The Inner House of the Court of Session has today issued its long awaited opinion on the Moonzie Farm Rent Review Case, which overturns an earlier Land Court decision and has significant implications for landlord/tenant relations.

The landlord of Moonzie Farm, by Cupar, Fife, Richard Morrison Low, had appealed a decision of the Scottish Land Court issued in June 2010, which had the effect of reducing the rent payable for the farm by the tenant.

This was the first full consideration by the courts of the statutory rent review provisions for agricultural holdings since these had been reformed substantially by the Scottish Parliament in 2003. It also followed the European Union reform of the Common Agricultural Policy, with the introduction of Single Farm Payment in 2005, the most striking feature of which was the decoupling of the requirement for production from the entitlement to payment.

The Land Court had taken the view that evidence of the actual"open market" rents paid for comparable farms to Moonzie - the basis on which the rent of farms had been reviewed until 2003 - had been distorted by the introduction of Single Farm Payment, because the subsidy should be treated as income support for the farmer rather than part of the income of the farm. They had therefore substituted an artificial 'open market' and found that the rent payable for Moonzie ought to be reduced, where, in the actual open market, rents for farms were increasing at a steady rate.

The decision of the Court of Session has reversed that view. It has found that the real world evidence of open market lettings that provide the raw data that has to be analysed and adjusted for a statutory rent review. In the real world, most sitting tenant negotiations include Single Farm Payment as a material factor in bidding for the farm.

A Senior Associate at leading land & property law firm Turcan Connell, Lewis Kermack, who acted on behalf of the landlord said:"The net effect of this decision is a return to rationality and, to a great extent, the way that landlords and tenants reviewed rents before 2003. Attempts in practice to apply the Land Court's methodology at Moonzie to other holdings had not produced a result that anyone was prepared to accept as correct, since changes in commodity prices produced wild fluctuations in the rent assessment, depending upon prices on the particular day."

In his opinion, the Lord Justice Clerk, Lord Gill, also made strongly critical comments regarding the work of the parliamentary draftsmen in amending the statutory rent review provisions. This follows on from a number of recent decisions where the Court of Session has been critical of the precision of legislation produced by Holyrood, most recently in the All Stars Nursery case on 24th January. In agricultural holdings, the wording of the amended legislation was found partly responsible for the complexities which had arisen. This was particularly the case in relation to the requirement for comparable evidence, when the main effect of the 2003 reform had been to discourage new lettings of "1991 Act tenancies" so that the best evidence of comparable rents was not available, but the legislation made it unclear whether evidence of the new forms of tenancies was capable of being used to show the open market.

This is seen to be of significance at a time when the Scottish Parliament is again engaged in reforming the agricultural holdings legislation.

The Court of Session confirmed the view of the Land Court that evidence of offers for land let on short limited duration tenancies and limited duration tenancies was open to be considered as evidence of the open market, once adjusted, despite the lack of clarity in the legislation.

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