Tenants' improvements - Part 1

In the debate about whether agricultural tenants should have an absolute right to buy (ARTB) their farms even when the landlords don’t want to sell, one occasionally hears from the tenants’ side about the syndrome of “stolen improvements”.

These are improvements carried out on the farm by the tenant which the landlord is alleged to “steal” by either (a) not paying compensation for it at the end of the lease (assuming the improvement still has some residual ongoing value at that time); or (b) charging extra rent for it at the next rent review. Type (a) theft was (allegedly) more common historically before security of tenure in 1948 when leases regularly terminated but rent reviews were uncommon whereas type (b) is (allegedly) more common now when rent reviews happen more often than leases come to an end.  

The purpose of this post is to look beneath the claims and counter-claims at the law which governs the whole subject of tenants’ improvements and ask if that law is working effectively.

Historical – type (a) “theft” by no compensation at termination of lease

At common law (i.e. the law before it is innovated upon by an Act of Parliament), a tenant was not (unless his lease contained alternative provision) entitled to compensation from his landlord at the termination of the lease for improvements he had carried out: tenants were assumed only to make such investments as they could recoup during the remaining terms of their leases. Whether that was a reasonable position for the common law to take as its default option depended on the length of the lease and the respective bargaining strengths of the landlord and tenant.

Around the turn of the 18^th/19^th centuries – when commercial farming as we know it today developed out of subsistence agriculture – the standard agricultural lease the law assumed as its paradigm was 19 years (a much longer chunk of anyone’s life then than now). Nobody was obliged to take an “improving lease” (as these were known). The tenants were hard headed businessmen at the cutting edge of the Industrial Revolution able to take on landowners on equal terms. If they were content to recoup their investments over 19 years, then, if anything, I’d have been worried about whether the landlord might have been had over!

At the other end of the spectrum in the same period, was the Highland crofter. He had no bargaining strength at all. Booted off his traditional subsistence holding, there was no way he could recoup the effort off converting his allotted patch of barren moor to tillage in the single year a crofting let implied. As such, the crofter was at risk of a ruthless double whammy of the blackmail of paying an increased rent for his improvements if he stayed or no compensation if he went. The crofters’ position was remedied by the Crofting Act of 1886 which conceded compensation for improvements and reduction of rents where they had been subjected to improvement theft. But I’m not going to say any more about the specialist position of crofters here. Instead, I’m going to concentrate on “ordinary” farmers in the rest of Scotland with their 19 year improving leases. Their situation was changed by an Act in 1883 which changed the common law default position so that compensation became due for improvements carried out thereafter.

But, if there is anyone today who is a tenant under a lease which began before 1883 and whose ancestor in the tenancy carried out  an improvement before 1883 which still has a residual ongoing value today, then that improvement will not be legally eligible for compensation when the tenancy ends. That will therefore indeed a stolen improvement. But I suspect the number of tenants in that situation must be small to non-existent. But don’t let me pre-judge – if you think you may be in that situation, then leave a comment (anonymously). I would be very interested to learn if my pre-conceptions on this may be wrong.

But for the vast majority of agricultural tenants - those with leases which began after 1883 - they are legally entitled to compensation for improvements they have carried out (assuming they still have residual ongoing value and are not past their useful life at the end of the lease). That is subject to some conditions and exceptions but I’m not going to go into these here (unless anyone wants me to in which case I'll be happy to do so) because, with the advent of security of tenure in 1948 and concomitant statutory rent reviews, the far more common allegation of improvement theft nowadays is when the landlord seeks to charge rent under an ongoing lease for an improvement the tenant has carried out.

I’ll come to that in the next post but in the meantime, if anyone wants to challenge me on anything I’ve said here, I’d be very interested to hear it. I’m writing from the perspective of what the law says things should be but if things are operating differently in practice, then the law may need to be reviewed so that its intentions are in fact carried out. So do make your views known.