Rewarding improvements at end of agricultural tenancies

There is a great deal of misunderstanding in the agricultural tenanted sector about claiming compensation for improvements at the end of the tenancy. In this article I want to take a brief look at the existing rules.

I have been prompted to do so first of all having appeared in the Scottish Land Court in separate cases last year, both relating to compensation for improvements and also in light of Scottish Land & Estates’recent press release outlining their proposals with regard to what they call a “tenant improvement amnesty”.

The legislative regime in respect of improvements is for practical purposes identical whether we are dealing with a secure 1991 Act Tenancy or a Limited Duration Tenancy.

In respect of the most expensive improvements a tenant is likely to carry out — for example erecting a new building — the statutory requirement is that the tenant has to give a notice in advance of the work being carried out, specifying what the work is, and then wait for three months before starting work. The landlord can object to the improvement being carried out. If that is the case, the tenant will have to seek an order from the Land Court that the improvement is reasonably necessary for the efficient management of the farm as an agricultural unit.

It is vital that an improvement notice is served in advance otherwise the outgoing tenant will not, except in very limited circumstances, be able to claim compensation for the improvement. This has led to very unfortunate consequences in a number of cases.

The law was changed in 2003 so that some improvements which were carried out without notice under a 1991 Act tenancy might still qualify for compensation.

However this is only where the tenant can prove that the improvement was in respect of something which the landlord should have provided at the start of the tenancy, to comply with his obligation to provide fixed equipment in a thorough state of repair, but didn’t.

Statements in a lease or post-lease agreement that the tenant accepted the existing fixed equipment in a thorough state of repair will not prevent the tenant being able to leave evidence on the question.

However, this will not help a tenant where the lease began perhaps in 1930 and what is being argued about is compensation for a building which was erected in 1970 by the tenant without notice.

It would be impossible to argue that a steel portal frame building put up in 1970 was something which the landlord should have provided in 1930.

SLE’s proposals are that there be a oneyear amnesty period during which a tenant is able to notify improvements which might have been carried out without notice or which might be subject to an agreement writing down their value to nil over a period of time.

If at the time notification is given during the amnesty period the improvement is something that should be provided to maintain efficient production, SLE proposes that that improvement will qualify for compensation at the end of the tenancy, the amount of compensation being a sum which fairly represents the value of the improvement to an incoming tenant.

An alternative view might be that any improvements carried out by a tenant which maintain efficient production on the unit, and which therefore benefit the unit, should be eligible for compensation.

Hamish Lean.