In this blog post, Malcolm Combe (a senior lecturer in the School) and Malcolm Rudd (a graduate of the University of Aberdeen and recent research assistant, supported by the Carnegie Trust for the Universities of Scotland) discuss the non-reform of the law of inheritance as it applies to land in Scotland.
Let us begin with a variation of an old joke.
Tam Reid was a farmer and a shrewd man. Before leaving this mortal coil, he directed that his family should keep his death notice in the local newspaper short. After all, the newspaper charged for each word in the notice. His preferred wording was as follows:
"Tam Reid, from Bogheid, is deid."
On Tam's passing, the bereaved family duly put the notice in the newspaper. Staff at the newspaper could not help but feel that this notice was short, and contacted the family to ask them if they wanted to include another few words, at no extra cost. The family gratefully agreed to this, and submitted the following death notice.
"Tam Reid, from Bogheid, is deid.
TRACTOR FOR SALE"
Welcome to the law of succession, also known as inheritance, which regulates what happens to your property when you die.
The rules of succession apply in circumstances where you have left a written note of your last will and testament – perhaps directing what is to happen to your farm, your tractor, your investments and your beloved collie dog called Dìleas – and where you have not. Tam's story gives a brief insight into a situation where a will has been left. The wishes of a deceased person are important, but so too are the interests of the family of that deceased person, as are the interests of society as a whole. A properly functioning system of succession law will seek to balance those interests in a way that is suitable for contemporary society, but that is not always an easy balance to strike. And where there is no will, the property of a deceased person will need to, somehow, be distributed. Ideally that should happen in such a way that people close to or financially reliant on the deceased are not overlooked, but once again that involves the balancing of many different considerations.
This post is about the situation where there is a will. You might think the rules around succession are a bit technical, or you might not like to think about death at all, but it is of crucial importance to everyone. As the American band the Flaming Lips celebrate, "everyone you know some day will die." If you are lucky enough to live to a healthy age in Scotland, you will almost certainly have to contend with an executry at some point. All of this makes getting succession law right very important.
This has been looked at again and again by law makers in the UK, with the most recent engagement happening in the Scottish Parliament at Holyrood. In 2015, the Scottish Government consulted on the law of succession, wrestling with a lot of different issues. Succession reform intersects with different areas of law, notably family law and revenue law, but also with land law reform, or at least how the distribution of land on a land owner’s death takes place.
From a property lawyer's perspective, the headline news about this earlier consultation was the potential removal of the different treatment of immoveable and moveable property. (Immoveable property is also called "heritable" property in Scots law, which is something of a hangover from this historical separate treatment.) At the moment, the effect of this differentiation is to allow land and buildings to be left in a will without fear of challenge from a surviving spouse, civil partner or child. This compares to a situation where moveables (perhaps a tractor, investments, or a collie dog) are left in a will, and a partial challenge to the will could be made in relation to the moveable estate. As a result, where the bulk of an estate is composed of land and buildings, it can be passed to a single beneficiary (that is to say, an heir) with little provision for other family members.
To reform, or not reform?
A few years ago, that differentiation looked to be doomed. For many, this made a degree of sense. This is a differentiation not generally found in other jurisdictions and it can have what appear to be arbitrary effects, that might stem from lifetime choices that were made without considering succession. Why should the fact that the deceased’s wealth was invested in land rather than the stock market have such a potentially dramatic effect for a surviving family? Reform in this area was advocated by the Land Reform Review Group.
Of course, there are always difficult cases. From a land reform perspective, this difficult case is flushed out in Chapter 3A of the 2015 consultation, which considered agricultural units. The division of a large estate (where such a large estate is owned by a natural person) into two or more units might not seem objectionable to some, but what about a smaller family farm that simply could not function when sub-divided in that manner? This difficult situation might be particularly acute where the interest in the land is an agricultural tenancy. (Where tenancies can be inherited, they are characterised as immoveable property, so the same heritable/moveable split would apply on the death of a tenant.) Never mind Tam's tractor, what would happen to the farm at Bogheid, assuming Tam is survived by two sons and two daughters? Let us further assume that three of these children are keen farmers, but two of those are so thrawn as to be unable to reach a resolution amongst themselves as to what to do with the farm: what happens then?
In principle, a system that does not discriminate between different categories of immoveable property is fair. That said, a narrow exception might be thought appropriate if the future of a viable unit was actually threatened. Many (though by no means all) respondents to the consultation agreed. However, these contributors were not unified in their vision of the extent or practicality of possible exceptions. The Scottish Government have now decided not to press ahead with the reform. This decision was partly justified on the basis that an exception could lead to as many unfair results as it prevents.
The justification for an exception and some possible models to deliver a fair, sufficiently narrow and practical exception are explored in greater depth in a recent Juridical Review article by one of the authors of this post, Malcolm Rudd (‘Reform of Legal Rights in Succession: Retaining Viable Agricultural Units’ 2018 Jur. Rev. 172). With immaculate timing, the article was submitted just prior to the announcement that the reform would not go ahead, and as such presumed that the differentiation was likely to disappear.
That shelving of law reform notwithstanding, we do still feel some possible approaches deserve to be highlighted, both to test the decision not to reform now, and also for any future consideration just in case this issue comes around again, as it periodically does. The possible approaches (and exceptions to a blanket application or a rule relating to land) are as follows.
- Economic viability
Rules of economic viability have been used in Scottish agricultural holdings legislation before, to prevent one person holding two viable units. Determining what might constitute an unviable unit for the purposes of succession has immediate complications. A measure of pure profit does not account for the standard of the actual management of the unit. Perhaps linking the test to agricultural output (current and prospective, after a forced division) would be a fairer measure.
In an earlier blog post by the other author of this post, from which we have temporarily resurrected Bogheid's Tam Reid, Malcolm Combe suggested a possible mechanism for preventing the creation of unviable units inspired by the action of division and sale which is used for disputed co-owned property. Using this action, one or more of the owners can raise an action to either: a) divide the item; or b) where that is not possible, sell it. Division does not need to be impossible in the physical sense: one important case related to a co-owned estate on the Isle of Bute and the court chose not to parcel it up into smaller sections, as that would affect the viability of the estate as a whole. (Thom v Macbeth (1875) 3 R. 161 IH (2 Div)) Perhaps something similar could be developed where it is determined according to an agreed test that a divided unit would be unviable.
- Substantial hardship
The notion of substantial hardship is already found in section 13 of the Crofters (Scotland) Act 1993, which prevents a crofting tenant from using the right to buy her croft from her crofting landlord where that sale would leave the remaining (wider) estate of that landlord no longer viable. This exception to the absolute right to buy is designed to prevent substantial hardship to the landlord who would otherwise be forced to sell the land. This test has been applied rigorously by the Scottish Land Court so it could be a credible option to prevent division of land which would be fragmented by removal of the differentiation. Were this assessment of viability used, where the division of a piece of land would create a portion so small as to cause the beneficiary substantial hardship then the land could be passed as a single piece.
- Preferential allocation
Some European countries have confronted the policy quandary of how to protect small agricultural units at the same time as maintaining a fair system of succession for all the heirs (notably France, but there are others and none of these have a differentiation between immoveable and moveable property when it comes to inheritance). As a result, they have created a quasi-exception known as preferential allocation. At its origin this mechanism related only to agricultural property but its usefulness has seen it extended to other types of property which there is thought to be an interest in preserving. Although not an absolute, it allows an heir who wishes to take on the agricultural property to apply to do so in exchange for a compensatory payment to the other heirs. Courts are given powers to come to a fair conclusion in cases of dispute.
All of the above suggestions are subject to criticism. It is certainly difficult to find an exception which takes account of the multitude of arrangements by which land is held in Scotland. This is particularly pressing where the interest in the land is not ownership but tenancy. However, if a narrow exception was possible (even if not universally acclaimed) perhaps the differentiation could have been abolished in a manner which was more acceptable to consultees and society.
For the time being it seems as though we (and Tam Reid’s family) will have to live with the unfair results of the differentiation between moveable and immoveable property in succession. This debate has a long history and the inherent unfairness which removing the differentiation would have rectified subsists. As such, it seems likely that the debate will revive itself in future. It is clear there is diminished appetite among our lawmakers for possibly divisive reform of the law of succession for now, but if and when the distinction comes to be reviewed and abolished at a future date, perhaps a narrow exception along one of the lines suggested above could make the reform palatable?