NEWSCASTSMITHS GOREIN SCOTLAND

smithsgore.co.uk

THE Land ISSUE

issue 5 Summer 2013

Toby Metcalfe t: 0131 344 0888 e: toby.metcalfe@smithsgore.co.uk

Our stressed economy produces a very uneven playing field. Some businesses by good management or by good luck find themselves in a very strong position – making profits with a strong balance sheet and cash in the bank. Some of these businesses are taking the opportunity

to grow and develop their businesses from cash reserves or bank borrowing despite some banks proving to be very cautious about lending. This might have been stimulated by the fall in the value of many built assets or ‘against the trend of optimism’ about agricultural profitability which has also helped to maintain agricultural land and forestry values.

Many strong businesses however are being cautious about investment, uncertain like most of us as to what challenges lie ahead. These, and the broad sweep of weaker businesses, feel compelled to concentrate all their time and resources on the immediate challenges of today. They are concerned about (or are facing) low levels of profitability, sometimes capital restrictions either self-imposed or due to the reluctance of the banks to assist, and low levels of confidence. You get the feeling that for many it is a case of waiting for something to happen.

The feeling that we are in for the long haul, which in all probability we are, has taken a grip and is affecting us all. We think that there is very little that can be done to change things for the better, and that the best policy is to batten down the hatches and ride out the storm. If lots of businesses adopt the same approach at the same time it is bound to impact. We are also aware of the continuing efforts of government to meet the very challenging task of reducing our crippling debt whilst encouraging business. Many of the measures they have introduced are greatly welcome and no doubt many businesses will take advantage of these. No doubt also there are a variety of things that businesses could or should be doing to regain some meaningful momentum.

The Smiths Gore team in Scotland works with a variety of rural businesses providing a range of services to assist them achieve their goals. For some of these, the renewables programme in Scotland has been a game changer enabling a fresh look at what can be achieved, often linked to a renewed round of investment in the core elements of the business. There is little doubt that, for the wider rural economy struggling with the day-to-day graft, catalysts like renewables are extremely welcome. Equally there can be little doubt that they expedite the alleviation of the burden of debt, enhancing confidence and fostering a positive, forward-looking economy.

So why the heading ‘the appliance of science’, borrowed I openly admit from that old washing machine advert? You may have noticed that we have one of three themes - Land, Energy, Water - for each Newscast. From the next edition we will be incorporating a new section where we will unashamedly look forward with the help of the scientific world. We want to explore where some of the game changers of the future might emerge. For example, shale gas is regarded by many, albeit with some controversy, as the next big thing in the energy sector and indeed there is real evidence in the USA that this is the case. The extraordinary developments in communication are another. Areas worthy of more insight might be for example increasing food production; future advances in communications; new technologies surrounding the use and treatment of water. The list is long and the case for finding and delivering game changers for our toiling economy compelling.

Finally. The theme of this issue is ‘Land’, and land reform is high on the agenda again – in both an urban and rural context. We are delighted that Dr Alison Elliot, Chair of the Land Reform Review Group, agreed to be interviewed for Newscast and our thanks to her for giving up time to do this. Wherever you stand, I know that you will find her comments and her insight into the thinking of her Group both interesting and stimulating as the land reform debate gathers momentum over the coming months.

The appliance of science

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Land Reform Review Group will deliver a ‘fresh perspective’ on land reform

The Land Reform Review Group was appointed by Scottish Ministers to “identify how land reform will enable more people in rural and urban Scotland to have a stake in the ownership, governance, management and use of land, which will lead to a greater diversity of land ownership, and ownership types, in Scotland.”

The Group was also asked to identify how: “land reform can assist with the acquisition and management of land (and also land assets) by communities, to make stronger, more resilient, and independent communities which have an even greater stake in their development”, and “to generate, support, promote, and ‘deliver new relationships between land, people, economy and environment in Scotland”.

The Group has currently been reviewing evidence it has received during Phase 1 of its consultation period that closed on 31 March 2013. It is due to deliver its first report in May 2013.

Sir Robert Clerk talks to Dr Alison Elliot, Chair of the Group.

Robert Clerk: Before suggesting how the process of land reform might be developed further by additional legislation, and your remit is quite focused in that direction, it would seem logical to review in the light of experience the strengths and weaknesses of the three parts of the 2003 Act.

Alison Elliot: We are looking at the legislation to see how it is bearing up, to see if it’s doing what it was intended to do, and see whether it needs to be changed. And then of course we’ve also got the evidence that was submitted to us. We have also been around the country, with visits to a variety of places. In Harris we had a meeting attended by people who had been involved in community buy-outs to hear about their experiences … there’s quite a lot of evidence for us to work with.

But our remit goes wider than that, picking up some of the things that couldn’t be done in the 2003 Act such as the urban dimension.

RC: So, what is the purpose of the whole exercise. Is that something that your Group can clarify?

AE: We will have to clarify it for our report, but it’s not easy, It’s very interesting to look at the attempts to give a definition of land reform, and most are instrumental – a mechanism in order to do something. But it’s the outcomes that are important rather than the nature of the mechanism – so the community right to buy was a mechanism, but it’s not the only way to achieve certain outcomes. We need to look at what particular outcomes are important for this point in history.

We’ve cast the net wide, asking people to say why land reform is important to them.

RC: Can we be sure that all the input will be considered with equanimity, and that the need for further reform is not already taken for granted?

AE: We are certainly well aware of the polarised nature of the field, in terms of north and south, urban and rural and so on. There are a lot of fault lines going through the subject, but we haven’t just settled for the written views which tend to be more polarised. We’ve seen people and heard about issues at a more nuanced level than that.

RC: You have spent a lot of time looking at the big, private estates, and there could be the potential to focus land reform on these – but they are huge contributors to the local community with their wide range of commercial activities. This may be an interesting but a slightly misguided exercise?

AE: We think that the large estates are an important part of the picture. Visiting some of them I got a sense of the scope they could have, and this changes one’s views and perspective of what is possible. The big estates are operating in a very complex set of social networks. When you get to this question of size there are issues about democracy, and how easy it is for people to have access to land. But I don’t think polarisation of views is helpful; I don’t think that helps at all.

Sir Robert Clerk talks to Dr Alison Elliot

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RC: Do you believe that more can be achieved by legislating for change where populations are greatest – so in an urban context?

AE: I’m not entirely sure about that. Complicated as land reform is in a rural setting, I think it’s going to be even more complicated in an urban one. We visited Lambhill Stables near Maryhill in a very poor, area of Glasgow. They were trying to buy adjacent land for a community woodland, and the ownership structure was hugely complicated – one local businessman owned part along with possibly three local authorities being involved, so it may well be that there are actually more people in an urban situation, but it’s not necessarily going to be more effective.

RC: In the run up to the 2003 Act, the issue was highlighted in the Highlands, but when the Act came into effect it actually had more impact on the urban fringe. It seems to me that there is a need to focus on this area?

AE: In terms of getting interest right across Scotland, so many people think of land reform as being just a Highland and just a rural issue, and consequently they lose interest. They don’t make the connection between the derelict building they see on the corner in their neighbourhood and getting the community together to buy it, and for example what happened at Assynt. In fact both are relevant but at different ends of the same spectrum.

RC: There are many factors including profitability, taxation, market demand, and the aspirations of the community that influence ownership of land. How

will your recommendations take these external influences into account?

AE: I think what is underlying our remit is an interest in community empowerment, and one way is for the community to own the land, but that’s not the only way. The whole essence of empowerment is that it’s for the community to decide whether owning the land is the way they want to move forward. Community empowerment means communities are confident, and ready to face the future.

RC: But community ownership can also bring with it more risks than benefits?

AE: Like the warning that an investment can go down as well as up. It’s a very difficult undertaking. We are very conscious of the difficulties and important dynamics of communities in undertaking this task. Inevitably existing community ownership schemes are under the spotlight because there are so few, they’re young, and I think they are very conscious of taking responsibility for the reputation of the idea. There is an impressive energy in the ones I’ve seen, and impressive ambitions, and they are achieving that. But if it’s going to be a real situation then some of them are going to fail. That is realistic.

Moving on to the issue of funding, there are interesting and different models such as the Land Fund, the Lottery and charitable trusts. Communities need some support to make an acquisition in the first place, but their goal is to be self sufficient, to run themselves, and not to keep going back for more money.

Sustainability is important, and part of that is the capacity within a community in the first place. You find remarkable capacity in communities where you least expect it.

RC: Do you see a vibrant tenanted farming sector occupying a significant place in the future of land management in Scotland?

AE: The whole question of how you secure a vibrant tenanted sector is an important issue, and we have certainly been made aware of the unintended consequences of following a particular route in this area.

RC: I think that following the 2003 Act, a lot of landowners have gone firmly into reverse in terms of being prepared to offer tenancies, the worry being a tenant farmer’s right to buy. There are tax issues as well. It seems to be at a time when there is a strong case for encouraging the tenanted sector, there seems to be a very strong disincentive to landowners to be prepared to go down that route. There is a good argument in favour of a strong tenanted sector but it’s not going to come about, and it’s not going to grow, unless landowners have confidence in the future and are prepared to invest.

AE: But it’s also interesting of course to hear individual tenants say they are so frustrated, and very sad when it gets to that point.

RC: The Scottish Government has asked that you develop innovative, radical proposals that will contribute to Scotland’s future success.

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This suggests you are under pressure to suggest far reaching changes?

AE: It’s strong language, and it’s helpful at the start of the process to have a strong goal to be working towards. My feeling is that we will come up with a report that is appropriate to our understanding of the subject. That is what being independent means.

RC: So you will deliver what you think is right, and not necessarily what might be dictated?

AE: The governance arrangement is clear. We have been appointed to look at this subject and to consider it based on the experience that we have, and produce a report which we then give to Government. What they do with it after that … that’s the next stage. My focus is definitely on a report that I am happy with.

But you cannot get away from the small ‘p’ political dimension of the whole subject – you are dealing with the two most important resources any country has, the people and the land, and land reform sits squarely at the nexus where the people meet the land. It is something that is of huge significance at a big-ticket level.

We are looking at human rights both under ECHR, and the UN Covenant of Economic, Social and Cultural Rights which says that people have a right to a decent standard of living, and to deliver that often involves land in one way or another. Land is implicated in providing food, in providing space for housing, and in overcoming fuel poverty. We are an energy-rich country, so why do we

have fuel poverty? That’s another lens through which to look at land reform, and I think that the land and the people who own it can make a contribution to the better good of society through that lens as well.

One thing that has come up again and again is the issue of affordable housing, and I’ve found it interesting how the big estates have schemes to provide this. They are interested in exploring this idea, because they can do things that a housing association cannot do, or the local authority cannot do.

And these outcomes engage people in the central belt, because they are interested in solving fuel poverty and affordable housing too.

RC: Are you confident that your timeframe is achievable given the complexity of the task?

AE: This is not going to be the only review of land reform, so we are part of a wider, on-going process. It’s not the last word. Our strategy has been to open up the whole area and cast the net wide. We wanted people to say what land reform can do for them, what areas they felt were relevant so we would pick up different and fresh perspectives like affordable housing, because that’s what innovative means to me.

RC: Looking at the 2003 Act, difficulties would seem to stem from procedural issues, and these could do with streamlining – and for access in particular the lack of any effective sanction…

AE: We are looking for suggestions. There is a lot of analysing of the problems. But what is interesting regarding sanctions is that they should never need to be used, for example Part 3 of the Act – partly because it is sufficiently draconian so that people have got round the table. That is an interesting concept.

RC: And finally what has surprised you as you have got deeper into the process?

AE: I welcome what I have seen on the big estates, and the things that they are able to do are extremely interesting. I’ve found going round the community estates extremely interesting as well, and to see the energy they put in. I was pleased to see so much evidence – and surprised and delighted by the way practically everybody I meet has got something to say, like “you know the thing that really worries me is the question of school playing fields …”

A colleague said to me: “It’s fascinating, when I went to Manitoba, and I thought of how they wanted their own land so much they were prepared to go so far … I realise just how important it is to some people.”

RC: And you have found it an enjoyable exercise?

AE: Very much so.

RC: Thank you.

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Jason Beedell t: 01733 567231 e: jason.beedell@smithsgore.co.uk

‘Land reform is about finding a mix of rights and responsibilities which will facilitate the development of a healthy society and a healthy environment.’ Warren & McKee (2011)

Land reform – the major issue

Land Reform is undoubtedly the major issue facing those who own land and property in Scotland, both rural and urban.

The Land Reform Review Group, appointed by the Scottish Government, has undertaken stage 1 of its consultation process and will produce an interim report in May 2013. It will then begin its second consultation phase, followed by a draft report in December, before the final report in April 2014.

The following are extracts from responses received by the Review Group during stage 1.

Andy Wightman “… at heart it is a political project which should lead to the democratisation of landownership and governance in Scotland and the dismantling of a regime that has led to one of the most concentrated patterns of private landownership anywhere in the world.”

The Church of Scotland “A paradox of life in rural Scotland is that the rapid growth of renewable energy is matched by a growth in fuel poverty. This is unacceptable and if landowners are gaining financial rewards from renewables while a growing number of households are living in fuel poverty then the strong case for re-examining land reform to ensure the financial benefits of renewables are shared more equitably is strengthened further.”

Community Woodland Association “We see Land Reform as a powerful tool for community empowerment, and an essential component of sustainable development and social justice: these

are not ‘rural’ or ‘urban’ issues but national imperatives.”

Historic Houses Association for Scotland “Community ownership does not of itself guarantee benefits for a community. The management of historic properties and their associated land is complex and requires experience and professionalism for it to be carried out successfully. Transferring ownership of land to a community does not mean that such knowledge and professionalism will be available or applied.”

The Law Society of Scotland “In the main, we are of the view that it would be preferable to let existing land reform legislation settle down to see where there are larger-scale issues rather than smaller issues which may be more to do with the parties involved rather than the regime itself.”

Mountaineering Council of Scotland “In general terms, the Land Reform (Scotland) Act 2003 is working with regard to access to mountains and hills throughout Scotland. We do not, therefore, consider that there is any need to amend this section of the Act.”

NFU Scotland “NFU Scotland does not consider that land ownership in Scotland requires to be diversified. It is imperative that positive land management practices are encouraged regardless of the ownership or tenure of that land.”

National Trust for Scotland “There is a risk that community right-to-buy can reinforce a simplistic and often divisive narrative that the ‘community’ is good and the landowner is bad.”

RTPI Scotland “In general, RTPI Scotland is supportive of greater community involvement in questions of land and community benefit and sees the planning system at present offering considerable potential to address matters. In particular, the role of Development Plans should be promoted as a significant planning tool in striving for community benefit” … “and we would hope that the Group will encourage further positive usage of existing mechanisms, where appropriate, before bringing new procedures to the table.”

Scottish Land & Estates “… it is unfortunate to note that this review is starting from a view that a problem exists with the pattern of landownership in Scotland. In this response our position on this is made very clear. Change is continually with us and is not something that our members resist; indeed quite the reverse is the case. Change of any kind requires to be justified by sound evidence of the need for change and a clear articulation of what that change is seeking to achieve.”

Scottish Tenant Farmers Association “Availability of land; is the largest barrier for new entrants. Landlords are reluctant to release land for let to new entrants, usually preferring to either rent to existing tenants selling houses and steadings” … “Possible solutions are dedicated starter units as offered by the Forestry Commission, retirement packages linking a new entrant with a retiring farmer or share farming arrangements. Large estates in Scotland must be encouraged to support a new generation of farmers by making land available to new tenants on long term tenancies wherever possible.”

83%Private Sector

3%Heritage Sector

2%Community Sector

Is the public sector’s house in order before it asks for more from the private sector?

Fastest growing sector and much without recourse to the land reform legislation.

% of Scotland’s total rural acreage 1

1. Source: Andy Wightman, The poor had no lawyers. Who owns Scotland (and how they got it), Birlinn Ltd 2010

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12%Public Sector

William Hawes t: 01343 823000 e: william.hawes@smithsgore.co.uk

Between 2005 and 2011 Scotland witnessed a 16 per cent reduction in the number of agricultural tenancies. According to the last

Scottish Government census covering this period, 1991 Act Tenancies and 1991 Act Limited Partnership Agreements dropped from 7,172 to 6,048.

The census also shows that during the same period there was an increase in the number of Limited Duration Tenancies (LDTs) and Short Limited Duration Tenancies (SLDTS) but overall, including Small Landholder Act tenancies, there was a net loss of 727.

Future legislation that might revisit the possibility of an absolute right to buy is often blamed as one of the principal reasons for agricultural tenancies becoming less popular. However, there are also a number of other factors that are contributing to the decline arising predominantly from the fact that direct involvement in the management of land is a more attractive option for an owner than that offered by an agricultural tenancy.

Greater financial security, ready access to the asset and farming as a trading activity are major plus points whilst, conversely, receipt of rent is treated by HMRC as income derived from an investment. So, in terms of career, fiscal and lifestyle choices, farming in-hand may have an edge.

Those who own land may prefer to have direct control over its management and the timing of investment, so providing the opportunity for greater return than otherwise would be the case through a tenancy agreement, where inputs may not necessarily be matched by returns over time. There is also the issue of a cumbersome Dispute Resolution Service in the event of a breakdown in the system.

There are also alternatives that, in the right situation and for the right individual, can provide attractive solutions. Contract Farming Agreements (CFAs) for example can answer many of the questions posed by landowners looking at available options to allow them greater involvement in the management of their land asset.

A CFA can provide benefits to both the landowner and the contractor. There is a clear, common purpose in sharing the risks and the rewards, with each party bringing to the arrangement those elements that are best suited to them. The landowner provides the land and the funding whilst carrying the ultimate financial responsibility and the contractor brings management expertise, husbandry skills, machinery and manpower.

A vibrant tenanted agricultural sector remains a vital part of Scotland’s farming mix. There is no doubt about that, with agricultural tenancies bringing a number of well-established benefits to the landowner and continuity to the tenant, and most notably a reduction in exposure to risk. For maximum benefit a good relationship between landlord and tenant, and an understanding of each others’ business and its respective objectives is essential.

Agricultural tenancies are not the only alternative, albeit there is undoubted political pressure and from elsewhere to position them as that. There may be perfectly valid and reasoned arguments why a CFA, taking land back to farm in-hand, or even possibly its sale, may present a better choice.

In the meantime there is a need to conclude the seemingly endless, unproductive and indeed damaging debate about agricultural tenancies and breathe new life into the tenanted sector. This can only be done by being realistic about the alternatives and by endowing tenancies with sufficient benefits to enable them to compete.

Decline in tenancy numbers not just down to threat of right to buy

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Solar PV farms in Scotland - the sun shines more than you might

think with PV developers looking for sites

Thomas McMillan t: 0131 344 0888 e: thomas.mcmillan@smithsgore.co.uk

There is a common misconception that there isn’t enough sun in Scotland for large solar photovoltaic sites. However, the reality is that irradiation rates in some parts of Scotland are only slightly lower than those enjoyed by our friends in the south of England.

The March edition of Ofgem’s newsletter reported that solar PV makes up 53 per cent of total installed capacity in Scotland under the Feed-in Tariff (FIT) scheme, with wind and hydro making up 30 per cent and 17 per cent respectively. Although large PV arrays are funded under the Renewable Obligation Certificate (ROC) scheme rather than FITs – the same thinking applies – there is enough sun in Scotland to make solar PV commercially viable.

In the south of England, where solar PV has been expanding rapidly, many developers are now starting to experience high levels of competition for sites and grid connections and, as more sites are proposed, cumulative landscape impacts in particular are starting to delay planning consents. As such, some solar PV developers are starting to look north to Scotland where there is less planning risk and competition for sites.

Smiths Gore is currently in discussions with several developers who are actively looking for sites across Scotland and, as a firm, is currently working on three large scale projects from 10MW to 50MW in size (50 acres to 250 acres). These are spread throughout Scotland with one in Dumfries and Galloway, one in Perthshire and one in Moray. In general terms, locations close to an estuary or the sea with relatively flat topography are most attractive as these get higher levels of irradiation.

In simple terms, PV developers are looking for sites in Scotland with the following characteristics;

• grade 3 land or below, ideally brown field sites (old landfills, airfields, etc)

• ground near to a sub-station or 3 phase electrical connection

• sites of between 25 and 250 acres

• sites outside environmental designations

• sites that are not on the flood plain

Reputable PV developers are currently offering fixed land rental rates of between £600 to £1,000 per acre, with lease agreements of up to 35 years and annual reviews linked to the Retail Price Index. Most developers are also offering a small option payment to help secure sites prior to receiving planning consent and grid connection.

No investment is required from the landowner and at the end of the lease the developer is responsible for removing the installation and returning the land back to its original state if it is not re-powered. Some developers also offer Power Purchase Agreements under which they will supply the green power for the PV farm to the landowner at a discounted rate. Access to the site in most instances will be allowed to the farmer throughout the rental period to graze sheep, allowing for agricultural activities to continue.

If you would like to know more, or believe you have a potential solar PV development site, please contact Thomas McMillan on 0131 344 0888 or e: thomas.mcmillan@smithsgore.co.uk

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makes up

of total installed capacity in Scotland

under FITs

Solar PV

53%

James Worthington t: 01387 363066 e: james.worthington@smithsgore.co.uk

‘Many people working in the industry have noted that there is ‘standing water’ on areas of fields where it has never been seen before.

Is this purely as a result of an extremely wet summer across most of Scotland

allied to livestock poaching and a high water table, or a more worrying trend based on ageing drainage systems, climate change, heavier machinery and narrower weather windows to undertake fieldwork?

All of the above are probably contributory factors and, with increasing reliance on outside contractors, there is often no spare labour available on farms for routine maintenance. Also we sometimes forget that our forefathers would routinely replace whole field drainage systems every 50 – 100 years, but now the cost (with no grant available) is prohibitive at typically £3000 - £4000 per acre. Evidence of impeded drainage is common with rushes appearing not only on permanent pasture but also on mowing land across the country.

So, other than complete replacement of drainage systems, what solutions are available to halting the loss of productivity over land that would previously be grazed and cropped?

There is increasing interest in soil aeration with a subsoiler or flat lift, once it has been established that there is a ‘pan’ (layer of compaction) under the surface. Digging test holes to analyse the soil profile will identify if the soil is compacted, with shallow rooting and an anaerobic layer the tell-tale signs.

An informed knowledge of the depth of existing field drainage is vital before subsoiling to avoid aerating a soil where the tiles, pipes or stone drains are too shallow, and which could potentially worsen the situation.

Routine maintenance is important, including on-going repairs and keeping outfalls clear.

Finally farming practices can have a significant effect on how well soils are aerated, and working land in less than ideal conditions, inappropriate stocking rates during wet periods and heavy applications of slurry can all contribute to impeded drainage and a loss of production.

The reality is that Scottish farmers may have to adjust their farming systems if the cycle of wet summers continues. But if the health and drainage of soils can be maintained and improved by mechanical aeration and encouraging a sustainable worm population, this will help to protect our soils for future generations.

Land Drainage

Andy Greathead t: 01620 828960 e: andy.greathead@smithsgore.co.uk

Timber markets

The latest Coniferous Standing Sales Price Index for Great Britain is based on Forestry Commission sales of softwood (conifers) for the year to September 2012. This index monitors changes in the average price received per cubic metre for timber that the

Forestry Commission sold standing, where the purchaser is responsible for harvesting.

The Coniferous Standing Sales Price Index for Great Britain was 4.0% lower in real terms in the year to September 2012, compared with the previous year, with an average price for coniferous standing sales of £14.03 per cubic metre overbark. This decrease should, however, be considered in the context of 68.4% increase in standing timber value over the preceding two years. While timber prices are thought likely to remain fairly stable over the remainder of 2013, this increasing trend in timber prices can be credited as a contributory factor to the strong performance of forestry investment.

Woodland values

In 2011, the IPD forestry index which measures investment performance showed a total return of 34.8% for the year to

31st December, 14.8 percentage points higher than the 20% total return seen in 2010. This represents the best annual performance since the inception of the index in 1992. The recent trend of very strong performance by forestry investment in the UK continued in 2012.

In Scotland, there has been strong demand for maturing high yield class forests in the south with prices ranging from £9,000 to £12,000 per stocked hectare. Demand has also resulted in strong prices being paid for forests in Argyll and the north-east. Values reduce with the lower growth rates and poorer market access associated with north Scotland and the islands. With timber prices falling from the peak of early Summer 2012, forest values should stabilise but with demand outstripping current supply, upward pressure on forest values is likely to continue into 2013.

In the current challenging economic climate, forestry investment compares very favourably against equities, gilts and commercial property over the same period and further demonstrates that forestry can provide an important diversifier of risk within an investment portfolio.

With the longer-term average between 1992 and 2011 equating to a total return of 7.7% per year, forestry still looks a safe investment in turbulent times.

Forestry Market Review9

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Richard Thompson t: 0131 344 0888 e: richard.thompson@smithsgore.co.uk

Five years on from the big crash, and we still all need somewhere to live. Before the bubble burst the industry was seeking to deliver some 35,000 new homes per year in Scotland. However, in 2007/08 it delivered 21,663 units, and this figure dropped drastically to just 10,050 units in 2011/12.

In the last quarter of 2012 the average house price in Scotland dropped by 1.5 per cent to £154,810 and the number of first time buyers in 2012, whilst at its highest for some time, was still 60 per cent down on the level of 2002. House sales rates on most new build sites continue to be about 50% of what they were in late 2007.

The industry has had a tough time. There have been casualties, but the strongest are surviving. Persimmon Homes posted a 52 per cent rise in profits, with Scottish sales up around 10 per cent. Barratt saw a 113 per cent improvement in profit and reduced debt levels to December 2012, also announcing a programme to build 800 new homes in Edinburgh and the Lothians, an estimated third of all its new homes to be built in Scotland over the next year. A restructured Cala Homes said that the first eight weeks of 2013 has been ‘exceptionally strong’.

The upswing is good news for farmers and landowners bringing an increasing demand for strategic land, the re-emergence of option fees, and healthier interest in sites for 50 – 100 units with low infrastructure costs. Land values for sites are improving, with low cost, green field prices per developable acre of between £500,000 to £1 million being achieved in the stronger market areas. More marginal sites may attract little or no interest, which may only be overcome with a flexible approach to sales structure.

Generally, the longer landowners can retain control and improve their own knowledge of their site and its planning status, the more will ultimately be in it for them, but it can take time. Land may be plentiful, but money continues to be a scarce resource and a reduced number of active developers has restricted the number of options available.

By 2014 all Local Authorities should have an up-to-date Development Plan in place, so it is important if there are sites to develop that representations are made concerning these through the Development Plan process.

However, the promotion of land can be an expensive exercise depending on the size of site. Control again is important, and the best returns can usually be gained by managing the process ‘in house’, and assembling an appropriate team to promote and sell the site. Developer involvement can also be beneficial in the eyes of the planning authority who will see this as a sign that the site will actually be developed and is viable.

Funding is always a challenge, and if self-funding site promotion is not an option there are other routes, for example joint venture, promotion agreement, option agreement, or building licence – but beware the tax implications of the chosen route. Value should also be protected by appropriate use of ‘overage’ and ‘clawback’ agreements.

House builders will generally not want to commit to buying a site until they have detailed planning permission and all the potential site constraints are known about.

To protect their businesses most developers prefer to pay for sites on a phased basis, and acceptance of this should enhance receipts for the landowner, but beware of the tax implications again. Be sure that enough proceeds are received early on to cover potential tax liabilities, and that future payments are secured.

It remains to be seen what impact the March budget and mortgage guarantees may have and how this will sit with a requirement for some banks to strengthen still further their own balance sheets!

So, there are indications of a return to a more buoyant market. Funding for lending and better mortgage deals have increased interest at the sharp end, and developers are benefiting from this renewed interest. Landowners must do the same and regard to the points above will help to deliver a successful outcome.

Is the residential development sector out of the woods?

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Thomas Stanley t: 01620 828960 e: thomas.stanley@smithsgore.co.uk

One direct outcome of the First World War was an awareness that the national population was in much poorer health than had otherwise been thought to be the case. Many volunteers for active service turned out to be not fit. This discovery prompted the populist campaign by the Liberal MP Dr Christopher Addison of ‘Homes Fit For Heroes’. 100 years after the start of the First World War, rural Scotland is facing another housing challenge.

As a rule, a growing population and reduction in household size is placing pressure for more homes to be built. In rural areas the task is different. Affordability and the quality of housing stock are just as much a concern as they are in urban areas. In some rural regions depopulation is discouraging investment by landowners and conversely a lack of supply of land for development is creating in other cases a dynamic whereby local people are excluded from owning their own homes in their locality.

Fuel poverty is a concern, and a key objective behind building sustainable communities is that new homes keep their occupants warm and are economic to heat. But this raises questions as to what is a sustainable home? Providing affordable, environmentally friendly homes is therefore a key challenge for Government, planners, developers and rural landowners if we want a healthy rural community in the future.

Thomas McMillan, Smiths Gore Renewable Energy Consultant says:

“What constitutes a sustainable home? It’s not just about constructing a building with a zero carbon footprint. It has to be built in the right place and the right way, ideally using local materials and complimenting a drive to create rural based employment that will bring wider social benefits in that location. Making the most of passive heating through the

construction process is also important for carbon reduction targets but it’s vital that the end product is a healthy space to live in. Landowners should think holistically. The renewable heat incentive offers landowners and tenants a way of ensuring new rural homes are heated to modern standards in a way that is economic for the occupiers and commercially viable for the owner.”

Richard Henderson, Smiths Gore Head of Architecture and Building Surveying in Scotland says:

“It is important that function should not wholly triumph over design, but also fundamental that affordable new homes don’t just function efficiently but are also aesthetically pleasing to the eye externally, and are well ventilated and naturally illuminated internally. Some architects are now working to this agenda and we mustn’t lose sight of this in the drive to reduce emissions.”

So, is the planning system sufficiently nuanced to deal with the differing regional challenges of providing rural homes in Scotland?

Richard Thompson, Smiths Gore Head of Development in Scotland says:

“Government guidance urges a variety of ways of providing affordable rural housing using a mix of tenure types and ownership schemes. Local Authorities are generally now increasingly making better use of the tools at their disposal based on more accurate assessments of local need.”

John Coleman, Smiths Gore Head of Estate Agency in Scotland says:

“For many people in rural areas living on modest incomes, affordable housing may offer an opportunity to progress sooner to home ownership as restrictions on lending ease, and the Government’s shared equity scheme

can also help with this. However, for developers, the margins are much tighter, cash flow is paramount, and so reaching an appropriate balance between affordable and open market housing in a development is vital for fuelling growth.”

Debbie Mackay, Smiths Gore Head of Planning in Scotland, says:

“There are more measures open to landowners to bring forward development than initially may meet their eye. Promoting sites through the development plan process can be daunting. Less widely known are existing policies in a large number of local authority areas of defining some small rural communities as ‘building groups’, usually of between 3 - 5 units, around which applications for a restricted number of new residential units can be achieved through the planning process. We have had a lot of success utilising this policy in Morayshire and elsewhere but our general perception is that awareness is low.”

In a recent White Paper the Government said:

“Given the scale of the challenges, we believe a more radical approach now needs to be adopted for the future of Scottish housing.” (Homes Fit For the 21st Century – The Scottish Government’s Strategy and Action Plan for Housing in the Next Decade 2011-2020)

We agree. The nourishment of Scotland’s rural communities through the ongoing provision of appropriate good quality housing in a variety of forms of ownership and tenure is a challenge and an opportunity for both Government, landowners and professionals.

Providing homes fit for the 21st century

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John Coleman t: 0131 344 0888 e: john.coleman@smithsgore.co.uk

It is two years since leading property consultancy Smiths Gore made the decision to expand into farm and residential estate agency in Scotland, having traditionally led the market sector in land management rather than sales.

As market leaders in the rural land and property sector, currently managing over 2 million acres of land in the UK, property management had formed the core of Smiths Gore's business for over 160 years. But recognition of changes in the economy and opportunities in the market led to the development of new services, and the expansion into estate agency seemed an appropriate move.

Despite the property slump and recession providing a challenge to the industry as a whole, Smiths Gore decided to develop its estate agency service in Scotland under the professional expertise of John Coleman, whose background as a senior partner with other leading estate agencies, and extensive experience in selling prime Scottish properties, made him an obvious choice.

Well known to the rural sector, John had specialised in selling farms, sporting estates, country houses and castles, and was probably involved in the sale of over half of all Scottish rural properties worth more than £2m in the ten years prior to joining Smiths Gore. Now, with an expanded team, John and Smiths Gore's estate agency service handle the sales of all types of prime real estate from cottages to castles and farms to sporting estates.

John sees the relative newness of Smiths Gore's estate agency as a positive advantage providing Smiths Gore with an opportunity to show what they can do, particularly for those who have failed to sell through the more established agents. He says:

“The majority of Smiths Gore's established client base is certainly becoming aware that we are in the business of buying

and selling land and houses, even if we are less established than some other agencies. And the simple fact that we are not inundated with unsold stock allows us to focus on ensuring the very highest level of service to our clients. Instead of taking the 'slash the asking price' option that is common, we aim and strive to get the best price for our clients through creative marketing and a real understanding of the property itself.”

It might have been deemed to have been bad timing for Smiths Gore to venture into this arena when it did - just as the property market hit a crisis - but figures prove that there is plenty of life in the sector and, with the firm's excellent team of specialists in Scotland, there is huge potential to develop and expand.

John Coleman says:

“The lack of confidence in the market and the threat of Scottish independence is making some people reluctant to put their property on the market until they see what the future holds, but they shouldn't procrastinate. There are buyers out there and, with careful planning, full value can still be achieved.

“Although the rural residential market has suffered in recent years, with little sign of recovery (Scotland recorded a further 4 per cent fall across the sector in 2012), farmland and forestry values have moved in the opposite direction. Over the last 10 years land prices have increased by well over 200 per cent, more than compensating for the reduced value of the farm house, and forestry values have doubled since 2007 reflecting new entrants into the market and higher timber prices worldwide."

In the 2 years since Smiths Gore decided to add farm and residential sales to its portfolio of services, its estate agency has sold over 100 properties at a combined value of over £45,000,000. With a combination of professional expertise, track record, having good contacts and building Smiths Gore's reputation in this field, these figures look set to grow and grow.

Smiths Gore and the estate agency market in Scotland

Pumplaburn Farm, Dumfries-shire SOLD Browndside and Maryhill Wood SOLD Tressor Wood House SOLD

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Richard Henderson t: 01387 263066 e: richard.henderson@smithsgore.co.uk

Scotland’s traditional buildings are every part as intrinsic to Scotland’s landscape as the hills, lochs and mountains, and yet the buildings we most commonly consider traditional have largely all evolved since the middle of the 18th century following the agricultural revolution.

The pace of change in the countryside has not stopped since then, and we can argue that the agricultural revolution has continued with farming practices improving and larger modern machinery continuing to revolutionise our rural built environment.

The result of the ongoing changes in farming practice has led to many of our traditional buildings becoming no longer viable for their original use, being too small for modern machinery to access, or no longer providing the right environment for livestock. Fit for purpose is a phrase that springs all to readily to mind – bigger but fewer machines mean bigger but fewer buildings. Many of these structures are now largely redundant and naturally become lower priorities for maintenance expenditure. Such have been the changes in farming, that many of the model farms of the 19th Century and even early 20th Century, which were considered ‘cutting edge’ in their time, are now no longer suited to modern methods. Often they are typical of the region in which they are situated, reflecting the ‘vernacular’ of place and period.

In order to maintain our rural built heritage and ensure that these valuable buildings continue to make an important contribution to the visual impact within our wider landscape, alternative uses for them must be found. Examples might include conversion to form residential or commercial properties with the caveat that the end use provides an appropriate return on capital invested. Good quality, sympathetic architectural design can influence not only the functionality of the building but have a clear impact on its capital value.

However, preserving the landscape in aspic should not be our only goal. We must continue to embrace change to the rural environment and agricultural policy, and be ready to adopt the latest technologies and up-to-date concepts and materials just as our ancestors did before us. We must be willing to accept, and equally as importantly influence these changes and be ready to design buildings for the 21st century and beyond.

Whilst it is important that new build in the countryside (as indeed everywhere else) must first and foremost be functional and fit for purpose, we should also be mindful of the impact it will have on the landscape for many years to come. It is possible to add quality design to a building, whether it is an agricultural building or new dwelling, without compromising the functionality or increasing cost. Good design does not necessarily mean expensive and does increase value for money. Neither should farm buildings be regarded as temporary or transient structures serving a purpose for today, but readily dispensable tomorrow. We should be considering the architectural legacy that we leave behind.

Recognising the value of our built heritage in the countryside

AfterBefore

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Following a move from the York office, Faye Gonzalez assumed the role as the new lead partner in the Fochabers office from 1 April. This move sees Faye returning to her roots; she is from a farming family and went to Elgin Academy and to Aberdeen University.

She joined Smiths Gore in 2004 and was promoted to partner in 2012. In

2011 she received the accolade of top valuer in the UK in the CAAV examinations.

Faye was previously Property Manager to the Duchy of Lancaster with responsibility for the day-to-day management of its six estates in Yorkshire. That portfolio was diverse covering agricultural, residential and commercial assets, quarries and castles.

From 2011 onwards, as Asset Manager, her remit was extended to cover sales and acquisitions, re-organisations, and planning and development – all relevant to her current post.

Working with estates based on the Yorkshire coast and in the North York Moors, she had the opportunity to become heavily involved with the development of tourism businesses including conversions of traditional farm steadings to holiday cottages; from feasibility studies through to planning and managing

through to completion. Other tourism ventures included conversion of B&Bs, tea rooms, and farm shops, working in partnership with estate tenants.

In Fochabers, her client base will extend from Ullapool to Aberdeen and will include management of The Crown Estate portfolio in the north.

Her priorities in her new post include developing the business across all service lines, and cross-selling of other Smiths Gore services such as renewables and planning whilst maintaining a strong, healthy relationship with the client base. She says:

“The north of Scotland is quite different from Yorkshire. The key distinction working north of the border is the political climate and in particular the very active land reform debate, which itself presents both challenges and opportunities”

“Scotland is more receptive towards renewables opportunities right across the sector, whether AD, biomass, micro wind, hydro, or PV. There also seems to be more opportunities for housing in the countryside. I can see exciting possibilities for tourism enterprises. I have been heavily involved in tourist development on estates south of the border, and look forward to working with local clients to explore opportunities. I am very much looking forward to working on home turf.”

Contact Faye Gonzalez in the Fochabers office on t: 01343 823000 e: faye.gonzalez@smithsgore.co.uk

New lead partner for Fochabers office

News in brief

Smiths Gore lands major contract from Scottish Natural Heritage for building surveyor services

Smiths Gore has successfully tendered to deliver building surveyor services to Scottish Natural Heritage (SNH) from 2013 to 2016 covering almost 200 properties from offices and visitor centres to historic ruins and bird hides.

The work will involve undertaking condition surveys of the buildings to create a programme of maintenance for the next three years and beyond. As part of the tender submission, Smiths Gore also successfully tendered for estate agency, architectural, and other related services.

Initially the work will be managed from the Dumfries and Fochabers offices but may expand to involve the provision of additional resources.

Caerlaverock Tearoom shortlisted in the RICS Scotland Awards 2013

By the time this goes to print we will know whether the Smiths Gore designed Caerlaverock Tearoom and Shop has been successful in the RICS Scotland Awards 2013.

The riverside village of Glencaple in Dumfriess-shire could be considered a slightly offbeat location for a striking piece of contemporary architecture, but the new building that stands on the banks of the River Nith is shortlisted in the Awards’ ‘commercial’ category.

The design, commissioned by Caerlaverock Estates, captures the maritime influence of the area and takes into account the impact of the structure not only on the quay and immediate location, but also its effect on the vista within the Nith Valley National Scenic Area.

A75 improvement near Dumfries finally under way

After advising landowners and tenants on the latest A75 improvement scheme, first mooted in 2006, Smiths Gore’s Dumfries office is pleased to note that work has at last started.

The scheme was developed after a spate of accidents, one fatal, around 12 years ago on the stretch just east of Carrutherstown. This road takes considerable traffic to and from the ferry port for Ireland at Stranraer/Cairnryan and an Irish firm has secured the contract from the Scottish Government. Smiths Gore’s Dumfries office looks forward to working with them in order to obtain the best outcome for our clients.

Faye Gonzalez

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The Pulse - EAT OR HEAT?

John Cameron, farmer, and President, Scottish Beef Cattle Association said:

As the benefits of using biofuels are becoming more and more apparent and with the realisation that cereals now play an important role in biofuel production – the question of ‘Eat or Heat’ is of critical importance.

A vital factor in this debate is that world population is expected to rise to nine billion by the middle of the century. In order to adequately feed a population of that magnitude it is currently estimated that world food production would have to rise by as much as 70 per cent, and remember cereals are still the major part of both human and animal feed requirements.

The dilemma is as obvious as the conclusion – try asking an undernourished child in Africa whether she appreciates why some of her undersupplied dietary requirement is not available!

Matthew Currie, Partner, Smiths Gore, said:

Competition for agricultural land is influenced by many demands placed on it including food production, forestry, non-food crops and conservation. All have legitimate reasons to compete for such land and these can only be expected to increase. The outcome of this competition will depend partly on new technologies to produce energy from non-food crop plant material which will then not displace much needed food crops.

Alison Johnstone, Green MSP said:

How we use land in Scotland is central to the food and energy debates, but even more important is who owns and controls land and who can reap the rewards of our most valuable public asset. Producing food for consumption in Scotland should obviously be a top priority, but the planning system must ensure a good balance of uses so that our energy, forestry, housing, wildlife and leisure needs are met as well.

Struan Stevenson MEP said:

It’s essential for society as a whole that we ensure food production makes economic sense for farmers. The increasing tendency for landowners to lease prime agricultural land to renewables developers is having a two-fold effect on the cost of living: less farmland means less home-grown food and higher prices, while the explosion of turbines on arable land is only delivering energy at exorbitant costs to consumers thanks to the subsidies reaped by developers.

Struan Stevenson is a Conservative Euro MP for Scotland and President of the Intergroup on Climate Change, Biodiversity & Sustainable Development – The largest intergroup in the European Parliament with more than 200 MEP members.

Maitland Mackie, Chairman, Mackie’s of Scotland, said:

In the coming food scarcities, the market for foodstuffs will far outweigh the energy feedstock market. Curiously, a principal reason for the scarcities will be the fast escalating costs of conventional energy and ammonium nitrate, responsible for production of half the world’s food. We are on the cusp of a renewable energy revolution. In 25 years time all energy will come from renewable sources, because it will be the least expensive. Farmers need to be part of that revolution investing in and keeping ownership of big turbines now. And so democratising and decentralising the energy industry!

Rog Wood, Agriculture Editor, The Herald, said

I believe that using good arable land to produce grains and oilseeds for fuel is morally wrong and indefensible, as there are other technologies that can be developed to keep our vehicles running. Having said that, I believe that Brazil’s vast area of sugar cane for ethanol production is justifiable in the medium term as it is a very labour intensive crop that currently offers employment to the country’s large number of rural poor.

The pressures on Scottish farmland for food, fuel or a myriad of other uses are extreme - but surely food production must be the top priority? We sought some views across the sector:

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Berwick office8 CastlegateBerwick-upon-TweedTD15 1JSt: 01289 333030e: berwick@ smithsgore.co.uk

Dumfries office28 Castle StreetDumfriesDG1 1DGt: 01387 263066e: dumfries@smithsgore.co.uk

Edinburgh office22 Young StreetEdinburghEH2 4JBt: 0131 344 0888e: edinburgh@smithsgore.co.uk

Fochabers office7 The SquareFochabersIV32 7DGt: 01343 823000e: fochabers@smithsgore.co.uk

Haddington office28 SidegateHaddingtonEH41 4BUt: 01620 828960e: haddington@ smithsgore.co.uk

Perth office13 Marshall PlacePerthPH2 8AHt: 01738 479180e: perth@ smithsgore.co.uk

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