Agricultural Holdings Act 1986, Schedule 2 — Rent valuation formula — Judge’s criticisms of arbitrator’s award — Scarcity — ‘Productive capacity’ and ‘related earning
capacity’ — Relevance of rent previously paid for holding — Position in regard to farm shop — Errors on face of award — Arbitrator’s misconceptions in applying statutory provisions — Award set aside — Arbitrators advised to refer to a check list in ‘making their way through this legislative minefield’
No cases are
referred to in this report.
This was an
application by the landlords, Enfield London Borough Council, under paras 27
and 28 of Schedule 11 to the 1986 Act, to set aside or alternatively to remit
an arbitration award made under section 12 of the Act. The award related to
Botany Bay Farm at The Ridgeway, Enfield. The tenant was Sheila Pott.
Martin Rodger
(instructed by Horwood & James, of Aylesbury, for the solicitor to Enfield
London Borough) appeared on behalf of the applicant landlords; Andrew Densham,
solicitor, of Burges Salmon, of Bristol, represented the tenant. The
arbitrator, who was the second respondent, was not represented and took no part
in the proceedings.
The holding,
of some 101 acres, was primarily an intensive pig-breeding unit but included
some arable land. The tenancy had begun in September 1984 with a rent of £8,000
per annum. The arbitrator had made a reduction for the period to September
1990, awarding a rent of £6,100. The tenant had argued in favour of £5,500. The
landlords, the Enfield London Borough Council, sought to have the award set
aside or remitted. After summarising the main provisions of Schedule 2 to the
Agricultural Holdings Act 1986, the judge dealt with the criticisms which had
been levelled at the award. These are set out below.
Rent previously
paid: scarcity
The arbitrator
had stated that he disregarded evidence of the 1984 rent as representing the
rent properly payable at that time, in view of the fact that such rent included
an element of scarcity value. The landlords submitted that the rent previously
paid was a relevant factor which the arbitrator was obliged to take into
account. Para 1(1) of Schedule 2 required ‘all relevant factors, including (in
every case) the terms of the tenancy (including those relating to rent)’ to be
taken into account. The judge agreed with this submission but rejected what
appears to have been a suggestion, put in argument, that the rent previously
payable for the subject holding could be looked at as the rent for a comparable
letting within the meaning of para 1(3) of Schedule 2. The judge pointed out
that this suggestion, which was not made by the arbitrator, was a fundamental
error. The comparable lettings mentioned in para 1(3) are, of course, lettings
of holdings other than the subject holding. It was only in relation to the
rents of comparable holdings that the word ‘scarcity’ was actually used. The
judge was not here professing to deal with the controversial issue as to
whether the absence of any express instruction about scarcity in relation to the
subject holding meant that scarcity was to be taken into account as an element
in its rental value. The judge was merely directing attention to the error and
confusion in the arbitrator’s statement about disregarding the rent previously
paid for the holding.
The shop
on the holding
The award was
criticised for a lack of clarity in regard to the farm shop. Both parties had
failed to produce evidence as to whether the shop was a tenant’s improvement or
a landlord’s fixture. There was little hard evidence of the value of the shop.
The result was that the award did not indicate clearly the extent or manner in
which the arbitrator took the shop into account. He said that it was a facility
available on the holding which was properly made use of by the tenant practising
a system of farming suitable to the holding and he had regard to this fact. The
judge accepted the landlords’ submission that it would be wrong to take the
shop into account under the head of ‘productive capacity’, but it would be a
‘relevant factor’ within para 1(1).
Landlords’
failure to ‘motivate rental increases’
There was a
curious finding in the award that the landlords had failed ‘to properly manage
the holding by motivating rental increases at the appropriate time’. The judge
knew of no authority imposing this obligation on landlords and treated this
also as an error in the award.
‘Productive
capacity’ and ‘related earning capacity’
The award
included the following finding:
I am
satisfied that the evidence offered on the productive capacity of the holding
should produce a net profit before rent of slightly in excess of £12,000 per
annum.
The judge
accepted a criticism that this finding indicated a fundamental misconception by
the arbitrator as to the statutory criteria in Schedule 2 which he had to
apply. ‘Productive capacity’ and ‘related earning capacity’ are only two out of
many factors which the arbitrator has to consider and, in any case, Schedule 2
carefully distinguishes and defines the meaning of the two expressions. The
arbitrator has to make a clear and separate assessment of both factors and his
failure to do so in this award constituted an error of law.
‘50% split
approach’
The arbitrator
went on to say: ‘I am satisfied that the split should be based on 50% each to
the landlord and tenant, thus allowing the proper related earning capacity of
the holding and producing a figure of £6,100 per annum as the rent properly
payable.’ The judge decided that this 50%
split approach indicated a disregard of all the other factors which the
arbitrator was obliged to take into account. Proper consideration of the
position of the shop and a cottage on the holding would inevitably have
produced a result different from a 50% split. This also revealed an error of
law on the face of the award.
Other
criticisms dismissed
The judge
dismissed as de minimis criticisms that the arbitrator had failed to
have regard to the terms and conditions of the tenancy and the character and
situation of the holding and that in particular he failed to take into account
the high quality of the farmhouse. It is not possible for an arbitrator to
cover every single point in his award. The award showed that he had these
points in mind in a general way.
Award set
aside
In view of the
errors of law which he had identified the judge had no alternative but to set
the award aside. The tenant was ordered to pay the landlords’ costs on Scale 3.
