smith recommendations were enacted by the Scotland Act 2016 and on 1st April 2017, management of the Crown Estate in Scotland was transferred from the Crown Estate Commissioners to a new quango called "Crown Estate Scotland (Interim Management)". The name reflects the fact that Smith anticipated that management of the CEiS would in turn be sub-devolved from Edinburgh to local authorities and/or communities and a Scottish Government consultation on options for that closed recently.

So it was a bit of a surprise when veteran land reform campaigner now Scottish Green Party MSP Andy Wightman, who has long taken a deep and critical interest in the doings of the Crown Estate, tweeted:-


Andy's quite right that Smith specifically recommended that the revenues from the CEiS be devolved (para. 32 of the Report) and there's no doubt that s.36(13) of the Scotland Act 2016 (SA16) has amended s.1(2) of the Civil List Act 1952 so that CEiS revenues are now paid into the Scottish Consolidated Fund (SCF) instead of the UK Consolidated Fund as hitherto. But Andy's point is that there is no devolved power to the Scottish Parliament to redirect CEiS revenues from the SCF to another body in pursuance of the envisaged sub-devolution from Edinburgh to the localities. He used the example of Lerwick Port Authority - management of the seabed around the port (which is part of the CEiS) can be delegated to LPA but there's no devolved power to allow it to keep any revenue arising from the seabed in the form of mooring dues etc.

Andy's basis for this claim is that the SA16 has not amended para. 3(3)(a) of Schedule 5 (Reservations) to the Scotland Act 1998 which refers to the reservation to Westminster of "the hereditary revenues of the Crown" of which the revenues of the CEiS are a subset. Now if Andy's right, this does indeed go contrary to Smith and the Scotgov will be in for a nasty surprise at what I suspect must be a legislative cock-up rather than a Tory conspiracy. But I don't think Andy is right (with respect). I think CEiS revenues have been duly devolved for the following reasoning.

The CEiS is a subset of the hereditary revenues of the Crown and paragraph 1 of Schedule 5 (Reservations) to the Scotland Act 1998 (SA98) reserves these (with two exceptions not important for present purposes). Although para. 1 doesn't explicitly mention hereditary revenues, we know that it nevertheless reserves them because para. 3(3)(a) explicitly tells us that it does.

But para. 2(1)(b) provides that para. 1 does not reserve (i.e. there is devolved) "functions exercisable by any person acting on behalf of the Crown". That these functions would include (i.e. there must be devolved) those of any person acting on behalf of the Crown by managing its estate in Scotland (or to put that a simpler way, would include the management of the CEiS) we know because, before it was devolved pursuant to Smith and the changes made by the Scotland Act 2016, para. 2(3) carved the management of the Crown Estate out of the functions stated by para. 2(1) not to be reserved.

In order to implement the devolution of the management of the CEiS mandated by Smith, s.36(3) of the Scotland Act 2016 (SA16) amended para. 2(3) of Sch. 5 of SA98 to redefine the Crown Estate, the management of which it carved out of the functions stated by para. 2(1) not to be reserved, as being the property etc. "under the management of the Crown Estate Commissioners". As the CEiS is no longer (since 1 April 2017) under the management of the CECs, its management falls back in to the functions stated by para. 2(1) not to be reserved.

That demonstrates, I hope, that the management of the CEiS is now devolved but what about the revenues (rent and other income) arising from it? Well, the ingathering of these revenues and their payment into the Scottish Consolidated Fund pursuant to s.1(2) of the Civil List Act 1952 is amongst the "functions exercisable by any person acting on behalf of the Crown" which includes the management of the CEiS. And as these functions are devolved, there's nothing to stop the Scottish Parliament legislating to amend s.1(2) of the CLA52 to say that CEiS revenues can be paid other than to the SCF, for example to Lerwick Port Authority. (I can’t see anything else relevant to reserve s.1(2) of the CLA52 except perhaps para. 2(3A) of Sch. 5 telling us that para. 1 reserves s.90B(5)-(8) of SA98. But note in that regard that subs.(7) tells us that subs.(5) doesn’t include revenues to which s1(2) of CLA52 applies. So these revenues aren’t reserved via that line of reasoning either.)

A slightly different way of looking at all this is to say that para. 3(3)(a) (hereditary revenues of the Crown) of Sch. 5 (Reservations) of the SA98 doesn't reserve anything at all. It's para. 1 that does the reserving where the Crown's concerned in this context and para. 2 (as amended following Smith and the SA16) tells us that it doesn't reserve the management of (which includes disposal of the revenues from) the CEiS.

Under new management

It's nevertheless a resonable question to ask, what does para. 3(3)(a) intend is to be reserved if not revenues from the CEiS, bona vacantia (ownerless property) ultimus haeres (property of people dying without heirs) and treasure trove?

It would originally have embraced the reservation of the concepts that the Crown Estate is, and is to remain, the property of the Crown and is to be maintained as a landed estate. These are reserved because, in theory, the Crown Estate is only under the management of the Crown Estate Commissioners with its revenues going to the Consolidated Fund during the lifetime of the Queen who (like previous monarchs back, I believe, to George III) surrendered them in exchange for an annual payment called the Civil List (or, since 2012, the Sovereign Grant). But the next monarch would, in theory, be entitled if so advised by his ministers (which is perhaps unlikely), to discontinue that arrangement and resume the Crown Estate and its revenues in lieu of the Sovereign Grant. Anyway, these concepts are not devolved and were not intended to be devolved by Smith because he was only about transfer of existing powers rather than constitutional innovations. In essence, then, the revenue of the CEiS is devolved but the capital is reserved. Maintenance of the CEiS as an estate in land (with a cash float) as the property of the Crown post devolution is specifically mentioned by s.90B(5)-(8) of SA98 (inserted by s.36 of SA16) and these requirements are specifically reserved by para. 1 as emended by para. 2(3A) (also inserted by SA16, s36(4)). But insertion of 2(3A) was arguably unnecessary if 3(3)(a) was to be left standing.

This is so flipping complicated that I've almost certainly made a mistake somewhere!

UPDATE 9 April - I got feedback on this in the shape of Tweets from Andy Wightman and Professor Aileen McHarg of Strathclyde University.

Andy tweeted [sorry, don't know to link to a tweet and doing this on a tablet and don't know how to grab, cut and paste either]:-

I think you are straining the meaning of 2(1)(b) which relates to Law Officers, Ministers etc.

I would have had some sympathy with that view but for the fact that para. 2(1)(b) of Schedule 5 (Reservations) of the Scotland Act 1998 must be apt to include those acting on behalf of the Crown by managing its estate in Scotland or else why, before it was devolved, was it felt necessary to declare (in para. 2(3)) that 2(1) doesn't devolve the management of the Crown Estate? And would it not also follow from that reasoning (that 2(1)(b) is restricted to ministers and law officers etc. but doesn't extend to managers of the CEiS) that even the management of the CEiS still isn't devolved?

Professor McHarg wrote an article in the Edinburgh Law Review (read it here) in which she said: "It [the Scottish Parliament] will also be unable to alter the recipient of Crown Estate revenues, as the “hereditary revenues of the Crown” remain reserved.", quoting as authority for that para. 3(3)(a) of Sch. 5.

Now, with all the respect that's due to a Professor of Public Law from a retired solicitor with a mere dilettante interest in the subject, I don't think (as I said above) para. 3(3)(a) reserves anything at all. It merely tells us what para. 1 reserves. And para. 2 (as it's been amended by The Scotland Act 2016) tells us that para. 1 doesn't reserve the management of the CEiS. Para. 2 trumps para. 3 meaning that the answer to what is or isn't devolved in this context lies in para. 2, not para. 3.

Professor McHarg tweeted to me:-

I don't think you are right to say management includes disposal of the revenues.

That's the weakest point of my argument - that disposal of the revenues (in the sense of permitting Lerwick Port Authority (or whoever) to retain them instead of paying them over to the Scottish Consolidated Fund (SCF)) is part of the "functions" of the manager of the CEiS which para. 2(1)(a) says are devolved. You could argue that the functions include "gathering in the income, settling liabilities to third parties and remitting the balance to the Scottish Consolidated Fund" and thus all of that - including the last four words - is devolved. But it's an entirely credible contra-argument that the choice of to whom the balance is paid is not a "function" of the manager: the choice of payee was pre-ordained by an Act of [the UK] Parliament and, as it concerns the hereditary revenues of the Crown, it's reserved (Sch. 5, para 1. as explicated by para 3(3)(a)). I don't know what the answer is but that, I think, is where the battleground lies.

Two final thoughts: (1) would legislation be needed to allow Lerwick Port Authority to keep the balance of the revenue? This is an aspect of public law on which I claim absolutely no knowledge at all and I only mention it because the Civil List Act 1952 says that the non-Scottish CE revenues are to be paid into the Exchequer but that doesn't seem to prevent the Treasury reaching an extra statutory agreement with the Crown Estate Commissioners (here) allowing it retain (i.e. not pay in to the Exchequer) 9% of the revenues: could the Scotgov not reach a similar sort of agreement with LPA? (2) Is the matter not wholly academic in that the Scotgov could simply give back to LPA an amount equivalent to the amount it remits in to the SCF?

Wednesday, 22 March 2017

Submission to Scottish Parliament on common good


Glasgow Green - Glasgow Museums Resource Centre via Art UK

On 8 February, the Scottish Parliament's Local Government and Communities Committee issued a Call for Evidence on Common Good Property and Funds. The following was my submission.

Executive summary 

*The category of inalienable common good should be abolished – because it’s absurdly illogical that some public parks have an additional layer of protection which others don’t just because of accidents of history. But note that this abolition wouldn’t change a property’s status as common good - it would just mean it was no longer necessary to get sanction from the courts for sale/change of use because there are alternative, more democratic, controls in place. (See 5.1 to 5.5 below) 

*Enacting a statutory definition of common good (CG) will not remove the legal obscurities associated with CG. The only thing that can do that is a definitive register of common good (i.e. a register such that, if a property isn’t in it, it isn’t CG, and vice versa, “end of”). This is to avoid in future local authorities having projects ambushed by dubious claims of CG (as with Portobello and Barrhead Schools). (See 2.1 to 2.5).

*Unless one already exists and is observed universally, a rule that maintenance of common good assets should always be the first charge on the revenue surplus of CG funds is required. (See 3.3) 

General points – history and different categories of common good 

0.1   I’ll come shortly to the five questions the Committee wanted to see addressed in evidence but first make a couple of general points. First – and I’m sure the Committee will get bored hearing this – but it’s indispensably necessary to understand the historical background to common good: you’ve got to know how we got here in order to decide where we go from here. I’ve included a historical sketch as an appendix but the key facts to take from it are these: in the pre-industrial era (before the 19th century), its common good was the totality of a burgh’s assets and funding sources: its endowment, in other words, to provide the services (minimal by today's standards) then offered by local government. During the industrial revolution, the assets of burghs grew massively through acquisition under new statutory powers granted to meet the challenges of urbanisation and population growth (education, sanitation, housing etc.) and this all came to be paid for by taxation (rates) rather than from the burgh’s own endowment as hitherto. In consequence, CG became overshadowed by burghs’ new statutory assets and resources and, relatively speaking, dwindled to something of a historical legacy. But the history should not obscure the fact that common good is simply assets of a local authority: it no more (or less) belongs to “the people” than any other LA asset such as a school,  swimming pool, care home etc. or, indeed, the money in the Council's bank account. Statements implying common good is some sort of surviving relic of an aboriginal communal past (which somehow came to be associated with towns) are the product of misunderstanding - for which the very words "common" and "good" may be partly responsible - coupled, perhaps, with a bit of wishful thinking on the part of their authors. It may help to a proper understanding of the subject to recall that many institutions with long histories (e.g. universities) have endowments which are of less significance now than formerly as their source of funding. Scottish burghs' endowments just happen to have a special name: common good.

0.2   Second, it’s essential to distinguish two types of common good asset. The first is the revenue producing assets of common good funds. These are portfolios of investments much like private trust or pension funds: they are the legacy of burghs’ original endowments from the pre-industrial era. CG funds tend to include a large percentage of real estate (e.g. shops let to generate rent) but also include other investments such as bonds, stocks and shares etc., these being commonly managed by professional fund managers. LAs are at liberty to dispose of all these assets – of whatever nature – without restriction in the course of managing their CG funds to maintain the capital and maximise revenue returns.

0.3   Today, when their activities are mostly funded by taxation, local authorities commonly use the annual revenue surplus of CG funds to fund local “good causes” like a sort of local lottery fund (some CG funds[1] are even registered charities). But LAs are not obliged to do this and would be perfectly entitled to spend the money on something more prosaic like a new link road or social care facility. The only legal requirement is that, in administering a CG fund, the LA must “have regard to the interests of” the burgh the fund belonged to before 1975[2]. Thus, Highland Council, for example, could apply the revenue surplus of the Inverness CG fund to a good cause local to, or a new care facility in, Inverness but not Fort William. And HC could probably not hand over the revenue surplus of the Inverness CG fund to its (HC’s) general education budget because that would be unlikely to be having sufficient “regard to the interests of” Inverness as opposed to the rest of Highland as a whole.

0.4   The second type of CG is called inalienable common good. Always corporeal property, it’s usually land and buildings but can include moveables (chattels), typically civic regalia or art. (From hereon, I’m going to assume inalienable CG is land or buildings.) These are the legacy today of properties used in the management of the burgh and the provision of the (relatively minimalist) services of yesteryear to the inhabitants: tolbooths, gaols, churches etc. Also included are the public open spaces (of which, in former times, recreational use was often subsidiary to some historic function such as bleaching green, market stance or grazing for the burghers’ animals) which are the most high profile facet of common good today: Glasgow Green and Edinburgh’s Meadows are both inalienable CG (although it’s worth emphasising here that not every urban public park is CG). Note that, far from being revenue generating assets, inalienable CG is almost invariably a liability to LAs as requiring running costs and maintenance etc.

0.5   This type of CG was called inalienable because, having been made available for use by the public, the burgh council couldn’t deprive the public of it by disposal (or change of use) as it could with land held merely as an investment in the CG fund. Simply banning disposal was the solution of an earlier, pre-industrial era when there were fewer democratic controls. Nowadays, however, “inalienable” is something of a misnomer: LA’s can dispose of inalienable CG if it has ceased to be used by the public. And even when still in use, the courts can authorise disposal or change of use of inalienable CG on application by the LA.[3] Authorisation will usually be granted when a credible scheme is presented, typically involving provision of a suitable alternative facility.

Kirkcaldy, 1840
The five questions 

1.     Are the common law rules which define common good property adequate? 

1.1   It may not be contained in a statute but the legal definition of common good (assets of CG funds and inalienable) is admirably succinct: “all property of a burgh not acquired under statutory powers or held under special trusts”.  The problem lies in determining whether any particular piece of LA owned land or buildings falls within the definition in the commonly occurring case that its title deeds give no clue. An investigation into the circumstances of its acquisition becomes necessary, typically involving consulting burgh archives, which may not be conclusive. The legal definitions of inalienable common good (i.e. the rules which distinguish it from the freely disposable assets of CG funds) are less succinct and more difficult to apply. There are clear cut cases at either end of the spectrum – the let garage which is manifestly just held by an LA as an investment at one end and Glasgow Green at the other – but there can be shades of grey in between.

1.2   These difficulties in applying the law cause LAs two problems. First, an LA may not know if, after having sold a property, it will be able to apply the proceeds to the use it intends or whether, if the assets turns out to be CG, the proceeds will, in effect, be hypothecated to use in the burgh the relevant CG fund belonged to by application of the “have regard to” rule (para. 0.3). Second, and far more serious, an LA may not know if it can sell a property at all (or change its use) in case it turns out to be inalienable CG and the courts refuse to sanction the sale (or change).

1.3   As a lawyer (retired), I can’t emphasise strongly enough that merely codifying the common law rules in statute won’t make these uncertainties go away. No matter how carefully worded any restatement were, it couldn’t cover every case with certainty and grey areas would remain. (This is a very commonly occurring legal syndrome, BTW, not by any means confined to common good: there would be little need for lawyers and courts if it were otherwise!) The only way to make these problems go away is to have a definitive register of CG. (See Q2 below). 

2.   Do you think the record keeping of common good property and assets held by local authorities could be improved? 

2.1  Record keeping should improve when s.102 of the Community Empowerment (Scotland) Act 2015 requiring LAs to maintain registers of CG property comes into force but these registers will suffer from a critical defect: they won’t be legally definitive. What that means is that the fact that a property is not included in the register is not conclusive that it’s not CG (and vice versa). In other words, nobody will be able to consult the registers and get a definite answer whether a particular piece of property is or is not CG. The second main defect of the s.102 registers is that they won’t distinguish between the freely disposable assets held in common good funds and inalienable CG.

2.2  Therefore, I would suggest s.102 be amended before it comes into force so that the registers become (i) legally conclusive as to CG status; and (ii) identify which properties are inalienable with the registers also being conclusive as to that. I’d also suggest that, so far as they relate to CG land and buildings, the registers be integrated with the Land Register in order to advance the LR’s role as a “one stop shop” for all land rights and responsibilities. Definitive registers of CG integrated with the Land Register was an aspiration of the Land Reform Review Group[4] 

2.3   Whether the s.102 registers should be definitive was touched on in the policy memorandum for the CE Bill:- 

Given the complexity of the subject, there is a high risk that [making the registers definitive] might not cover all existing assets which are considered to be common good, and might cover things which are currently excluded. Rather, the intention is to provide an opportunity for community councils, other community bodies and individuals to see what the local authority considers to be common good property, and to highlight any items they believe should be included (or omitted). It is not intended that local authorities will be expected to legally verify the status of every item on the register or proposed during the consultation; this will normally only be necessary if there is significant dispute. 

2.4   But I think the Scotgov answered its own concern there: the registers would be prepared by LAs in draft according to their understanding of their CG holdings. Then they would be put out for consultation so that community councils, bodies and individuals could propose amendments. Any disputed cases could be determined by the Lands Tribunal. After a long enough period for amendments to come forward and be determined – say 10 years? (cf. timescales for completion of the Land Register) – the registers would become final and there would be closure. It would be not unlike the process of developing a local plan in the planning context.

2.5   If definitive registers of all CG are nevertheless considered to be impractical, then give consideration to the definitive registers applying only to inalienable CG. The reasoning there is two-fold: first, inalienable CG ought to be easier to identify (the public parks, the old townhouses etc.). Second, inalienability has the potential to block a transaction altogether so it's more important that the properties affected are definitively identified as such. With "alienable" LA assets, on the other hand, they can still be sold even if they later turn out to have been CG: the sale does not prevent the proceeds being later credited to the CG fund if the result of a subsequent investigation so requires.

2.6   Another point on the s.102 registers as currently proposed (it’s a prime example of inattention to the distinctions between the freely disposable assets of CG funds and inalienable CG): a literal reading of s.102 means that even the incorporeal assets of CG funds (their stocks, shares and other “paper” investments) have to be included in the registers. Do they also have to be “de-registered” each time a stock is sold in the ordinary course of fund management? This is an excessive burden on the funds. A lighter touch disclosure of investment policies would be appropriate (see 3.2 below) and s.102 should be amended to apply only to corporeal property (chattels, land and buildings).

2.7   Recognising that less than 1% by value of LA property is common good[5], a helpful interim measure pending the definitive registers becoming final (or permanent measure in the event the concept of definitive registers doesn't find favour) would be a statutory presumption that LA property is not CG. Reflecting the history (see Appendix), this could apply only to property acquired after, say, 1850.  

3.     Is there enough openness and direct engagement with local communities on common good property and funds and the use to which common good property and assets are put? 

3.1  To an extent, this question appears to prejudge s.104 of the Community Empowerment (Scotland) Act 2015 mandating consultation with local communities before disposal or change of use of CG assets before it has been brought into force. I suspect a ministerial response to this question would be to allow s.104 to bed in before any further action is proposed. I come back to s.104 in para. 5.6 below.

3.2.  Aside from disposal and change of use, there could be a case for requiring LAs to produce - in accordance with ministerial guidelines to achieve consistency and after public consultation -  medium/long term forward plans for their common good funds (portfolios of income generating investments, not public parks etc.) covering investment strategies and policies for spending revenue surpluses. S.104 would need to be amended to cover this.

3.3  There’s another point I’d like to raise here, not as “evidence” from my own knowledge but rather a question which, if I were a member of the committee, I would want to ask of those qualified to answer it: I gather many CG funds rent assets (typically buildings) to their own LAs. That’s fair as the residents of the rest of the LA area are paying the burgh the CG fund “belongs to” a rent for the use of “their” (the burgh’s) property. But what about the converse – does it ever happen that unremunerative CG assets (typically inalienable CG such as public parks) are run at the expense of the LA’s general fund as opposed to the CG fund? If so, is this legal? I believe there used to be a maxim that the common good could subsidise the rates but not the other way round. I presume that must since have been varied by statute or else the point would surely have come up at audit before now but even if it’s legal, is it fair? If the general fund is paying for it, should the asset not be the “property” of all the residents of the LA area, not just the former burgh in which it happens to be situated? In the course of preparing this evidence, I did a not very scientific survey of how about two thirds of LAs had accounted for CG in their annual accounts for 2015-16. In one or two, it appeared that the general fund (“the rates”) running CG assets might be being effected by “finance leases” by the CG fund to the general fund at a peppercorn rent but in only one of the sets of accounts I looked at – Highland Council – did I see a clear statement of how I believe it ought to work: 

All funds are held for the benefit of the residents of those former burghs and must be used in the first instance to maintain the assets of the Common Good. Thereafter funds can be used for purposes which are in the interests of the community for which the Common Good Fund was established. [Emphasis added.]

I wonder if that doesn’t need to be made a statutory requirement for all LAs? If it doesn’t, then, because the question was even asked, it perhaps resolves into one of transparency of accounting and reporting as to which see Q4 below. 

4.     Are details of common good property and assets and income generated by their sale clear and transparent? 

4.1  As I understand it, LAs are required to prepare accounts in accordance with the CIPFA/LASAAC Code of Practice for Local Authority Accounting which requires that CG funds be accounted for separately and in accordance with certain standards. No doubt LAs comply with this but these accounts are not easy for lay people to interpret. I would therefore suggest that more user-friendly “Ladybird Book” accounts be required (as well as, not instead of, the “official” accounts). These could perhaps be included in a sort of annual report and be in accordance with ministerial guidelines to ensure consistency of format across all LAs to include a simple statement of money in (where it came from), money out (where it went) and how any surplus was disbursed or retained. There would also be a statement of the composition of the capital (land & buildings, categories of other investments, cash, loans etc.) and capital transactions (gains/losses on disposal and “paper” transactions such as revaluation and depreciation). 

5.     Any other issues relating to common good property, assets and funds which you wish to bring to the attention of the Committee? 

5.1   The category of inalienable common good should be abolished.

5.2   I can’t emphasise strongly enough that I’m not suggesting common good be abolished altogether, only that inalienable CG assets be placed on the same footing as the disposable assets of CG funds. They will still form part of the common good and all the change would mean in practice is that an LA would no longer have to obtain permission from the courts to dispose (or change the use) of an asset presently classified as inalienable CG. But the proceeds of sale would still go into the CG fund for reinvestment or disbursement according to the fund's set priorities.

5.3   Why would one propose this dilution of protection for CG assets? Well, for a start, it’s highly illogical that some, but not all, public parks (to use the classic example of inalienable CG) have the extra layer of protection by the courts. Your average person in the street is likely to find it very hard to understand why accidents of history can lead to a much needed new school being blocked on one public park while another identical one across the road can be sold off for executive housing just because it doesn’t happen to be CG. It’s an absurdity which brings common good – indeed Scots law as a whole – into disrepute. Protections for inalienable CG were loosened without a murmur of dissent in the wake of the Portobello Park fiasco[6] so it may be advisable to be proactively radical now before another Portobello type situation comes along and puts common good on the defensive again.

5.4   Secondly, are the unelected judiciary the best people to decide the fate of CG properties? Should the matter not be decided at the bar of public opinion? The inalienability rule dates from centuries ago and was the law of the time’s blunt edged sword to protect the public’s access to facilities provided for their use in an era when the pace of change was slower than today and before there were democratic fora to debate such matters. The ability of the courts to authorise disposal was introduced in 1947[7] in an era when there wasn’t the consultation of the public by LAs there is today. But now we have s.104 of the Community Empowerment (Scotland) Act 2015 (not in force yet) statutorily requiring publication and local consultation before disposal or change of use of CG and LAs to have regard to views made known, do we really need court sanction as well?

5.5   If there’s no appetite to abolish inalienability, then at least the inconsistency of treatment ought to be removed by requiring court sanction for the disposal or change of use of all (i.e. not just CG) LA property made available for public use (i.e. schools, parks, libraries etc. but not LA offices, depots etc.). Or only s.104 consultation before disposal/change of use of any publicly used LA asset, not just CG.

5.6   Finally, even if none of these suggestions commends itself, s.104 still needs to be amended before it comes in to force such that it only applies to inalienable CG and not the freely disposable assets held in CG funds. You can’t manage a fund properly if public consultation is required before every disposal: an urgent reactions to sudden market changes may be required. (S.104 consultation should be retained for the sorts of medium/long term forward plan for CG funds I suggested in para. 3.2 above, however.) 

Musselburgh Links - the subject of not one but two cases on inalienable common good. OS 6 inch map, 1st ed. 1853
 Appendix – Historical sketch 
[Note - this was drawn from a blog post I wrote in September 2014 about Cowan Park in Barrhead (here) so anyone who read that doesn't need to read this.] 

Medieval Origins 
Nowadays, government finances its expenditure by tax. But in the Middle Ages, the authorities were supposed to “live off their own”, that is finance their official functions from their own property. Burghs were a sort of medieval equivalent of today’s Enterprise Zones or Freeports. When they were established in Scotland from the 12th century onwards by the Crown (“royal burgh”) or a lay or ecclesiastical magnate (“burgh of barony”), burghs were given by their patron an endowment, the income from which was meant to finance their activities. 

Today, if you wanted to endow something, you’d give a sum of money to fund managers to invest in a portfolio of stocks, shares and other investments. But in the Middle Ages, the stock market didn’t exist and the only thing which yielded an annual return was land in the shape of the rent paid by its tenants. Thus, the endowment of medieval burghs was land and this land is a burgh’s “common good”. The rent the common good land yielded funded the services the town provided although, in a pre-industrial era, these were pretty minimalist and dated by today’s standards: they did not, for example, include housing. Many burghs provided a school although they were not obliged to and not all did: many considered provision of a burgh kirk of greater importance. Beyond that, the services provided often amounted to little more than a bit of rudimentary street sweeping if there was anything left over after repairing the mercat cross and the tolbooth.  

There was a sub-set of common good: property used by the town or its citizens. These included things like the tolbooth (town hall & gaol) and such medieval arcana as public bleaching greens and market stances. These were inalienable in the sense that the magistrates couldn’t sell them on a whim and so deprive the citizens of their use. But the rest of the common good – the majority of it which was just the assets in the portfolio of the burgh’s endowment, so to speak – was freely alienable by the council. Thus, if Blackburgh Town Council happened to own the lands of Whitecraigs, it could sell them and invest the proceeds in the lands of Greenriggs instead just as the trustees of a modern endowment might sell shares in Company A to reinvest in Company B. But it couldn’t sell the market stance if it happened to become marketable. 

Another feature of burgh life in times gone by was the “special trust”. Nowadays, if you want to donate money for a purpose not catered for by one of the numerous established charities, you would nominate your own trustees. But in previous centuries (when there were few charities as we now understand them), donors tended to nominate their local burgh council as trustee: such trusts were often known as “mortifications”. Again, the principal investment was usually land but the magistrates had to apply the rents to the particular local purpose directed by the donor – typically educational or care of orphans or the elderly or else maintenance of a particular facility such as a ferry or bridge. 

Industrial Revolution - statutory powers and rates  
The arrangements described above were barely adequate in the pre-industrial era but cracked fatally under the strain of the onset of the Industrial Revolution in the second half of the 18th century. The meagre resources of the common good supplemented by trusts (i.e. charity) proved totally inadequate to finance the new challenges faced by rapidly growing towns such as improved water supplies, sanitation, street lighting etc. 

At first, individual burghs responded by obtaining private Acts of Parliament authorising specific projects paid for by levying a tax – a “rate” – on the citizens. There was also the problem of towns which were not burghs (royal or baronial) and so had no resources to fund improvements at all: some of these (Airdrie is an example) responded by seeking an Act to incorporate themselves as a burgh, conferring statutory powers of management and to levy rates to pay for them. These statutory developments continued and grew until they reached a culmination in the Burgh Police (Scotland) Act 1892 (the word “police” used there in its original sense of civic government generally rather than just law enforcement). This Act gave the local sheriff power to declare any town with a population over 700 a burgh and gave all burghs – existing and new, royal or baronial – a vast range of powers of management ranging down to minutiae such as bathing machines, shoeblack stands and abuse of steam whistles and trumpets. In a parallel development, general Acts of Parliament were passed on subjects of more general import – e.g. education and housing – giving burghs the power – and, increasingly in the 20th century, the duty – to provide these services. And all of this legislation was underpinned by powers to pay for everything through rates imposed on the citizens. 

So far as burghs’ property portfolios were concerned, therefore, by the 20th century, the common good (and land held by trusts administered by burghs) had become a historical legacy dwarfed by the vast extent of the schools, reservoirs, sewage works, council house estates etc. etc. acquired as a result of these statutory developments. Hence the generally recognised legal definition of common good in a dictum by Lord Wark in the 1944 Court of Session case Magistrates of Banff v Ruthin Castle Ltd: “all property of a [burgh] not acquired under statutory powers or held under special trusts forms part of the common good”.  

Footnotes

[1] Johnstone, Renfrew, Paisley, Stirling, Oban and all the former burghs in Scottish Borders. 
[2] Local Government (Scotland) Act 1994, s.15(4). The “have regard” rule doesn’t apply to Glasgow, Edinburgh, Aberdeen, or Dundee City Councils because they are substantially co-extensive with these four old royal burghs.  Additional legal requirements (for both types of CG asset in all Councils) in Part 8 (Common Good Property) of the Community Empowerment (Scotland) Act 2015 are not in force yet – for these, see further paras. 3.1, 5.4 & 5.6 below. 
[3] Local Government (Scotland) Act 1973, s.75(2) & (3) as amended by Land Reform (Scotland) Act 2016, s.77 to allow, in the wake of the Portobello Park case, for changes of use of inalienable CG. 
[4] The Land of Scotland and the Common Good – Report of the Land Reform Review Group, paras. 14.9-10 
[5] Land Reform Review Group Report, para. 14.3 
[6] In which Edinburgh Council was prevented from building a new high school on Portobello Park, which the Council conceded to be inalienable common good, after the Court of Session ruled that, while it had power under s.75 of the Local Government (Scotland) Act 1973 to authorise the park to be sold, it had no power to authorise the Council to keep it but change its use. EC had to get a private Act of Parliament to build the school on the park and soon after s.75 was amended (by the Land Reform (Scotland) Act 2016, s.77) to allow the Courts to authorise change of use of inalienable CG as well as sale. 
[7] Local Government (Scotland) Act 1947, s.171(3). From 1947 to 1973, it was the Secretary of State rather than the courts who could authorize inalienable CG town halls and offices etc. used for burgh business.