Renewable Energy and Crofting Reform

Community purchases of land have featured regularly in the news recently,
with reports that the first applications to purchase croft land under Part
3 of
the Land Reform (Scotland) Act 2003 have been made by the Pairc and Galson
estates, both on the Island of Lewis; completion of the community purchase
by the Assynt Foundation of 44,400 acres comprising Glencanisp Lodge, Glencanisp
Forest and Drumrunie Forest; and most recently the vote by the residents
of the South Uist estate favour of going ahead with proposals to buy 93,000
acres
of land at Eriskay, South Uist and part of Benbecula, which includes 850
tenanted crofting holdings.

The Community Right to Buy and the Crofting Community
Right to Buy, enshrined
in the Land Reform (Scotland) Act are aspects of a wider and ongoing programme
of land reform in Scotland, the latest phase of which is the subject of
a Scottish Executive consultation on its proposed Crofting Reform (Scotland)
Bill, which
is due to close on 13 June 2005. The draft Bill covers a wide range of
issues
that affect crofting, and this consultation addresses a number of these
issues, many of which have also been the subject of earlier consultation, in
a process
that has been ongoing for a number of years, since the Land Reform Policy
Group consulted on land reform, including reform of crofting legislation
in Scotland,
in 1998.

Since that original process began, there has been a huge upsurge
in the focus on renewable energy, which is an issue not just for Scotland,
but
one of global
concern, and a proliferation in the development of, or applications for
development of renewable energy schemes, in particular onshore and offshore
wind power.

These two topical issues coincide in proposals set out in
the consultation paper, with two principal issues that concern developers
who want to
promote renewable energy schemes on land which is crofted, namely:

the ability to obtain possession of the land for development purposes;
and
the ability to control the use of land not required for the development
itself but which may adversely affect the development (for example
the exercise of
crofting rights such as muirburn (the burning of vegetation such
as gorse or heather on moorland), shooting or tree planting (in terms of
Crofting
Forestry
legislation) on land adjacent to wind turbines).

A developer will naturally
look for certainty that these two issues can be resolved prior to incurring
significant expense such as that
involved
in preparing
and submitting a planning application.

Current status of crofting
legislation impacting on renewable energy development

The legislative regime
is currently The Crofters (Scotland) Act 1993, a consolidation of various
crofting statutes dating back
to the 1800s,
and
which predates the
recent growth of interest in development of windfarms in particular
on crofting land.

There are three options open to developers
at the moment, each one with certain deficiencies from the developer's point
of
view:

Section 5(3) Agreements

An agreement can be entered into between the landowner
and the crofters in terms of Section 5(3) of the 1993 Act,
which allows
a crofter
to contract out
of the protection of the Act allowing an agreement to
be entered into restricting the rights of the crofter in relation
to the
land required
for development
(in return for financial benefit, of course).

There are
a number of issues arising from this route:

Unanimous agreement of the crofters is required, which can prove problematic
particularly in large common grazings areas;
The Land
Court must ratify the terms of the agreement;
The agreement can only relate
to rights which are conferred by the Act. The agreement cannot deprive
the crofter of rights
which may be granted under other
legislation, and contracting out of such rights
may be void under such other legislation. The Land Court has no right to
consent
to agreements
which relate
to other statutory rights and there may be rights
and obligations imposed under various animal health or environmental regimes
which
the Developer
would
like
to restrict but which in fact the crofters cannot
contract out of;
Crofters cannot contract out of certain rights in the Act
itself, including their right to buy their croft; and
There is conflicting
authority as to whether the agreement would be binding on successors of
the crofter.

It is the first
and the last of these aspects which cause the most problems for developers.
Although opinion is
divided, the risk
that successors
would not be bound is a risk that most developers would
not take. It does not
give the developer the required certainty that he could
secure vacant possession and control of relevant areas,
and it would
not be a recommended
course
of
action for a developer to proceed solely on the basis
of a Section 5(3) Agreement.

Resumption of crofting
land

The land could be removed from crofting control either
by resumption or by decrofting orders.

This route
poses a number of complications:

The Land Court must be satisfied that resumption is for a reasonable
purpose having regard to either the good of the croft, the good of
the estate or the
public interest. The 1993 Act provides a list
of purposes to be regarded as fulfilling the "reasonable purpose" test,
however this list does not include wind farm development. Whilst
a good case can
be made that resumption
for wind farm development is for the good of
the estate and in the public interest, the Land Court must ultimately
balance all three
interests and
decide on the
facts and circumstances of each particular case
whether to allow resumption.
The areas to be resumed will principally
comprise the footprint of the
turbines, substation/control building and any other
structure on the development. Whether
or not the access roads for the wind farm development
require to be resumed may depend on the circumstances. There are separate provisions
in
the 1993
Act giving landowners a reserved right to open
or make roads on areas of common grazings. A landowner also has a reserved right
to quarry for stone
or
other
construction materials on common grazings. In
both cases resumption might be preferred for certainty and also to satisfy funders
who are notoriously
risk
averse.
The landowner will require to show that
there are specific proposals for the use of the resumed land, with relevant
supporting evidence. In practice, the
Land Court will usually require evidence of
(i) an agreement having been reached with the developer and (ii) outline
planning
permission for the
development
to have been granted. This evidentiary requirement
has been of concern to developers,
who are understandably reluctant to proceed
with a planning application with no certainty that the resumption order necessary
for their development will
be granted in due course.
The Land Court has
however indicated that it would be prepared to consider an application
for resumption "in principle" prior
to a planning application, in order to provide
the developer with necessary security. It
is anticipated that the landowner would make
an early application for resumption (prior
to planning) and ask the Land Court to grant
a conditional
consent,
with resumption only actually taking place
in the event of planning permission being granted.
The Land Court would therefore consider at
an
early stage the "reasonable
purpose" test, and then sist the application
until formal grant of planning permission.
The Land Court has indicated a willingness
to work with landowners
and developers to ensure that the resumption
in due course meets development needs. For
example, the initial application may simply
refer to a certain
number of turbine foundation sites of a stated
size within an overall area, the location
of which will only be finalised by the planning
permission. Although not strictly permitted
by
the Act, the Land Court has expressed willingness
to
allow this
sort of flexibility.
The Act recognises the quasi dual ownership of crofting
land between the landlord and crofter and
as a result entitles
the crofter to a share of the value of
any land which is taken from him by resumption.
The share to which the crofter is entitled is one half of the difference
between the market value
of the
land at the date of resumption (less any agricultural
compensation payments) and
the crofting value. Market value is the amount
which the land might be expected to realise in the open market, if sold by
a willing seller. For a
wind farm
development, the valuation will take account
of the consideration payable by the developer to the landowner and the duration
of the lease. Effectively,
the rent payments due over the lifetime of
the development will be capitalised
at the start of the lease for the purposes
of valuation. Clearly this is going
to prove a considerable sum. The possibility
of such a large outlay at the start of operations will have a considerable
impact on funding and may
be
a major disincentive to development.
The solution
here is to proceed by way of payment of the development value on an annual
basis through
the
term of
the lease rather
than a capitalised
payment. In effect, one half of the rent
would go to the landowner and one half to the crofters.
Such an
arrangement
would require
the agreement of the
crofters. The Land Court has no ability to
order an annualised payment in the absence of
such agreement.
Whether
or not
unanimous
agreement
is possible
will
be a test of the circumstances (particularly
if there are large common grazings with many
shareholders). However,
if
unanimous agreement is
not a possibility
(but a critical mass can be achieved so as
to make
the project financially viable) there is no reason
why there
should not be
a mix of payments
with some crofters receiving an upfront capital
sum and others sharing the rent
on an
annual basis.

A number of difficulties with
payment of development sum on an annual basis have been
highlighted
(including in
a practice
note
issued
by the Land
Court):
- The Land Court does not have any power to enforce such
  a scheme, its powers being limited to payment of a share in value only
  at the time
  the land is resumed;
- The agreement would need to be
  structured carefully to determine whether or not payment is due to
  the tenant for the
  time being or to the original crofter who agreed to resumption; and
- The agreement
  will not be binding on successor crofters (this is not necessarily
  of concern to the developer
  as the land will already be resumed and only the
  original crofter will be contractually
  entitled to the payment for resumption).
In addition, a more general problem with resumption is that once the
land has been resumed it passes out of crofting control forever. The Land Court
has
no ability to provide for land to be "re-crofted".
Consider if an annual payment has been
agreed, but the lease terminates for
some reason.
A
fresh lease could be entered into without
regard to the previous right of the crofter
to receive an annual payment.
Finally there is concern as to the extent
of the areas resumed: there may well
be areas over which the Developer
requires an element of control, which are
outwith the resumption order. So even
where there is resumption you end up with Section 5(3) Agreements as well.

A private
Act of Parliament.

There are deficiencies in both the Section 5(3) procedure
and the resumption process from the point of view
of securing to the developer all of
the necessary rights and powers required
for the
development of a wind farm.
It has been
suggested that the only way to overcome
these difficulties would be to promote a private
Act of Parliament
to secure such
powers for a
particular
site.

This has not been seriously considered
by developers given the inherent problems
in
such a suggestion:

a separate Act would be needed for every development;
costs would be
high;
the outcome would depend on Parliament and therefore uncertain political
factors; and
the process is time consuming.

What is the developers' wish list?

Given the issues identified above as problems,
the matters that need to be addressed in any reform programme
are:

Acknowledgement that wind farms fulfil the "reasonable purpose" test
for resumption.
To enable the majority (as opposed to unanimity) of shareholders in a common grazings to agree
to (i)
enter into a Section 5(3) Agreement and (ii) accept
payment of the development value
over time.
To enable the Land Court to award payment of the crofter's share
of development value over time.
To enable the Land Court, either as a condition
of resumption or separately, to impose conditions regarding
activities on areas in the vicinity of turbines, such as shooting, tree
planting and muirburn
or indeed any other
necessary
restriction of the crofters'
rights.
To remove doubts as to whether the Land Court would ratify an agreement
reached between the crofters
and the developers under Section 5(3);
To confirm that a Section 5(3) Agreement
is binding on the crofters' successors.
Where land has been resumed for
wind farm development, to allow the land to return to crofting
tenure after decommissioning of the wind farm and restoration.
Concern over
lack of accurate information as to extent of crofts and details of crofters/shares
in common grazings in particular.

At the moment any renewable energy project
proposed on crofting land has only
the very slimmest chance
of success
unless
the crofters actively support
(or
at the very least do not oppose)
the development. The landowner and developer
will need to
work together with
the crofting
community. This
will still
be the case under the proposed reforms.
They do not provide a mechanism for
bypassing the crofter's interests and it is right
that such interests be protected.

What
does the Bill propose to address these difficulties?

There are two principal
concerns about Section 5(3) Agreements:
that they
are not binding
on successors, and that the
consent of all of
the crofters
is required.

The Bill proposes that a new section would be inserted into the 1993
Act providing that once the Land
Court has approved a Section 5(3) Agreement, the reduction
in the crofter's rights enshrined
in that Agreement becomes binding on the successors to that crofter's interest.
This is subject to a qualification
that the Section 5(3) Agreement
could provide
otherwise but unless it specifically
stated that it was to be personal,
it would bind successors.
The Bill does not change the need for each crofter
to agree if the
Section 5(3) Agreement route is followed
but instead introduces an entirely new concept of "Development
Schemes" where
unanimity may not be required.
The consultation process specifically looks at whether
grazings clerks
should
be given authority to enter
into agreements on behalf of shareholders in the common
grazings, and whether a majority
of shareholders should be able to
introduce regulations which
are mandatory on all. It was felt that shareholders
should
retain full authority and that
they could delegate power to the grazings clerks
if they wanted to do so. Views
are however sought as to whether
consultees agree with this
approach, although it seems unlikely that the position
will
change.

There are a number of
principal concerns about the resumption
process: the "reasonable
purpose" issue; upfront
payment of the development
sum; temporary resumption;
and a new issue raised by the
draft Bill, requiring notice
to the Crofters
Commission.

The draft Bill proposes to amend the 1993 Act to designate the generation
of electricity as a reasonable
purpose although some commentators have queried the need for this.
It is proposed
that the Land Court may, on application by the owner,
and where the Court considers
it appropriate to do so, specify that the crofter's share
of the development value
will be payable in instalments and that the determination by the Court should
be
binding on successors
in title to the
owner. The Bill
does however provide that
the entitlement to the instalments attached to the tenant of the croft at
the time
the resumption
is made, rather than to
the
croft itself, due to concerns
over pricing incoming crofters out of the market as they would have to pay
a value to reflect
the instalments which
would
still
be due to the croft. Having
the payments made to the tenant at the time also reflects the status quo.
The concerns with
this are in ensuring that
ongoing
payments which may be due
to the crofter can be made. What happens if the crofter moves away from the
area,
or dies and
there are succession issues?
How
does
the owner meet the obligation
to pay ongoing instalments to the correct person? Although ultimately this
may be the
best way forward, it does leave developers
with some headaches in terms
of administration of payments.
An addition to the 1993 Act is proposed that
would provide that the Land Court may authorise resumption
for a specified period of time only, and that the
land would revert to crofting
tenure at the end of such specified period. The Land Court can extend the
period of
temporary resumption and must
do so in
the case of an extension
of the time period in a relevant planning permission.
The Land Court is also
empowered to return land to
crofting tenure where there has been
either temporary or permanent
resumption, for example
where the purposes
for which resumption was
made have not been carried out. To provide security to developers
and in
particular their funders,
the Land
Court cannot
make such an order where
there is a standard security over the
land.

One ancillary question to the issue
of temporary resumption is the question
of payments of
development sum which
may have already been
made. Following
previous consultation the
Bill provides that the Land Court will
have
power to determine
whether compensation
should
be repaid
by the crofters
to the
landlord on reversion of
the land to crofting tenure
and, if so, the amount to be repaid.
The Bill provides that in any resumption
application, the landlord must serve notice on the Crofters Commission
and thereby convene them as a third party to the application.
It is not clear what remit the Crofters Commission
has
to object where the landlords
and crofters may be in agreement and indeed
the reasonable purpose test
met, and clarity about the Commission's role seems necessary.

The Bill seeks
to address the issue of lack of accurate
information as to extent of crofts
and shares in common grazings in particular
by making new
provisions
for recording details.
However there is still no obligation on crofters to keep Commission
records
updated, which may result
in the proposals,
while worthy,
actually being of little
practical use.

New Development Schemes

The consultation recognises that these
specific points outlined
above deal with some of the
difficulties encountered
but that even with
these changes
the process for development
on crofting land would remain complex and uncertain.
This
is seen as a
significant
disincentive to
using croft
land for such
developments where
there is an alternative.

Ministers want to address this
disincentive and
have therefore included in the
Bill a proposal to
allow for approval of
a comprehensive development
scheme.

In essence this
approach would involve the landlord/owner
in preparing a
scheme for
the construction
of a development on
the croft land.
The landlord then
applies to the Land
Court for
consent to that scheme
as a whole. This
would be done
instead
of the landlord
applying
to resume
land or seeking
to negotiate
agreements with individual
crofters.

There would
be no restriction on what
the scheme
might provide in
relation
to crofts
and common
grazing and
removal or modification
of crofters
rights in that
property. The scheme is designed
so that
it facilitates
renewable
energy development
but is not restrictive
so
as to
allow
application for
other types of
development, both currently
known and
as
may arise in the
future.

The draft
Bill proposes strict criteria to
be applied by
the Court which
are designed to protect
the
interests of
the crofters
both
collectively and
individually. Furthermore
the crofters
will have a right
to be heard by
the Court
on issues arising
from the application
so
they
are not removed from
the process.

If the
Court consents, the scheme would
bind the landlord,
the
crofters and
any third
parties covered
by the scheme
(typically that
would be the developer
and whoever will
ultimately
be the owner of
the development). The
scheme is also
binding on successors.

There
is no provision for the Court to
alter or add
conditions
to a
Scheme. The Court
must either
give
or refuse consent.
This is deliberately
designed
to ensure that
the scheme is
taken forward
as a consultative
process with
the community
and
each
member of the
community, even
though their
consent
is not
a requirement.

The development scheme approach
is envisaged
as a more flexible
alternative
to resumption
which
would
be fairer
to the crofters
and would enable
complex management
arrangements
to be created
and
dealt
with quickly.
Like resumption
it does not depend
on the consent
of the crofters
and is intended
to
avoid
the problems
inherent
in minority
opposition.

However,
the barriers to obtaining
the
agreement of
the Court
are deliberately
substantial
and such schemes
are
only likely
to succeed
if crofters
have either
been involved in negotiating
the
terms or are
left no scope
for demonstrating
that the scheme
is either unfair
or
offers unfair
recompense.

In order to protect the
interests
of the crofters
the draft
Bill would
require the
Land Court
to be satisfied
that:

the development to which the scheme relates is for a reasonable
purpose (as defined in
the legislation for the purpose of resumption).
the scheme would not be unfair (there is a definition of unfair in the
draft Bill which
makes it clear that if particular individuals suffer significant adverse consequences
and are disproportionately
affected that is
unfair).
there is fair
recompense to each member of the crofting community for the effects of
the development (the draft Bill makes clear that to be fair the compensation
to individuals
should be determined by the effect of the development on that individual).
in relation to the croft land involved in the scheme that the compensation
paid to each
crofter is at least equivalent to the compensation that crofter would have
received if the land had been resumed.
the community would be likely to benefit
financially. There is no definition of what constitutes
financial benefit.
the benefit to the community would be at least commensurate
with the benefit that
the community could expect to obtain if the development went ahead by
any other
means.

These are cumulative criteria and
therefore all
must
be met for
the development
scheme to be
approved. The
Land Court
is not
obliged to
approve
the scheme
even if they
are
satisfied
that all of
the criteria
have
been met.

Members
of the community
can
make representations
to the
Court. As
currently
drafted in the Bill
it does
not appear
to be clear
that
they can
only object on the
grounds
that one
of the criteria
are
not met,
although
this seems to be
the intention
as
it is
stated in
the consultation
paper that
no individual
or
group will
be able
to prevent
a scheme
being implemented
on grounds
of principle
and that
this will mean
that those
opposed to
energy development
will
not solely
be
able to
use crofting
law to prevent
a development
for which
planning
permission
has been
granted.

The Executive
are seeking
comment on
the Development
Scheme concept,
including
views
on the need
for such
a measure
and in particular
on how the
proposals
might
work in
practice.

There
is merit in
the principle
of
these
provisions
although
clarification
is needed
on
a number
of aspects
including,
what will
constitute
the community
for the
purposes of
the financial
benefit
provision, and
who is
entitled to object,
and on
what basis – a
more consultative
approach
may be
preferable.

Conclusion

The proposed
Bill
covers most of
the
developers' wish
list in terms
of
the existing
difficulties
with
crofting legislation,
and
by the introduction
of
the
proposed developments
schemes
which
are generally
welcomed
by
developers, although
there
is still
work
to be
done.

Full
details
of
all
of
the
issues
raised
in
the
consultation
on
the
proposed
Crofting
Reform
(Scotland)
Bill
with
the
text
of
the
draft
Bill
are
available
on
the
Scottish
Executive
website
at:
http://www.scotland.gov.uk/Publications/2005/03/20881/54895