Saturday, 17 August 2013

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

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