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

For

further information

on crofting

or renewable

energy issues

please contact

Hugh Smith,

Partner or

Nicky Pascoe,

Associate of

Shepherd+ Wedderburn.

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