Feus

A feu was simply a lease which lasted forever.

Feus also had different terminology from leases as noted in the grid below:-

I'm speaking about feus in the past tense because they were abolished in 2004. The feuar's ("tenant's") interest in the feu ("leased property") was converted to outright ownership ("freehold") and the superior's ("landlord's") interest (the superiority) was extinguished. Feudal abolition was an example of legal theory being brought into alignment with already existing practical reality as opposed to effecting any great social revolution.

Although there are earlier examples, feuing took off in the 15th century as a method of giving tenant farmers permanent security of tenure. In the paradigm case, a farmer holding a lease of his land for a finite number of years (or even just from year to year) would pay his landlord a capital sum - known as the grassum ("premium" in the modern language of leases) - for a feu of his land which would secure it to him and his heirs in perpetuity at the same annual rent (henceforth known as feuduty). The feuar (erstwhile "tenant") or any of his heirs could also sell ("assign" in the language of leasing) the feu to a stranger. Reflecting the practice of leases at the time, payments known as "casualties" equal to an extra year's feuduty (rent) were due to the superior (hitherto landlord) on the occasion of succession of an heir or sale of the feu to a stranger.

From modest beginnings in the 15th century, feuing really exploded in the 16th on the estates belonging to the Church. These accounted for between a third and a half (estimates vary) of the value of all land in Scotland. The Crown taxed the ecclesiastical estates heavily and the Church responded by feuing them to their tenants except that, to meet the cash demands, sometimes the grassum was higher than normal and the feuduty lower to disguise what was really in substance an outright sale of the land. The onset of the Reformation in the second half of the 16th century - when the clergy feared their estates being confiscated by Protestant noblemen - exacerbated the same trend. The net upshot was that, by the end of the 16th century, the ecclesiastical estates taken over by the Crown and the nobles had been almost entirely feued out. Inevitably, middlemen and speculators as well as humble tenant farmers had been involved in the process. The must read on this is an article by Margaret Sanderson called The Feuars of Kirklands  (I have a photocopy from Edinburgh Library if anyone's interested for private study) but the fact is the 16th century saw a major redistribution of landownership through the medium of feuing.

It's unfortunate with a view to understanding it properly that the terminology of "feuing" is muddled up with that of "feudalism". By the latter term, I'm referring to the system introduced into Scotland in the 12th century of lordships held by magnates from the Crown (or a superior lower down the feudal chain) in return for military service: these were known to lawyers as "ward-holdings" or, when the service to be rendered to the superior was a nominal token, "blench-holdings". It's simply that, when 15th century lawyers were looking for a mechanism for perpetual tenure by a farmer, they adopted the only model open to them, namely, the forms and procedures (charters, infeftments and sasine etc.) and some of the terminology ("superior") of ward and blench-holdings. But despite the superficial legal similarities, "feudalism" (ward and blench-holdings) and "feus" could not be more different in socio-economic terms: the former was a system of political administration, the paradigm ward/blench vassal a noble leader and local administrator whereas feuing was a commercial relationship, the paradigm feuar being a man of business. In fact, feudalism was rapidly breaking down in the later 16th century, being replaced by stronger central government financed by taxation. But tensions of transition remained: feuars might hold their land in perpetuity but were they really land owners? Were these jumped-up tenants really on a par with "freeholders", as the ward and blench vassals described themselves? The issue came to the fore in the late 16th century around issues of parliamentary representation and tax. Only feudal vassals of the Crown were entitled to elect members of parliament and only they were liable for taxes. Were the feuars on the Crown's estates (whose numbers expanded massively after 1587 when the Crown annexed the ecclesiastical estates) entitled to vote (No! cried the freeholders in unison) and/or were they liable to tax (Of course they are!)? It's a very complex subject on which the must read is Thomas Thomson's Memorial on Old Extent

Ward-holdings were abolished by the Tenures Abolition Act 1746 which converted those held directly from the Crown into blench-holdings for an annual payment of a penny Scots (a twelfth of a penny sterling) if asked (which needless to say it never was). Ward-holdings held from subject superiors were converted to feus for an annual feuduty to compensate the superior for the loss of the additional casualties peculiar to ward holdings (extra payments due to the superior when a minor inherited the estate and when the vassal married) to be fixed by the Court of Session failing agreement between the superior and vassal.

Feuing took on a dramatic new lease of life in the late 18th century in yet another new socio-economic context: the Industrial Revolution. When land was sold for the building of new houses or industrial premises as towns expanded, the plots tended to be feued for an annual feuduty rather than sold off outright for a lump sum price. In the context of housing, the owner of a suburban farm on the edge of an expanding city would typically commission a "feuing plan" showing a proposed street layout and how it was proposed to feu it out in lots for building tenement flats (for the working and lower middle classes) and/or detached villas (for the upper middle classes).

It was around the same time that there developed the feature of feuing which, after the significance of the annual feuduty had withered away due to inflation, would end up being its most enduring legacy: the real burden (burden for short). These were to feus what the conditions were to a lease. Thus, for example, a feu charter would stipulate that the feu was only to be used for one house (or as the case may be, a tenement of flats), to be used for residential purposes only with no business use. The point was to ensure that no feuar wrecked the value of the remainder of the superior's estate for sale for similarly douce purposes by opening on his feu a horse knackers or turkey red oil factory or some similarly noisome operation which, in these days, was almost wholly unregulated by the authorities.

Feuing plan of Pollokshields, 1849

In the late 19th and early 20th centuries, many big aristocratic country estates - I mean here those which didn't have potential for feuing for urban development - were broken up. This was a process I don't know much about (but would love to know more if anyone can point me to an accessible text) but I gather it was due to a combination of agricultural depression and death duties. What I do know, though, is that many farms were sold off to their tenants and this time round (compared with the 16th century), the farms were sold off outright for a lump sum price rather than being feued. But if a small site in the country was sold - for a church or a school or a cottage etc. - then these continued to tend to be feued well on into the 20th century.

Although I've described a feu as a type of lease, a big difference is that a feuduty can never be reviewed as the rent under a lease can. Thus, feuduties are vulnerable to being whittled away by inflation. Bearing in mind that the typical feuduty was either for a farm feued in the 16th century or the footprint of a building feued in the 19th, squaring the inflation timescales with the respective areas of land involved meant that, by the second half of the 20th century, it was rare to find a feuduty of more than £30-40 a year - in fact, single figures was the most common. This syndrome, coupled with the fact that feus had for long been seen as outright ownership anyway, led to the Land Tenure Reform (Scotland) Act 1974. This did not abolish feus but decreed that, whenever one was sold, its feuduty had to be redeemed by payment by the seller to the superior of a capital sum linked to the price of Government bonds. (The "feuduty redemption factor" used to be published on the financial pages of the Scotsman: in practice it was between 10 and 20 times the annual feuduty depending on prevailing interest rates.)     

The 1974 Act did not even prohibit the grant of new feus but it did prohibit the imposition of a feuduty in any feu granted after the Act. The intelligent reader will recoil at that: "What's the point of a feu (a type of lease) without a feuduty (rent)?" There is an answer to that but I don't want to get into it in this already over long blog. It relates to real burdens in feus. There are (contrary to popular belief) burdens in outright sales as well but they're slightly different from those in feus. Without getting into the detail, a burden is a bit easier to enforce if you're a feudal superior than an outright seller. That advantage was the only aspect of feuing which survived the 1974 Act. In all other respects post 1974, the grant of a feu was, in practice (if not in strict theory) an outright sale of outright ownership.

Pollokshields today

The Abolition of Feudal Tenure etc. (Scotland) Act 2000, which came into force in November 2004, brought the whole edifice finally to an end. Existing feuars became outright owners in theory as well as practice. The grant of new feus was prohibited. And to make sure feuing wasn't reintroduced through the back door under the guise of very long leases (and to maintain the distinction between ownership on the one hand and term limited occupation of land on the other) all future leases were limited to a maximum of 175 years. Any remaining feuduties (i.e. feus which hadn't been sold since 1974) were compulsorily redeemed. Some feudal real burdens which were on a par with burdens in outright sales would remain in place (he says, glossing over a massively complicated topic).

Incidentally, the reason why leasehold tenure is relatively rare in Scotland compared with England is because we had feuing instead.

Any bit of that anyone doesn't understand?

It remains just to give a brief retrospective of feuing. One the one hand, it's often praised as the system which delivered Edinburgh's New Town (a UNESCO World Heritage Site built c.1760-1830). I don't entirely buy that because English law, which never had feuing, managed to deliver the equally splendid Georgian terraces of Bath, also a WHS (I assume through long leaseholds although I don't know). But that bit of good publicity apart, feuing generally gets a bad press when viewed through the inevitable lens of hindsight. That's probably mostly due to it being hopelessly confused with "the feudal system" and all its negative connotations. It's true that feuing was tarnished in its last decades by the syndrome of superiors charging to waive burdens they had no real interest to retain due to having feued out their entire estate long ago since. But I think that most of the bad press comes from the fact that, looking back, it seems like madness to have leased valuable land in perpetuity for what look to us in the second decade of the 21st century as such small sums. And that inevitably leads to suspicions of incompetence or corruption, especially where the superior was "public sector" such as the Church, the Crown or a local authority.

But take a quarter acre site for a house on the edge of a Scottish town feued in the 1950s at the rate of around £60 per acre which was common then. It looks preposterous to modern eyes but that's equivalent to an annual rent of about £1,400 an acre in today's money. Compare that with the highest rent for the best acre of agricultural land which would have been about £3-£4 an acre in the 1950s or about £100 today. That makes feuing green field sites for housing look very attractive and arguably positively negligent for any landowner (public or private) not to have indulged in it. There was a time (early-mid 20th cent.) when institutional investors like insurance companies and pension funds bought superiorities for the income stream from feuduties.

You also need to have a historic perspective on inflation. According to the Bank of England inflation calculator, inflation averaged 6.7% during the 40 years from 1960 to 2000. Contrast that with the 200 years of the heyday of feuing - 1760-1960 - when inflation averaged only 1%. I'm always a little hesitant about bandying statistics around so I'll conclude with a more human interest insight - I remember my father saying he preferred, in the 1950s, to buy a Wimpey house rather than a MacTaggart & Mickel one because M&M houses had a low price but an ongoing feuduty whereas Wimpeys had a higher upfront price but a purely nominal feuduty ongoing. (I can't swear it wasn't the other way round but you take my point.)

Nice houses, shame about the feuduty.

Crofting Commission Policy Plan - Fit for purpose?

Crofting is a subject that fascinates me and I'll be coming back to regularly, I expect, but the aspect that's taken my interest today is the Crofting Commission's recently approved statutory Policy Plan (copy downloadable from here.)

Mandated by the recent Crofting Reform (Scotland) Act 2010 (s.2(2) inserting new s.2C into the Crofting Act 1993), the purpose of the plan is to explain the CC's policy on how they will, in practice, exercise their various regulatory powers. Such plans are, in principle, a very good idea as bridging the gap between the bald statutory powers ("the Commission shall have power to grant consent ..." etc.) and how Joe Public can actually expect the law to be applied in their particular case. So let's have a look and see whether the plan lives up to expectation in that most controversial aspect of crofting of all - decrofting (removing land from the crofting law regime so that it can be developed for non-crofting use).

By way of (very simplified) background, there are four types of decrofting only two of which are of practical significance:

(1) "statutory house site" decrofting: you have the absolute right to decroft one already existing house on a croft, no questions asked. The only scope for CC discretion is the size of garden that will be allowed with the house. (In fact, most croft houses have already been decrofted by now);

(2) "reasonable purpose" decrofting: something for which you've got planning permission and the CC is persuaded there's no compelling reason to gainsay the planners and keep the site in crofting. The typical example is a housing development targetted at people not involved in crofting or agriculture.

In the mid 2000s, there was concern too many "reasonable purpose" decroftings were being granted with too much land being lost to crofting as a consequence. This was all tied up with issues about affordability of housing in rural areas, second homes etc. and indeed the whole property bubble that burst in 2008. It's called "speculation" (including in the CC plan) in a sort of vaguely pejorative way but without being anywhere legally defined. Anyway, long/short was the 2010 Crofting Act (s.43) added to the CC's powers to refuse reasonable purpose decroftings by reference to new politically correct sounding - but legally rather elusive - criteria such as the "sustainability" of the local environment and landscape (can a landscape be "sustainable"?) and the "social and cultural benefits of crofting". Having only come into force on 1 October 2011, none of this new stuff has been tested in the Land Court yet (as the pre-2010 law had) so this is precisely the sort of thing the CC's plan should be there for to explain what it means in practice.

This was thrown into sharp relief by a recent case drawn to my attention by Inkster's crofting law blog. A Mr and Mrs MacGillivray obtained planning permission for ten houses on a site they owned just north of Ballachulish Bridge. As the site was croft land, the MacGillivrays' next move was to apply to the Crofting Commission for a "reasonable purpose" decrofting direction. In fact, the CC threw out the application on a technicality. That doesn't preclude them from submitting another one but, crucially, any new application will have to be considered under the post-2010 Act decrofting provisions with all their new talk of sustainability of the environment and landscape and social and cultural benefits etc. Now, we would expect the CC's policy plan to give us a steer how in practice all that will play out with the MacGillivrays' planning permission at Ballachulish so let's see if it does.

The MacGillivrays' site as seen on Google Streetview

The relevant paragraphs of the plan for reasonable purpose decroftings are 56-59 (page 15). And the core of that is paragraph 58:-

58          Policy:  The Commission aims to protect land from being lost to crofting.  When considering applications to decroft land for a reasonable purpose, the Commission will normally refuse applications where it is established that the  general interests of the crofting community would be adversely affected.  In applying this policy, the Commission will take into account the demand (for a croft tenancy) for the land subject to the decrofting application.  Unless there is evidence to the contrary the Commission takes the view that there will generally be a demand for an available croft or part croft.

Apart from appearing in the last sentence to erect a presumption of demand (meaning the applicant for decrofting has to prove there's no demand for the land from neighbouring crofters, hence no reason to retain it in crofting) which I'm not sure is legally justified (comments on that from more experienced crofting lawyers, please), that's just a statement of the law as it existed before the 2010 Act changes.

But read on to paragraphs 60-62. Headed "Croft House Site and Garden Grounds", you'd expect these to be covering statutory house site (SHS) decrofting (unchanged by the 2010 Act: absolute right to decroft one house on a croft with no questions asked) with a sentence or two about the CC's policy on the extent of garden ground that will be allowed (as I recall, the rule of thumb used to be 0.1 hectare). But they're not. They're an awkward muddle of SHS decrofting without anything about garden size (para. 61) mixed in with a description of the commonly occurring syndrome of where the original croft house has been decrofted (SHS) and sold off while the croft land passes into new ownership (or tenancy) to someone who now doesn't have a house on it. For the new owner/tenant to get a new house-site decrofted (important because it's difficult to get mortgage finance otherwise), that will have to be a reasonable purpose decrofting meaning that the CC has the discretion to refuse. Para. 62 looks as if it aims to set out the CC's policy on these cases but then it seems to drift off into talking about larger housing developments, referring as it does to housing for "community purposes". I suspect the plan was written (or revised) by someone who doesn't properly understand decrofting but finally, in the last sentence, we seem get to the nub of the CC's attitude to reasonable purpose decrofting:-

"In all cases, the Commission will consider whether decrofting is an attempt to create building plots, or other speculative development which may lead to an application being rejected if it is considered to be potentially detrimental to crofting, the crofting community, the landscape or the environment, or the social and cultural benefits associated with crofting."

There's that s word: "speculative". It's not defined in the plan but according to my dictionary it's "characterised by speculation, esp. financial speculation" and the latter word is "investment involving high risk but also the possibility of high profits". My dictionary also has for speculate "to buy or sell securities, property, etc., in the hope of deriving capital gains" which tones down the risk element so just about every non-social housing development is "speculative". But note that the plan does not say it's the CC's policy to reject a decrofting application if it's speculative. (Nor does the 2010 Act despite what it says in para. 6 of the plan.) What the plan says is that, if the development is speculative, it may refuse decrofting if it would be "potentially detrimental to crofting, the crofting community, the landscape or the environment, or the social and cultural benefits associated with crofting". Which seems to imply that if a development is not "speculative", then the CC will not take account of the new criteria introduced by the 2010 Act and the old law will continue to apply to it.

The MacGillivrays' site on the OS Six Inch map of 1903

Maybe it's unfair to apply the scalpel of statutory interpretation to a policy plan. The point here is that, if we allow that the MacGillivrays' plans at Ballachulish are "speculative", does the plan give any guidance as to how the Crofters Commission will act in response to considerations such as the environment and landscape? Will it, for example, call for some sort of impact assessment from Scottish Natural Heritage, for example? But the plan contains no such guidance making it for all practical purposes absolutely useless as simply repeating the words of the statute it is supposed to explicate!

I shall be very interested to see how the CC responds to the MacGillivrays' next decrofting application. And even more interested to see how the Land Court responds to the post-2010 decrofting law and the CC's policy plan (which the LC "may" take into account, but doesn't have to) if or, almost inevitably, when the MacGillivrays' or another similar case gets there on appeal.

Tenants' improvements - Part 2: rent review

Picture credit James Allan

“You get rented on your own improvements” is something you often hear from unhappy agricultural tenants.
 
At its crudest, the claim is that the tenant carries out an improvement to the farm at his expense and then, at the next rent review, the landlord turns round and says “my farm is now more valuable as a result of what you’ve done so I am entitled to more rent.”
 
Legally speaking, that is simply not true.
 
If a tenant doesn’t agree to his landlord’s demand for an increased rent, he has the right to go to arbitration (by the Land Court since 2003). Ever since statutory rent reviews were introduced in 1948 (as the counterpart of leases being prolonged by statutory security of tenure), the legislation has directed that the arbiter (LC post-03):-
 
“… shall not take into account any increase in the rental value of the holding which is due to improvements which have been executed thereon in so far as they were executed wholly or partly at the expense of the tenant …”
 

The Land Court has since decided that the fact a tenant’s improvement wouldn’t be eligible for compensation at termination of the lease (e.g. because was carried out before 1883 or was post-1883 but no prior notice or there’s an expired WDA: see previous blog for what I mean by that) does not mean it can be rented.
 
So the intention of the law seems pretty clear: a tenant is not to be rented on his improvements. But are there loop-holes a landlord can exploit to get round the default position?
 
The only one I can think of is where a tenant carries out improvements and then later takes a new lease of the same farm. That sometimes happens when a lease gets so old and out of date and/or has been amended so often that the parties decide to start with a clean slate. (It also happened, as I recall, when 100% agricultural property relief from Inheritance Tax was extended to land let under a lease granted after 1995 and the Inland Revenue appeared to accept that a new (post-95) lease granted to an existing (pre-95) tenant counted.) Section 35(5) of the Agricultural Holdings (Scotland) Act 1991  specifically protects the right of a tenant under a new lease to compensation for improvements he carried out under a previous lease but crucially only when the tenant under the old and new leases is exactly the same person. It often happens when a new lease is being arranged that the opportunity is taken to update the identity of the tenant, typically by substituting a younger generation of a family for an older. In that case, s.35(5) doesn't apply so the new lease must specifically record that some improvements belong to the (new) tenant. But that's a subtlety of agricultural law that sometimes gets overlooked if the tenant’s advisors aren't sufficiently clued up and, if it is, the new tenant will not be eligible for compensation for improvements carried out during the previous lease and will also be liable to be rented on them at the first statutory rent review. The fact the previous tenant hadn’t in fact been compensated for his improvements under the previous lease and the starting rent under the new lease reflects that doesn’t alter the fact.

 No doubt there must be some tenants who’ve been caught in the new lease trap but I don’t believe it’s a common enough syndrome to render the general proposition that you can’t legally be rented on your own improvements untrue. But, of course, these general propositions assume that people don’t take liberties and in that regard I was very struck by one of the submissions to the Land Reform Review Group from an anonymous tenant farmer. He (or she) reported:-
 
“I decided to improve a boggy part of the farm, about 30 acres of unusable ground … . Arterial ditches were opened up and drainage pipes with gravel were laid across the whole area. It was ploughed, limed fertilised and re-seeded. This is now good grazing pasture … [H]owever at the next rent review the factor insisted that my rent should go up to reflect the bit of ground that is no longer a useless bog but now good fields. I said “But I did all the work, and paid for all the materials. I did all the improvements in it’s entirety” The factors response was that I had “merely unlocked the potential of the ground” So, my rent increase was greater than expected, I really wish I hadn’t bothered, I won’t be improving any more land unless I could own it.”
 
The argument that the tenant’s work had merely “unlocked the potential of the ground” is an example of what lawyers encapsulate in that venerable legal maximum habens ridetis. The tenant should never have agreed to that rent increase. The Land Court would have dismissed it out of hand but no doubt the tenant felt he/she couldn’t afford the risk of the fees and general grief associated with a LC case and acceded to the landlord’s demand.

This syndrome draws us into the area (not by any means unique to agricultural tenants) known as “access to justice”. It used to be summarised by the (rather dated) adage: “the law courts are open to anyone, rich or poor. Just like the Ritz Hotel.” I’m digressing here but it’s a dreadful irony that, in other areas of the law, the great panacea is arbitration to keep things out of the courts: in agricultural law, arbitration had been compulsory for decades until, due to the mounting costs involved, disputes were in moved in 2003 to the courts! Giving the Land Court jurisdiction has not solved the problem. I know that the Scottish Agricultural Arbiters and Valuers Association (SAAVA) and Tenant Farming Forum have been involved in trying to address this problem. I have to admit I’ve not engaged with any of these moves but as I type it occurs to me the way I would deal with rent demands with no legal basis would be that a rent review could only be initiated by service of a statutory form in which the landlord (or tenant) was required to justify a proposed new rent according to the criteria and methodology laid down by the agricultural holdings legislation. Crucially, the form would require to be certified by a lawyer (probably not the landlord’s usual lawyer) that the proposals were reasonable in law. It would be a bit like auditors signing off company accounts – they’re not guaranteeing they’re right or wrong, just that they’re in the ball-park and nobody’s assumensque michaelem.

Tenants' improvements - Part 1A

In the last post, I said I wasn’t going to say anymore about compensation for improvements when a lease comes to an end. That's because I believed the more common syndrome of alleged "improvement theft" nowadays was tenants being rented on their improvements at rent reviews in the context of an ongoing lease. However, I read in the Glasgow Herald today that the Scottish Tenant Farmers Association (STFA) are meeting with the Scottish Government to discuss, amongst other things, problems with compensation for improvements at way-go (termination of a lease). It therefore seems to be more of a live issue than I’d assumed in retirement and it prompts me briefly to revisit this situation. (As I type, I can imagine an affected tenant saying “Briefly revisit? I’ll “briefly revisit” you, sonny …”)

Picture credit - Steven Brown

The main point is that, to be eligible for compensation at way-go, a crucial pre-condition is that the tenant gave written notice of the improvement to the landlord before he (tenant) carried it out - no notice, no compo. It’s amazing how many tenants don’t seem to be aware enough of their rights to comply with this relatively simple requirement. Something for the STFA to promote to its members perhaps. Note also that the tenant doesn’t require the landlord’s permission to carry out an improvement, he just has to inform him. If the landlord objects, it’s the Land Court which decides.

It used to be common for landlords and tenants to enter into “writing down agreements” (WDA) in relation to improvements. Under a WDA, the L and T would agree that the cost of providing an improvement would be written down on a straight line basis over an agreed number of years, usually 20 if I recall. Thus, suppose T put up a building at a cost of £10k. In a straight line 20 year WDA, if the lease ended 10 years later, the compensation would be £5k, if it ended 15 years after it would be £2.5k and so on. It’s important to note that tenants were not obliged to enter WDAs and, I must say, I was never quite sure why they did. New WDAs were abolished by the Agricultural Holdings (Scotland) Act 2003. There's some doubt about whether existing (pre-2003) WDAs with a remaining term to still to run were abolished. (If anyone wants to comment on that particular aspect, I’d be interested to hear.)

I don’t know what the particular problems with compensation at way-go the STFA wants to discuss with the SG are. But an obvious area of tension is when the tenant didn’t give prior notice of the improvement so the landlord is not obliged to pay compensation for it. In that context, it’s interesting to note the tenant has the right (subject to conditions, inevitably) to remove from the farm any improvements he is not entitled to compensation for - including, apparently, by demolishing a building put up by the tenant. That rather extreme solution wouldn’t compensate the tenant financially, of course, but the threat of it could bring the landlord to the negotiating table. 

Do leave a comment - especially if you disagree with the gloss I'm putting on very complicated legislation to make it understandable. Or for any other reason.

Picture credit - Dave Fergusson