The Scottish Land Court has recently ruled against a tenant’s claims to have works carried out recognised as improvements eligible for compensation, as they were made under a previous agreement.
The case involved Duncan Black, a tenant of Woodmill Farm in Fife where he sought approval for various improvements made to the farm, aiming to secure compensation when his lease ends.
The issue arose because some improvements were made before 2003 under a different lease, held by a limited partnership in which Black was a partner. In 2003, a new lease was issued to Black individually.
Under Scottish law, a tenant can claim compensation for improvements made during a lease when that lease ends.
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However, the law usually requires that the tenant notify the landlord in advance about such improvements. In 2016, a temporary legal change allowed tenants to give late notice for past improvements, but the deadline for this 'amnesty' was between 2017 and 2020.
Black sought approval for around 170 improvements, many of which were accepted by the landlords.
However, the court found that for improvements made under the earlier limited partnership, Black could not claim compensation because, legally, he was not the same tenant as the partnership, even though he was involved in both.
Black argued that his correspondence with the landlords during the transition between leases led him to believe he would still be entitled to compensation.
However, the court ruled that the legal principle he relied on, known as ‘personal bar’, does not create new rights but only prevents others from challenging existing rights. Since Black’s right to compensation did not exist under the new lease, his claim was rejected.
Douglas Bell, managing director of the Scottish Tenant Farmers Association (STFA) commented: “Unfortunately, this case highlights the need for tenants transitioning to a new lease to ensure that the value in their tenant’s improvements is protected.
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"Compensation for tenant’s improvements is commonly payable to an outgoing tenant at the end of the lease, and this would include compensations for improvements carried out during a previous lease by the same tenant or where the new lease is clear that previous improvements are to be carried forward to the new lease.
"When a tenant is entering into a new tenancy for a holding which they already occupy, it is therefore important to establish whether tenant’s improvements are to be carried forward into the new tenancy, or whether they should be paid at the termination of the earlier tenancy.
"For example, when a tenancy is moving from a 1991 Act tenancy to a fixed duration tenancy, the tenant will be entitled, at that point, to compensation for eligible improvements carried out during the 1991 Act tenancy, unless the new lease confirms an agreement that they are to be carried forward into the new tenancy.
"STFA strongly recommends that tenants entering a new tenancy on their holding take professional advice to ensure their rights to compensation are protected.
"This has been a common error in the past, where a tenant has agreed a new lease but failed to ensure that provisions are included to protect the tenant’s right to compensation for previous tenant’s improvements.
"In this recent Land Court Case there is sympathy for the tenant as it is clear he had paid for the improvements under a previous lease but has now lost his legal right to compensation.
"Often landlords have recognised the unfairness of this situation and have been willing to accept that the tenant’s improvements will remain eligible for compensation, and it is hoped that the landlord in this case will show similar fairness.”
Sarah-Jane Laing, chief executive of Scottish Land & Estates, said:
“The judgment highlights the ill-intended consequences created through poorly devised legislation from successive governments for the tenanted sector.
“SLE and its members fully supported the amnesty for improvements, and it is positive that the vast majority of the 170 improvements highlighted in this case could be agreed through the amnesty, providing the tenant with the right to compensation he would otherwise have lost.
“We understand that the dispute related to activities which took place more than 20 years ago and if there are any positive takeaways, then it should be that this case underlines the importance of documenting everything in accordance with the legislation at the time, no matter how tedious or convoluted it may be, because memories fade and personnel change.
"Following the correct legal processes by all parties can help avoid a lot of angst and expense later down the line."
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