Landlord and tenant – Notice to quit – Breach of trust – Rescission – Claimant joint tenant serving notice to quit on defendants who farmed land in partnership – Court determining validity of notice – Whether claimant owing fiduciary duties to partnership – Whether claimant acting in breach of duty – Judgment for defendants
The claimants and the first and second defendants were siblings who inherited an estate following the death of their parents in 2013 and 2014. The estate was a family farm in Yorkshire consisting of about 600 acres of arable land, four farmhouses, various agricultural buildings and a golf course.
The estate was owned and managed through a series of complex family trust and partnership structures. It was alleged that in 1994, a tenancy had been created between the freeholders (the parents and the claimant) and partnership which farmed the land (the parents plus the three siblings). There was thus a partial overlap between the identity of the freeholders and the identity of the partners. There was no written tenancy agreement.
The Court of Appeal held that: the tenancy was an annual periodic tenancy subject to the protection of section 2 of the Agricultural Holdings Act 1986; the three joint tenants were the claimant and the defendants; and together they held the tenancy on trust for a partnership, of which the defendants were the only partners. The claimant had formerly been a partner, but had retired from the partnership in 2010: Procter v Procter [2021] EWCA Civ 167; [2021] EGLR 17.
The claimant then served a notice to quit, seeking to determine the periodic tenancy against the wishes of the defendants stating that, as a joint tenant, she was entitled to do so. The court was asked to determine, among other things, the effectiveness of the claimant’s notice to quit.
Held: Judgment was given for the defendants.
(1) In the case of co-owners in equity, their rights remained as their rights as legal tenants so that either could serve notice to quit indicating that they did not agree to a continuation of the periodic tenancy and that service of such a notice to quit was not a trustee function but reflective of their rights as co-owner and no fiduciary duty arose in that respect.
In the present case, the claimant was not a co-owner in equity. She was in the position of a trustee holding the property on trust for the partnership and subject to quite different duties and obligations than a simple co-owner in equity. The co-ownership cases where there was said to be (in effect) a right to refuse to take a new tenancy at the end of the period of the current periodic tenancy did not apply where the person in question was not a co-owner in equity but only a trustee. A trustee in the position of the claimant was, in effect, required to take a new tenancy and not simply indicate that she was unwilling to renew and bring about a further period of tenancy. There was no reason why the claimant, in the position of a trustee as regards the periodic tenancy, should not owe fiduciary duties to act in the best interests of the partnership, not to act for a collateral purpose (her own self-interest), to preserve the trust property which was in effect a periodic tenancy with an ability to prolong the same by not carrying out the step of serving a notice to quit, and to avoid a conflict between self-interest and duty: Bull v Bull [1955] 1 QB 234, Hammersmith London Borough Council v Monk [1992] 1 EGLR 65, Cork v Cork [1997] 1 EGLR 5 and Notting Hill Housing Trust v Brackley [2001] 3 EGLR 11 considered.
(2) Once it was accepted that the duties of the trustee in a particular case encompassed preserving the trust property with a duty to renew, the service of a notice to quit was no longer simply an act which was outside the duties of the trustee, as where the trustee was a co-owner with no trust duties in relation to renewing (or not refusing to renew) the tenancy. If a trustee of a periodic tenancy was, prima facie, obliged to renew it then the renewal of that tenancy became a positive act by the trustee, as did service of a notice to quit, for the purposes of characterising the step as being within the exercise of the trustee’s powers. There might well be cases where, on the particular facts, it was proper and within a trustee’s duties not to renew a periodic tenancy (e.g. the periodic tenancy had become onerous or where rents had collapsed such that the existing rent was not commercial). The trustee might then consider serving a notice to quit, and that would be a positive act as trustee being an exercise of the powers of a trustee which the court could give directions upon.
(3) On the evidence, the court was satisfied that the claimant did not act thinking anything other than that the notice to quit would benefit her and disadvantage the defendants in removing what she saw as the disparity in their respective positions caused by the existence of the 1994 tenancy. When she served the notice to quit, the claimant was not acting with a view to the interests of the trust but for a collateral purpose, namely to put herself in a better position under the overall family legal structures. In acting as she did, the claimant was in a position of conflict between her duty to the partnership to obtain an extension to the periodic 1994 tenancy and her self-interest in bringing it to an end with no renewal.
(4) Rescission was a well-known equitable remedy for breach of trust or fiduciary duty. Although typically applying to contracts, it was clear that it could be a remedy to set aside other transactions. There was no reason why a transaction which amounted to a binding notice that a person was not agreeing to take on a new period of a periodic tenancy on renewal should not be the subject of rescission in an appropriate case. Here, the landlord was aware that the notice to quit was served in breach of several fiduciary duties. The court would remedy the breach of trust by ordering rescission of the notice to quit, as an equitable remedy, and the periodic tenancy would continue. There were no grounds put forward as a defence to rescission.
Bruce Walker (instructed by Grays Solicitors LLP) appeared for the claimant; Edward Peters (instructed by Ebery Williams Ltd) appeared for the defendants.
Eileen O’Grady, barrister
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