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.

Tuesday, 29 November 2016

Transparency in land ownership: consultation on controlling interests in land

Corrour Lodge

The Land Register and the Register of Sasines tell you who the legal owner of a piece of land is but don't tell you if there's someone else behind the scenes who pulls that owner's strings. Thus, you don't know from looking at the Registers who controls a company which is the legal owner of land. And even when the legal owner appears to be a person, you don't know that he's not just a nominee for someone else who actually calls the shots.

When I used to be a rural property lawyer, I never found this to be an issue in practice: everybody knows that the owner of Killilan Estate, Smech Properties Ltd, incorporated in Guernsey is the Sheikh Maktoum of Dubai and everybody knows that The Corrour Trust is Lisbet Rausing. These are not secrets and even beyond these high-profile cases, I was always surprised how, in practice, everybody seemed to just know who owned what, often leaving us lawyers, who were supposed to know about that sort of thing, bringing up the rear. Be that as it may, Part 3 of the Land Reform (Scotland) Act 2016, gave the Scottish Government power (indeed, obliged it) to make regulations about public disclosure of persons with "controlling interests" in (or over) landowners. The Scotgov is currently consulting about the detail of how to implement this. The consultation is here and runs until 5 December so there's not much time left!      

This is my response to the consultation (If you get bored, there's a picture right at the end which sums it up):-

Chapter 1: Transparency of land ownership and controlling interests in Scotland

1. Do you have any comments about making information about persons with controlling interests in owners and tenants of land available?

The way the questions are ordered didn't allow me to express my views in a very logical order so I'll use this box to summarise them:-

1. The Register of Controlling Interests should be integrated with the Land Register such that disclosure of a controlling interest (or confirmation that there isn't one) is simply part of the information contained in the Land Register, sitting next to the name of the legal owner.

2. Registration in the LR will be the trigger for disclosure of controlling interests. It's not realistic to expect people to be aware of and comply with a duty to disclose information outside the context of a trigger event like registration in the LR when there will be a form to fill in which can focus attention on the matter by asking the right questions and parties are likely to be being advised by knowledgeable professional advisors.

3. As for changes of controlling interest between Land Registrable transactions, again it's not realistic to expect people to remember to do this so the Keeper should be under a duty to write out to legal owners periodically asking them to confirm the information held about controlling interest is still correct. This, I gather, is what happens under the Person of Significant Control regime with UK companies.

4. Integrating registration of controlling interests (CI) with the Land Register will have the benefit that the register of CI is map based. A register concerned with land which is not map based is, for all practical purposes, useless.

5. As for the objection that registration of CI would be delayed by the completion of the Land Register, controlling interest and legal title are two sides of the same coin. It's illogical in principle and unhelpful in practice to progress one and not the other. If there's a concern about timescales, accelerate completion of the Land Register.

6. Finally, the thing that would do most to enhance transparency would be to make searching the Land Register (including information about controlling interests) FREE!

Chapter 2: Defining a controlling interest and who is a person with a controlling interest in a land owner or tenant

2. In your view, taking in to consideration the contents of this chapter and the associated annex C, what are the key considerations that Scottish Ministersshould take in to account in defining a "controlling interest" or "persons with controlling interests in land owners and tenants" for the purposes of these regulations?

Landowners which are UK companies, LLPs or Societates Europaeae are already covered by the Person of Significant Control regime in Pt 21A of the Companies Act 2006 so should be exempt from the proposed register in order to avoid double reporting.

For other bodies, in the interests of consistency and simplicity (avoiding a multiplicity of different disclosure regimes), use the same definitions in the Money Laundering Regulations 2007 except that, for trusts, it is control rather than benefit which is important for present purposes. Therefore the default rule should be that it's the trustees rather than the beneficiaries who are to be disclosed unless a beneficiary has power to dismiss or appoint trustees or de facto exercises control over the trustees (which would likely be the case in the situation of trustees holding property for a partnership).

For foreign corporates (if they are in any different position from other bodies governed by the ML Regs), it would seem most sensible to await the outcome of the Government's discussions on this as referred to in para. 16, page 8 of the consultation.

Public sector bodies and charities should be exempt so as not to burden them with excessive regulation.

It's really important to harmonise with other regimes, not to duplicate them and not to have differences in Scotland from rUK because this acts as a disincentive to doing business in Scotland.

Chapter 3: Scope
 
3. In your opinion, should the regulations apply to all types and uses of land?


Yes

4. Do you think that particular categories of land should be exempt?

No

5. If YES, please give details.

N/A

6. In your view, for the purposes of these regulations, should "land" have the same meaning used for Land Registration purposes (outlined above)?

Yes

7. In your opinion, should the regulations also apply where the proprietor of land that is not recorded in the Register of Sasines or registered in the Land Register because either: (I) The property was acquired prior to the Register of Sasines commencing in 1617; or (II) they have acquired a personal right to property but have not yet registered the deed in their favour in the Land Register?

No

Please give details.:

There are many situations where people acquire personal rights to property (situation II. above) in which it is not realistic to assume they will remember (or even be aware of the requirement) to register a change of controlling interests. For example, following a death with a low value estate where solicitors are not involved or changes in a partnership. Therefore, registration in the Land Register (whether in situation I. or II. above or for any other reason, typically a sale) should be the
trigger for disclosure of controlling interest. The parties to the transaction can have their attention drawn to the issue of control by a question added to the application form for the LR and they will usually be being advised by lawyers where the LR is concerned. Indeed, for that reason, the Register of Controlling Interests should be simply a part of the Land Register (see Qs 11, 12 & 13 below).

8. In your opinion, should the regulations apply where a tenant in a high value lease that is not a long lease (a lease of 20 years or fewer) falls within the definition of persons with controlling interests in land owners and tenants?

No

Please give details.:

Because of difficulties in defining what is or is not a "high value lease". And because the only practical way to run the Register of Controlling Interests is for it to be a part of the Land Register and <20yr leases don't get registered in the LR.

9. In your opinion, are there instances where natural persons who own land have an undisclosed relationship with another person who has a controlling interest in land? For instance if the land in question is an asset of a partnership or trust, or part of a trust arrangement?

Yes

Please give details.:

You've answered your own question: when the land in question is an asset of a partnership or trust. It's very common to find family farms registered in the name of, for example, grandfather when he is actually holding as trustee for a family partnership from which he has long since retired and the controlling interest is now the current partners who are his grandchildren. (Note that the grandchildren are not trying to conceal anything: it's just that updating the property title to substitute themselves for their grandfather is not high on their list of priorities while he is still alive and can do their bidding by signing any necessary documents relating to the property.)

10. In light of the contents of this consultation, and this chapter in particular, can you foresee any ways in which the obligations under these regulationscould be avoided, and, if so, what could the Scottish Government do to combat this?

Yes

Please give details.:

As corporate disclosure requirements increase, it's conceivable that people who take title to land in the name of corporate vehicles for motives of secrecy (which I don't believe is nearly as common as made out in some quarters - it's almost invariably motivated by tax avoidance which, as the consultation notes is not within the competence of the Scottish Parliament) may move to taking title in name individuals as their nominee. That's a form of trusteeship but it emphasises that, to close loopholes, registration of controlling interests must apply to individuals as well as to corporates and trusts. That means it applies to every single owner in Scotland and therefore every single property.

Chapter 4: Where the information should be held and what information should be disclosed

11. In your opinion, should a new register of persons with controlling interests in land owners and tenants be created?

No

12. What would the advantages be?

None. The Register of Controlling Interests should be a part of the Land Register. See 13. below.

13. What would the disadvantages be?

Yet another register added to the increasingly long list of property registers! (Crofts, SSSIs, community interests, applications to buy abandoned land to name but a few) We should be moving in the direction of a "one stop shop" which is what I think the ScotLIS is supposed to be about.

Registration of controlling interests should be integrated with the Land Register such that the identity of controlling interests (or confirmation that there aren't any other than the legal owner) simply becomes part of the information disclosed on the LR sitting next to the name of the legal owner.

Registration in the LR (whether by a transaction with the land or by voluntary or Keeper induced registration) will be the trigger for the entry of controlling interest information. As regards properties which won't come on to the LR before 2024, it's hopelessly unrealistic to imagine that *every* unregistered landowner (because remember every landowner is potentially a trustee or nominee for a controlling interest) will even be aware of, never mind comply with, a duty to disclose a controlling interest or, as the case may be (more usually), confirm there isn't one. In practice, the Keeper would need to write out to people appearing to be the owners of property from the Sasine search sheets asking them about controlling interests.

Another aspect of registration of controlling interests is that it's essential that it's map based or it's of absolutely no use at all if it's designed to help people find out who they need to talk to about, for example, trees by a road which are reducing sight lines as per the example given on page 9 of the consultation.

If the Keeper is going to write to owners appearing on Sasine search sheets and draw maps of their maps of their land, then she might as well be registering these properties in the Land Register while she's at it.

Registration of legal title and controlling interest are two sides of the same coin and it seems ludicrous and wasteful, not to mention confusing to the sort of lay person the process is trying to assist, to progress one and not the other at the same time. The two should be going hand in hand.

(You could turn this round another way and say that I wouldn't object in principle if the proposal were to abolish the Land Register and include information about legal title in a map based new Register of Controlling Interests!)

14. In your view, in addition to the names of "persons with controlling interests in land owners and tenants" should other information about them bedisclosed?

Yes

15 If YES, how would disclosure of that information fulfil the regulations' aim(s) (as per chapter 1 and your answer to question 1)?

The whole thing is surely pointless if you don't include contact information - at least an address!

16. If NO, why not?

N/A

17. In your view, should information about the nature and extent of a person‘s "controlling interest" be disclosed?

Yes

18. In your view, should the nature and extent of a person‘s "controlling interest" be disclosed on a public register?

Yes

Please give details.:

Not quite sure what the difference between Q.17 & 18 is but responding to both, "Yes" to nature but "No" to extent.

I suppose it could help people engaging with "controllers" to know if they are a director, majority shareholder, trustee etc. but I don't think they need to know the full chapter and verse about how many shares etc. they hold if that information doesn't otherwise require to be disclosed (e.g. under UK company law). As long as they make themselves known and available, "controllers" are still entitled to their confidentiality and privacy.

19. If YES, how would this information fulfil the purpose of the regulations' aim(s)?

See details under Q18 above.

20. If NO – why not? Please give details.

See details under Q18 above.

21. Thinking about the information which in your view should be disclosed, are you aware of any potential sensitivities relating to this?

Yes

Please give details::

Commercial sensitivity & confidentiality, ordinary "domestic" considerations of privacy.

22. If YES – in your view what are the advantages of keeping this information up to date?

Not sure how this question fits in to this sequence (YES to what?) but in general terms, if you are going to require disclosure of something, the information ought to be kept up to date.

23. If NO – why not? Please give details.

Not sure how this question fits in to this sequence (NO to what?)

24. In your view, are there instances in which the information about the nature and extent of a person‘s "controlling interest" is commercially sensitive and should not be revealed?

Yes

25. If YES, please explain why you think that this information should not be revealed?

Surely there must be a default presumption in favour of people being entitled to confidentiality and privacy of their affairs unless a public interest case to the contrary has been made. See answer to Q18.

26. If NO – why not? Please give details.

N/A

Chapter 5: The duty to provide the information

27 In your view, should a duty to provide information about persons with controlling interests in land owners and tenants apply to land owners and tenants with titles in the Land Register or Register of Sasines and:

Land owners and tenants where the property was acquired prior to the Register of Sasines commencing in 1617

Yes

Land owners or tenants who have acquired a personal right to property, but have not yet registered the deed in their favour in the Land Register

No  

Tenants in a high value lease that is not a long lease (a lease of 20 years or fewer)

No

28. If you chose NO, why not?

For reasons already given in response to Qs 7 & 8.

29. If YES, in your view what are the advantages of this arrangement?

N/A

30. If YES, in your view what are the disadvantages of this arrangement?

N/A

31. In your view, should a duty to provide information apply to the "person with the controlling interest"?

No

32. If NO, why not?

Because the duty should be on the legal owner at the point of application for registration of his title (or another transaction) in the Land Register for the reasons already given in Qs 12 & 13 above.

33. If YES, in your view what are the advantages of this arrangement?

N/A

34. If YES, in your view what are the disadvantages of thisarrangement?

N/A

35. In your view or experience, are there parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

Yes

36 If YES to Q35, in what scenarios do you think that there are parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

Whenever anybody needs a professional advisor.

Note that "intermediaries" makes it sounds like the stuff of Panama Papers type conspiracy theories. The reality is much more humdrum and the "intermediaries" are simply the professional advisors of both the legal owner and the controller.

Consistently with this, I totally disagree from my experience as a lawyer acting for off-shore landowners with the statement in para. 2 on page 27 of the consultation:- "where there are complex ownership structures lying behind a legal owner, such as a chain of companies owned in offshore jurisdictions, it may not be possible for the registered proprietor to obtain information about persons with controlling interests". The legal owner *always* knows who its controller is and vice versa.

37. If YES, in what capacity are there parties who serve as intermediaries between registered proprietors and persons with a controlling interest in land?

Typically lawyers, land agents and accountants.

38. In your view should a duty to provide information apply to such intermediaries?

No

39. If NO, why not?

It is completely contrary to principle to make an agent liable for his principal.

40. If YES, in your view what are the advantages of this arrangement?

N/A

41. If YES, in your view what are the disadvantages of this arrangement?

N/A

42. In your view, should the duty to disclose information about any person with a controlling interest in a land owner or tenant apply either when a person is a person with a controlling interest in a land owner or tenant when the regulations come into force, or becomes a person with a controlling interest in a land owner or tenant when the regulations are in force?

No

43. If NO, why not?

I'm not sure I understand the question but the trigger for first disclosure should be the first registration in the Land Register after the regulations come in to force.

As for changes of controlling interest between transactions registrable in the Land Register, I don't believe it's realistic to expect partnerships and trusts to remember to notify these. Therefore, I would suggest the Keeper be obliged to write out to the legal owner and/or controlling interest of each registered property periodically to ask them to confirm there has been no change (or, as the case may be, for any new information about controlling interest to be disclosed). This I believe is how Companies House operates the new Confirmation Statement (including info about persons with significant control) scheme. Civil penalties or criminal offence (no strong views which) for failure to respond to such a request for information.

44. If YES, in your view what are the advantages of this arrangement?

N/A

45. In your view, should a civil penalty be imposed for failure to comply with any of the duties contained in the regulations?

Yes

Please give details:

See response to Q43 above.

46. In your view, should failure to comply with any of the duties contained in the regulations be a criminal offence?

Yes

Please give details:

See response to Q43 above.

47. In your view, should an application for land registration be rejected if the applicant fails to supply information about any "person with controlling interest"?

Yes

Please give details:

This follows from integrating disclosure of controlling interests with the Land Register in the manner I'm suggesting.

48. In your view, should an application for land registration be rejected if the applicant fails to certify that no such "person with controlling interest" exists?

Yes

Please give details:

This follows from integrating disclosure of controlling interests with the Land Register in the manner I'm suggesting.

49. In your view, taking in to consideration all of the sanctions and enforcement options set out in this chapter, what mechanisms would be most appropriate to enforce the duty to provide information? Please explain your answer.

The primary sanction will be that an applicant for registration in the Land Registration will be obliged to answer a question about any controlling interest behind the applicant (i.e. say who it is or confirm there isn't one) or else their application will be rejected. There is already a criminal offence of making false statements in connection with the LR (LR Act 2012, s112).

For "inter-transactional" changes of controlling interest, the only sanction can be a criminal offence (or civil penalty, don't mind which) for failure to respond to the Keeper's enquiries (see my answer to Q43).

50. In your view, are there instances in which there should be exemptions?

No

51. If NO, why not?


Can't think of any circs in which people should be excused compliance with the regulations (apart from the Procurator Fiscal/Lord Advocate's usual discretion not to prosecute when it's not in the public interest).

I've never encountered any circumstances in which people may be placing themselves at "serious risk of violence or intimidation" by coming out from behind a corporate legal vehicle. It's just not a syndrome I recognise at all.

52. If YES, in your view what is the justification for such exemptions?

N/A

Chapter 6: Assessing impact

53. Please tell us about any potential impacts, either positive or negative, that you consider that the proposals in this consultation may have in respect of equality issues. Please be as specific as possible.

None I can think of.

54. Please tell us about any potential costs and burdens that may arise as a result of the proposals within this consultation, and any increase or reduction in the burden of regulation for any sector. Please be as specific as possible.

Parliament should take evidence from people qualified to speak about the practical impacts of the introduction of the Persons of Significant Control regime for UK Companies (e.g. Companies House staff, corporate lawyers or accountants).

55. Please tell us about any potential impacts, either positive or negative, upon the privacy of individuals that may arise as a result of any of the proposals contained in this consultation. Please be as specific as possible.

Parliament should take evidence from people qualified to speak about the practical impacts of the introduction of the Persons of Significant Control regime for UK Companies (e.g. Companies House staff, corporate lawyers or accountants).

56. Please tell us about any potential impacts, either positive or negative, that you consider that any of the proposals in this consultation may have on the environment. Please be as specific as possible.

None I can think of.

Friday, 30 September 2016

Resumption from crofting: Glen Spean Estate v MacLachlan

Glen Spean: Gorge Park below the plantation centre left
In Glen Spean Estate v MacLachlan the Scottish Land Court has issued another of its periodic pleas to the Scottish Government to legislate to clarify the law, this time on the subject of resumption from crofting.

Resumption is the process whereby the landlord of a tenanted croft can take back vacant possession in order to put the land so resumed to an alternative use. Resumption is seldom of entire crofts, more usually relatively small parts of them comprising a development site. It's also possible to resume land from crofters' common grazings, indeed this is more common than resumption from in-bye. Resumption is subject to the landlord paying the affected crofting tenant(s) half of the open market value of the land resumed with vacant possession. (In the case of common grazings, this is shared among the crofters who share the grazing.)[1]

Resumption must be authorised by the Land Court who, in terms of Section 20(1) of the Crofters (Scotland) Act 1993, must be satisfied that the landlord desires to resume the land for "some reasonable purpose having relation to the good of the croft or of the estate or to the public interest or the interests of the crofting community in the locality of the croft"

Glen Spean Estate v MacLachlan involved the common grazing of Galmore, just east of Roy Bridge in Glen Spean. Specifically, the landlord, Glen Spean Estate (a partnership between a Mr Smith and a Mr Bruce), had obtained planning permission to build a house on a detached portion of the grazings known as The Gorge Park extending to 1.94ha (4.8 acres) between the A86 and the railway to Fort William (go for a virtual drive-by here - left hand side of the road). The estate had sold it to a Mr & Mrs Dignan for £45,000 and now sought resumption in order to be able to convey it to the Dignans with vacant possession. In the meantime, however, one of the crofters sharing the Galmore Grazings, Mrs MacLachlan, had obtained an apportionment of the Gorge Park, that is an order by the Crofting Commission carving it out of the common grazings and adding it to her individual croft, No 5 Achluarach (1.95ha). As she too had plans to build a house and crofting infrastructure on the Gorge Park (there being none on the rest of her existing croft), she objected to its resumption by the landlord.

Resumption has been around ever since crofting began in 1886. But despite its longevity, the Land Court noted two separate strands of judicial authority on the subject. According to one, following the Inner House case of Whyte v Stewart (1914 SC 675), if the landlord can establish a reasonable purpose having relation to the good of the estate (or the public interest), he is entitled to his resumption even if that would be disastrous for the affected croft (or local crofting community).[2] But according to another, more recent strand of authority reflecting the Land Court's actual practice in recent decades, a balancing exercise has to be carried out between the respective effects of the resumption on the estate, croft, public interest and local crofting community: thus, a resumption undeniably for the good of the estate (or the public interest) might still be refused if it were judged to be outweighed by the adverse effect on the croft (or the crofting community). The latter approach was exemplified by the case of Portman Trustees v Macrae (1971 SLT (Land Ct) 6) in which the landlords sought resumption to sell as house plots of an area at Dornie in Wester Ross which the crofting tenant had obtained planning permission to develop as a site for holiday chalets and static caravans: refusing the resumption, the Land Court expressed matters neatly thus: "Standing the [tenant's] plans for the development of this part of her croft we are not satisfied that the landlord's purpose - though reasonable in itself - is reasonable in the circumstances."

In the Glen Spean case, the Land Court speculated that s.20(1AA)(b) of the 1993 Act (added by s.42 of the Crofting Reform (Scotland) Act 2010):-

(1AA) In determining whether it [i.e. the Land Court] is satisfied as mentioned in subsection (1) above [i.e. that the landlord desires to resume the land for some reasonable purpose having relation to the good of the croft or of the estate or to the public interest or the interests of the local crofting community]  (and, in particular, whether the reasonable purpose mentioned there relates to the public interest) the Land Court—
...

(b) where the purpose is, or is connected with, the development of the croft in respect of which planning permission subsists, may take into account the effect such development would have on the croft, the estate and the crofting community in the locality of the croft, ... .

... might be giving statutory effect to the second of the two judicial strands on resumption (the balancing exercise) but they didn't put it any more strongly than that it was "arguable".[3]

Anyway, it is the potentially irreconcilable conflict between these two strands - the first carrying the authority of the Inner House but the second more representative of contemporary practice and arguably since bolstered by s.20(1AA)(b) - which the Land Court in the Glen Spean Estate case recommended to the attention of the Scottish Government for resolution by legislation.[4] It's not one of the issues identified by the "Crofting Law Sump"[5] so the crofting legislation to do list just got longer.

Back in Glen Spean, meanwhile, as it turned out, the Land Court was able to decide the case consistently with both strands of authority. This was because it decided that selling the Gorge Park to Mr & Mrs Dignan for them to build a house on was not a reasonable purpose having regard to any of the good of the croft, the estate, the public interest or the local crofting community: the landlord having failed at every hurdle, there were none left standing to be balanced. It was too much of a stretch to argue that the tenant's £22.5k share of the value of the land resumed represented a good deal for the croft when it would be losing half its area. The landlords did not lead any evidence that they intended to use their half of the proceeds of sale of the Gorge Park to fund any capital improvements and therefore the case on good of the estate failed (one thing that's incontrovertible in resumption law is that the good of the landlord's pocket is not the same as the good of his estate). And a case on the public interest and the local crofting community - that the Dignans being able to build a house on the Gorge Park would establish a new family in the area - foundered for the reason that they already owned a house they lived in nearby.[6]

The Land Court was equally sceptical about the tenant, Mrs Maclachlan's, plans for the Gorge Park. That didn't affect the outcome because the onus was on the landlord to make the case for resumption, not upon her to keep it in her tenancy. But the Court did remark that, if the estate had succeeded in putting forward a "colourable case" for the resumption, the outcome might have been different given the weaknesses in her case - which does, of course, suggest that, if they had been put to it, the Land Court would have followed the second strand of resumption authority, the balancing approach.[7] 

Finally, the Land Court touched on new s.20(1AA)(a) added to the 1993 Act by s.42 of the 2010 Act:-

(1AA) In determining whether it [i.e. the Land Court] is satisfied as mentioned in subsection (1) above [i.e. that the landlord desires to resume the land for some reasonable purpose having relation to the good of ... etc.] (and, in particular, whether the reasonable purpose mentioned there relates to the public interest) the Land Court—

(a) may take into account the effect that purpose (whether alone or in conjunction with other considerations) would have on the matters mentioned in subsection (1AC) below;
...

(1AC)The matters mentioned in subsection (1AA)(a) above are—

(a) the sustainability of—

(i) crofting in the locality of the croft or such other area in which crofting is carried on as appears to the Land Court to be relevant;

(ii) the crofting community in that locality or the communities in such an area;

(iii) the landscape of that locality or such an area;

(iv) the environment of that locality or such an area;

(b) the social and cultural benefits associated with crofting.
 

The Court said it had thought it would require to embark on a "thoroughgoing analysis" of what these recent additions to s.20 actually meant in practice. But - disappointingly, because I think that would have been the first judicial analysis of them (also relevant to decrofting) - the Court eventually decided that resumption (or not) of the Gorge Park would have no effect on any of the matters referred to in subs.(1AC). One can't help wondering if that's not likely to be the case in all but a few exceptional resumptions (e.g. an entire township or grazing for a super quarry or similar)[8] 


Footnotes
[1] Strictly speaking it's half of the difference between the OMV with VP and the "crofting value", that is 15 x the crofting rental value of the land but the latter value is usually negligible.  
[2] In terms of the original Crofters Holdings (Scotland) Act 1886 (s.2), resumption had to be for a reasonable purpose having relation to just the croft or the estate. Reference to the public interest was added by the Crofters (Scotland) Act 1955 (s.12) and the local crofting community by the Crofting Reform (Scotland) Act 2007 ((s.22(1)(a)). Stewart v Whyte actually involved resumption from a statutory small tenancy (SST) rather than a croft under the discrete statutory code applicable to them (s.32 of the Small Landholders (Scotland) Act 1911). But the wording of the SST legislation on resumption (s.32(15) of the 1911 Act) and the policy background was identical to that for crofts.
[3] Para. [33] of the judgement.
[4] Para. [34]
[5] A project by the Crofting Law Group to identify current problems in crofting law for potential legislative remedy: see the final report here
[6] Paras. [60] to [64] of the judgement.
[7] Para. [64] 
[8] The Court also noted that s.20(1AA)(a) says that the LC "may" take into account the matters referred to in subs.(1AC) - i.e. it's permissive not mandatory. The Court in Glen Spean interpreted this to mean that it could - as in fact it did - find as a matter of fact that the resumption had no effect on the (1AC) matters but I would have thought it also means that the Court could find as a matter of fact that the resumption would have a massive effect on the (1AC) matters but nevertheless ignore that: unless s.20(1AA)(a) is an example of when "may" in a statute actually means "shall". I'm no expert on that point but, coincidentally, s.20(1) of the 1993 Act ("The Land Court may, on the application of the landlord and on being satisfied that he desires to resume the croft, or part thereof, for some reasonable purpose ... authorise the resumption thereof ... ") is such an example: Whyte v Stewart, cit. sup., per Lord Dundas at 682 and Lord Salvesen at 685. Interpreting "may" as "shall" in that context underpins the first of the two strands of authority on resumption (because otherwise the second strand could be justified as saying that the LC only exercises the discretion conferred on it by the word "may" when satisfied with the result of the balancing exercise).