Agricultural holdings — Headlease — Notice to quit — Tenants failing to serve counternotice — Whether subtenancy determined — Whether Sparkes v Smart [1990] 2 EGLR 245 wrongly decided
On March 1
1970 the fourth Earl of Eldon granted a yearly tenancy of some 900 acres of
agricultural land to himself and his two sons. Following the death of the
fourth earl in 1976, the succession to the earldom by the elder son and a
number of transactions for or on behalf of the younger son S, parts of the
freehold became vested in the plaintiffs. The plaintiffs were either related to
the remaining two tenants, the fifth earl and S, or were family trustees
holding land for the benefit of relatives. By a form of partnership arrangement
entered into in 1980, but determined at trial to be a subtenancy, the defendant
farmed the land. On April 1 1992 a notice to quit was served by the plaintiffs
on the two remaining tenants, which terminated the headlease; in accordance
with a scheme advised by solicitors, the two tenants did not serve any
counternotices claiming the protection of the Agricultural Holdings Act 1986.
It was assumed that the subtenancy would determine with the headlease by
operation of law. In proceedings brought by the plaintiffs, claiming possession
of the land against the defendant, the deputy judge dismissed the plaintiffs’
claim on the ground that such a scheme did not destroy the subtenancy held by
the defendant subtenant. The plaintiffs appealed.
of a tenancy by surrender and its termination by notice to quit is that the
latter is essentially a unilateral act: a surrender is not, it is consensual.
If a notice to quit is given by a landlord under an agreement with the tenant,
it is not given as a unilateral act: it is not given in invitum.
Consensual acts done by arrangement between landlord and tenant do not
determine subtenancies. Where a notice to quit is given pursuant to some
agreement, to which the landlord and tenant are parties, the termination of the
headlease is indistinguishable from a surrender, a surrender of a headlease
does not destroy any subtenancies. Sparkes v Smart [1990] 2 EGLR
245 was correctly decided.
The following
cases are referred to in this report.
Barrett v Morgan [1997] 1 EGLR 1; [1997] 12 EG 155, Ch
Brown v Wilson (1949) 208 LT 144; (1949) 93 SJ 640; 156 EG 45
Elsden v Pick [1980] 1 WLR 898; [1980] 3 All ER 235; (1980) 40
P&CR 550; [1980] 1 EGLR 4; 254 EG 508, CA
Gisborne v Burton [1989] QB 390; [1988] 3 WLR 921; [1988] 3 All ER
775; [1988] 2 EGLR 9; [1988] 38 EG 129, CA
Harrison v Wing (1988) 56 P&CR 358; [1988] 2 EGLR 4; [1988] 29 EG
101
Johnson v Moreton [1980] AC 37; [1978] 3 WLR 538; [1978] 3 All ER
37; (1978) 37 P&CR 243; [1978] 2 EGLR 1; [1978] EGD 21; 247 EG 895, HL
Mellor v Watkins (1874) LR 9 QB 400
Pennell v Payne [1995] QB 192; [1995] 2 WLR 261; [1995] 2 All ER
592; [1995] 1 EGLR 6; [1995] 06 EG 152, CA
Sparkes v Smart [1990] 2 EGLR 245
This was an
appeal by the plaintiffs, Robert Asheton Barrett, Philip Adrian Scrope and Mary
Isobel Scott, from a decision of Mr Peter Smith QC, sitting as a deputy judge
of the Queen’s Bench Division in Newcastle, dismissing their claim for
possession of land against the defendant, Robert Cecil Morgan.
Derek Wood QC
and John McGhee (instructed by Burges Salmon, of Bristol) appeared for the
appellants; Andrew Kolodziej (instructed by Smith Roddam, of Durham)
represented the respondent.
Giving the
first judgment, SIR RICHARD SCOTT V-C
said: This appeal raises an interesting point on the law relating to
agricultural subtenancies. The plaintiffs, appellants in this court, are the
freehold owners of agricultural land in County Durham. The land was subject to
a tenancy held by two individuals but was farmed by the defendant, Mr Morgan,
who is the respondent in this court. Mr Morgan held a subtenancy from the two
individuals, who were tenants under the head tenancy. The two individuals and
the plaintiffs, whose relationship to one another I will explain in a moment,
wanted to obtain vacant possession of the land in order to sell it with vacant
possession. They agreed that the freeholders would serve notice to quit on the
two tenants and that the two tenants would not serve any counternotice invoking
the relevant provisions of the Agricultural Holdings Act 1986. The purpose of
this agreement was so as to enable the freeholders to obtain possession against
the subtenant.
On the expiry
of the notice to quit, the head tenancy, so it was believed, would come to an
end and, with it, the subtenancy. The scheme, although put into effect by the
notice to quit served by the freeholders, originated, according to the facts as
found by the judge, from the two tenants, or from the advice given to them by
their land agent. The two tenants, it was appreciated, could not themselves, by
serving notice to quit on their subtenant, bring about the desired state of
affairs in which vacant possession could be obtained against the subtenant. A
notice to quit served on Mr Morgan would, as they knew, have led to the service
of a counternotice invoking the protection of the 1986 Act. Nor, so the two
tenants believed, could a notice to quit served by them on their head landlord,
the freeholders, have achieved the desired result either. According to the case
law as it then stood (it has since changed), a tenant could not by putting an
end to his own tenancy impair or destroy the interest that he had granted to
his subtenant: see Brown v Wilson (1949) 208 LT 144. So, the
solution, the freeholders and the tenants concluded, was for the freeholders to
serve the notice to quit. The tenants would naturally refrain from serving a
counternotice invoking the statutory protection.
The short
point on this appeal is whether the scheme works. The judge below, Mr Peter
Smith QC, sitting in Newcastle as a deputy judge of this division, held that it
did not. He held that a notice to quit served pursuant to what he described as
a collusive agreement between freeholders and their tenants could not by itself
destroy a subtenancy held from the tenants. The deputy judge relied
particularly on Sparkes v Smart [1990] 2 EGLR 245, a decision of
this court on facts comparable to the facts of the present case.
On this appeal
Mr Derek Wood QC, counsel for the appellants, has in effect submitted that Sparkes
v Smart was wrongly decided per incuriam. He has relied on two
other Court of Appeal decisions, Harrison v Wing [1988] 2 EGLR 4
and Pennell v Payne [1995] QB 192*, as constituting soundly based
authority justifying a different conclusion from that reached by the deputy
judge. The deputy judge’s order was made on October 18 1996. He refused leave
to appeal but leave to appeal was given by this court on March 6 1997.
*Editor’s
note: Also reported at [1995] 1 EGLR 6
I will state
the facts as shortly as possible for the point of issue to be comprehensible.
The case, of course, involves agricultural land. The land is at Mordon in
County Durham and belonged in 1970 to the fourth earl of Eldon. On March 1 1970
the fourth earl granted a tenancy of the land to himself and his two sons. The
elder of his two sons is now the fifth earl. His younger son is Mr Simon Scott.
So the fourth earl and his two sons became tenants of the fourth earl. The
tenancy comprised over 900 acres. It was a tenancy from year to year from March
1 1970 with an annual rent of £3,350. Under clause 3 of the tenancy agreement,
the tenancy was terminable by 12 months’ notice to quit given by either
landlord or tenants expiring on May 13 in any year. That is the tenancy in
respect of which the notice to quit that has led to the present proceedings was
given.
The fourth earl
of Eldon died on October 20 1976. His two sons were his executors. On April 1
1977 probate was granted to the two of them. A number of transactions or
dispositions relating to the freehold land comprised in the March 1 1970
tenancy agreement were entered into or made. First, on April 3 1984, 3.2 acres
of land were vested in the first and second plaintiffs in this action as
trustees for Mr Scott’s children. The first plaintiff is Mr Barrett, a partner
in the firm of solicitors, May, May & Merrimans; the second plaintiff is Mr
Scrope, a partner in the firm of land agents, Smith Goreham.
On July 25
1984 the two executors assented to 387-odd acres of land vesting in Mr Scott.
On July 30 1984 Mr Scott transferred 23.58 acres of the land that had been
vested in him to his wife, who is the third plaintiff in this action, Mrs Mary
Scott. Finally, on July 23 1986 Mr Scott transferred 331-odd acres of land,
comprised in the March 1 1970 tenancy agreement, to the first and second
plaintiffs, Mr Barrett and Mr Scrope. Here, again, the first and second
plaintiffs were to hold as trustees for Mr Scott’s children.
The position
from 1970 to 1980 was that the tenants under the March 1 1970 agreement farmed
the land. They had originally been the fourth earl and his two sons but after
the death of the fourth earl in 1976 the tenants farming the land were the
fifth earl and Mr Scott. But, apparently, by 1980 the land was becoming
somewhat dilapidated and in bad condition and a local farmer, a Mr Morgan,
began farming the land under an arrangement made with the tenants. An attempt
was made to produce an arrangement under which Mr Morgan would not have the
benefit of the protection afforded to agricultural tenants by the relevant
statute. In 1970 it was the Agricultural Holdings Act 1948, now it is the
Agricultural Holdings Act 1986. The arrangement involved the creation of a
so-called partnership between the fifth earl, Mr Scott and Mr Morgan, under
which the partners would pay a rent of an agreed sum for the land.
On December 5
1980 Mr Morgan accepted the proposed terms and began farming the land,
ostensibly under this partnership arrangement. But it was held by the deputy
judge in this present litigation that the partnership was no more than a
pretence. That is now accepted by the other parties. The fifth earl and Mr
Scott accept that Mr Morgan became — as a result of his going into occupation
of the land, farming it and paying a rent for it to them — their subtenant.
So, from
December 1980 Mr Morgan has been farming the land under what is accepted to be,
although it was never formally prepared as, a subtenancy from the two surviving
tenants, the fifth earl and Mr Scott. The freeholders, from whom those two
tenants held the 1970 tenancy, were the first and second plaintiffs in respect
of the land they held as trustees for Mr Scott’s children, and in relation to a
small parcel of land, the 23-odd acres, Mr Scott’s wife, Mrs Mary Scott.
By 1991, with
Mr Morgan still farming the land under the arrangement I have described, Mr
Scott was anxious to raise capital for the benefit of his children. He had some
discussions about how to do this with Mr Scrope, the family land agent, and one
of the trustees holding the freehold interest in the land for the benefit of
his children. Mr Scott’s brother, his co-tenant the fifth earl, sympathised
with Mr Scott’s desire to raise capital for the benefit of his children and
supported him in his proposals. There were negotiations for the sale to Mr
Morgan of the land that he was farming. Mr Morgan was, it seems, a willing
purchaser but there was a dispute as to the price. The family, including the
freeholders, the trustees of the family settlements and Mrs Scott, and the
tenants under the 1970 tenancy, the fifth earl and Mr Scott, wanted to sell the
land at its vacant possession value. Mr Morgan, farming the land with, as he
thought, the protection of the statutory scheme under the 1986 Act, was willing
to purchase at a price that took account of his protected possession. The
deputy judge’s recital of the facts suggests that the value of the land subject
to the occupancy of an agricultural tenant would have been something like 30%
less than the vacant possession value of the land. The 30% reduction would have
been a substantial sum.
So Mr Scott
consulted Mr Scrope as to what might be done. Mr Scrope was a land agent. Mr
Scrope consulted solicitors, Burgess Salmon, about what could be done. The
upshot of these consultations was that advice was given to Mr Scott, and
through him to his co-tenant, the fifth earl, that if notice to quit were
served by the
earl and Mr Scott, and if the tenants refrained from exercising their statutory
right of serving a counternotice invoking the statutory regime established by
the 1986 Act, then, on the expiry of the notice to quit, the 1970 tenancy would
determine and with it, they were advised, would determine also by operation of
law, willy-nilly and whether Mr Morgan liked it or not, his subtenancy. So the
family decided, and no one can criticise them for doing so, to take advantage
of the legal consequences of the steps to which I have referred. Notices to
quit were prepared, either in the office of the solicitors or in the office of
the land agents. They were sent by the freeholders to the tenants, Mr Scott and
his brother the fifth earl, requiring them to give up possession of the land
comprised in the tenancy on May 13 next. The notices were dated April 1 1992
and the date on which possession was to be given up was May 13 1993.
The legal
thinking underlying the scheme that was put into operation was, very shortly
stated, as follows. At common law, a periodic tenancy, a tenancy from year to
year or tenancy from month to month, can be determined by notice to quit served
either by the tenant or by the landlord. Where agricultural tenancies are
concerned, statute requires that the notice to quit must be notice of at least
12 months, as indeed was provided for by the March 1 1970 agreement. At common
law a subtenancy granted by a tenant holding under a periodic tenancy
determines with the tenancy on the expiry of the notice to quit.
That state of
affairs is in contrast to the position brought about by a surrender by the
tenant of the tenancy. If a tenant surrenders his tenancy to the landlord, that
too will put an end to the existence of the tenancy. But it will not, in so
doing, bring to an end subtenancies that the tenant had previously granted.
That is a crucial distinction between the result of bringing a tenancy to an
end by notice to quit and bringing the tenancy to an end by surrender. The
notice to quit, being essentially a unilateral act whether served by the
landlord or served by the tenant, brings the tenancy to an end in accordance
with the terms of the tenancy itself. Accordingly an interest granted out of
the tenancy, such as a subtenancy, comes to an end with the determination of
the tenancy. Surrender, however, is not a unilateral transaction. A surrender
may be express, by deed to which both landlord and tenant are parties, or may
be implied by law from acts done by the landlord and the tenant respectively.
Whether express or implied, a surrender is essentially a consensual
transaction. The parties agree to bring about the termination of the tenancy.
The distinction between a surrender and a notice to quit is, in my view,
essentially the difference between a consensual act, the surrender, and a
unilateral act, the notice to quit. In the present case, the freeholders and
the tenants, and those advising them, believed that a unilateral act by the
landlord, in serving notice to quit, could terminate the subtenancy, whereas a
surrender by the tenants to the landlords would not have achieved that result.
The deputy
judge came to the conclusion, and there has been no challenge to this before us
(nor, I imagine, could there be), that the freeholders and the two tenants had
agreed between themselves, prior to the service by the freeholders of the
notice to quit, to adopt the scheme to which I have referred and to adopt it
for the purpose of bringing to an end Mr Morgan’s subtenancy. There are a
number of passages in the judgment which make that plain. I should, I think,
refer to them.
In para 7.1 of
his judgment* the deputy judge referred to the discussions following the
realisation that Mr Morgan was not prepared to buy at a non-vacant possession
price. The paragraph reads as follows:
*Editor’s
note: Also reported at [1997] 1 EGLR 1; [1997] 12 EG 155
Faced with
this Mr Scrope sought advice probably from Burgess Salmon. The position was
considered I find exclusively with Mr Scott [that is Mr Simon Scott] alone.
This at first sight is curious. Mr Scott is after all one of the mesne
tenants (with Lord Eldon, his brother). Mr Scrope I find took no instructions
from the children, nor from Mrs Scott, the other freeholder. Mr Scrope in his
evidence tellingly said he was glad the children had taken his advice.
The result of
the advice was that a decision was made to serve notices to quit terminating
the headlease.
Then the judge
said:
The next part
of the scheme was not to serve a counternotice. Otherwise vacant
possession could not be obtained. No counternotice was served. The only reason
given was that Mr Scott (not surprisingly) and Lord Eldon (hardly less
surprisingly) were anxious to assist the freeholders in the desire to recover
possession from Mr Morgan by destroying his subtenancy. They could not do so
because as against them he would be able to assert their rights. It is quite
clear that Lord Eldon was willing to fall into any scheme which would give
vacant possession to his nephews and nieces. He was not really consulted, he
was informed of the proposed notice (and according to Mr Scrope took ‘it on the
chin’) …
Mr Scrope
barely consulted Mrs Scott, his client. All discussions … were between him and
Mr Scott … Mr Scott and Lord Eldon were quite frank about this. Their stance is
that the decision not to challenge the notice was to ensure the landlords
recovered possession. Mr Scrope was equally frank in conceding that if there
was of no connection between the landlord and the tenant he would (if advising
the tenant only) advise the service of a counternotice. Similarly Lord Eldon
and Mr Simon Scott both acknowledged that the desire not to challenge the
notice was motivated solely to achieve a benefit for the landlords and I so
find that was the position.
Then the
deputy judge expresses his conclusion in this way:
In my view,
the facts of the present case as set out above show that the landlords acted
collusively with the tenants. The purpose was a contrived scheme to deliver up
vacant possession for the children.
The use of the
word ‘collusively’ and the use of the adjective ‘contrived’ have a somewhat
pejorative innuendo. The innuendo is unnecessary. The scheme that was acted on
is no better or no worse for being described as contrived. If the agreement
between the freeholders and the tenants enabled their joint object of obtaining
vacant possession against Mr Morgan to be achieved, their object cannot be
defeated by describing their agreement as a collusive agreement. The fact of
the matter, as to which there can be no dispute, is that the purpose of the
scheme that was agreed upon was to enable vacant possession to be obtained from
Mr Morgan. That was its purpose. The steps agreed upon were that the
freeholders would serve notice to quit on the tenants and that the tenants
would not, by serving an appropriate counternotice, claim the protection of the
statutory regime under the 1986 Act.
It was an
agreement between or an arrangement concurred in by the freeholders and the
tenants. In these circumstances the deputy judge came to the conclusion that
the scheme did not work. Relying, as I have said, particularly on Sparkes
v Smart, he said:
the court
should look to the reality. If a tenant chooses not to act as one would expect
a tenant to act (as happened here) to further the landlord’s desire to recover
possession and destroy the subtenancy, the court will be astute to prevent that
happening. It will not interfere if the tenant has genuine independent grounds
for so acting.
Mr Wood QC,
who has argued the appeal, has taken us through the authorities — bar two, they
are all Court of Appeal authorities — that bear upon this issue. He has taken
us through them for the purpose of submitting that an agreement between
landlord and tenant prior to the service of a notice to quit, and as a result
of which the notice to quit is served on the tenant and the tenant serves no
counternotice, does not make any difference to the effect of the notice to quit
in destroying the tenancy and thereby putting an end to any subtenancy that may
have been granted. It is necessary to go through the cases to see how the legal
principles are formulated.
One may start,
perhaps, with a citation from Coke upon Littleton, cited by Simon Brown LJ in
one of the most recent of the cases: Pennell v Payne. The passage
in question was dealing with the surrender of a tenancy, a subtenancy having
previously been granted. The passage is as follows:
having regard
to the parties to the surrender, the estate is absolutely drowned … But having
regard to strangers, who were not parties or privies thereunto, lest by a voluntary
surrender they may receive prejudice touching any right or interest they had
before the surrender, the estate surrendered hath in consideration of law a
continuance.
That is a
statement of the common law position. A surrender cannot prejudice rights or
interests granted by the surrendering tenant previously to the surrender. As it
was put:
the estate
surrendered hath in consideration of law a continuance.
The
continuance of the tenancy was necessary for the purpose of enabling the
strangers’ interests, the subtenancy in the present case, to continue. The
principle was applied in Mellor v Watkins (1874) LR 9 QB 400, a
decision of the Court of Queen’s Bench. It was a case in which a tenant had
surrendered to his landlord property comprised in the tenancy. The question
arose as to the effect of the surrender on a subtenancy that the tenant had
previously granted. Counsel for the plaintiff, who had taken a new tenancy from
the freeholder, claimed possession against the subtenant. His counsel was Sir Henry
James QC. In the report of Sir Henry James’ argument it appears that he said at
p403:
It must be
admitted that it has been decided that no voluntary act of a lessee in
surrendering, or otherwise putting an end to his tenancy, can affect the
interest of his under-tenant.
There is no
controversy as to the result of a voluntary act of surrender. But the
interesting part of the citation lies in the additional words ‘or otherwise
putting an end to his tenancy’. Those words suggest that if a tenant does
anything, whether by a surrender or anything else, to put an end to his
tenancy, he cannot by doing so adversely affect the interests of his subtenant.
The Court of
Queen’s Bench found in favour of the defendant, the subtenant. Cockburn CJ
said:
the voluntary
surrender of Allen of his interest could not affect the defendant’s underlease
of the cellars. If Allen had continued lessee, the defendant’s interest could
not have been determined except by a notice to quit, and the surrender of
Allen’s lease leaves the defendant’s underlease untouched.
And a few
lines later:
It is clear
that when a person voluntarily surrenders his lease, he cannot by so doing put
an end to an undertenancy created by himself …
Those
statements of principle are unexceptionable and are, of course, accepted by Mr
Wood. But they do not go as far as the admission made by Sir Henry James QC in
argument. Blackburn J, however, went a little further. He said at p405:
Allen had no
power to derogate from his landlord’s rights. Subject to those rights, he had a
right to sub-let; and by doing that he could not prevent the landlord from
giving a notice to quit in invitum, which would have determined both
Allen’s and the defendant’s interest. But no voluntary act on the part of
Allen, by which his own interest might be determined, could put an end to the
interest which he had created in the defendant. Allen’s tenancy was put an end
to as far as he was concerned, as between him and Williams, by the voluntary
surrender of his lease; but the defendant’s tenancy in the cellars still
remained, until determined by a proper notice to quit.
There are two
passages in that citation that go further than the simple proposition that a
surrender of a tenancy does not adversely affect a subtenancy. First, Blackburn
J referred to a landlord’s ability to give a notice to quit ‘in invitum‘
and thereby to determine both the tenant’s and the subtenant’s interests. The
use of the words ‘in invitum‘ suggests that a different result would
follow if the notice to quit had been given at the invitation of the tenant.
Then, in the next sentence in his judgment, Blackburn J says:
But no
voluntary act on the part of Allen, by which his own interest might be
determined, could put an end to the [subtenancy]…
Both those
passages in Blackburn J’s judgment constitute an endorsement of Sir Henry
James’ admission that I have cited.
Sir Henry
James’ admission and Blackburn J’s apparent approval of it have been accepted
in subsequent cases and in the textbooks as correctly stating the law. It is
worth, I think, having looked at Blackburn J’s statement of principle in Mellor
v Watkins, again emphasising the difference between the termination of a
tenancy by surrender and its termination by notice to quit. The difference is
that a notice to quit is essentially a unilateral act: a surrender is not, it
is consensual. If a notice to quit is given by a landlord under an agreement
with the tenant it is not given as a unilateral act; it is not given in invitum.
If a tenant under an agreement with the landlord gives a notice to quit, the
giving the notice to quit is not unilateral. It is unilateral notices to quit
that destroy subtenancies; it is unilateral acts determining the head tenancies
that destroy subtenancies. Consensual acts done by arrangement between landlord
and tenant do not, in my judgment, do so.
In a case in
which a notice to quit has been served pursuant to some agreement or
arrangement consensual in its character, and to which both landlord and tenant
are parties, the termination of the lease as a result of the service of that
notice to quit becomes, in my opinion, indistinguishable from a surrender. That
that is so is, in my opinion, supported by Elsden v Pick [1980] 3
All ER 235*. This was an agricultural tenancy case in which the tenant gave the
landlord a notice to quit that was short by a day or so of the requisite 12
months. The tenant had previously discussed his tenancy and the continuation of
it with the landlord’s agent, and had made it known that, for various reasons,
he wanted to relinquish his tenancy. Hence the notice to quit, short, as I have
said, by a day or so. By the time the notice to quit had expired, the tenant
had changed his mind. He contended then that the notice to quit did not comply
with the statutory requirement of being a 12-month notice, and that,
accordingly, the statute had prevented it from being effective to determine the
agricultural tenancy. The judge at trial upheld the contention. The landlords
appealed successfully to the Court of Appeal. The Court of Appeal held that the
agreement to allow a short notice to quit to be served and to be effective was
tantamount to an agreement to surrender. Shaw LJ at p240e said:
*Editor’s
note: Also reported at [1980] 1 EGLR 4
Thus the time
for the ending of a tenancy is a matter of common interest both to a landlord
and to his tenant. It may suit them both to determine a tenancy without waiting
for what may be as long as nearly two years to bring it to an end. No statute
could have so absurd an intention as to constrain a landlord and a tenant of an
agricultural holding to remain bound in that relationship at a time when
neither desires that it should endure. If they are in accord, can it matter
whether they demonstrate that accord by an agreement to surrender or an
agreement to accept short notice?
In such a
case, whether it is by agreement to accept short notice or whether it is by
agreement for surrender, the termination of the tenancy is brought about not by
a unilateral act but by a consensual act. Brown v Wilson (1949)
208 LT 144 was a decision of Hilbery J. The report of the case is somewhat abbreviated,
but essentially the facts were that there was an agricultural holding let by B
to K and sublet by K to W. K gave B notice to quit and, at the same time K gave
W notice to quit. W served a counternotice under the relevant statutory
provision (at that time it was section 31 of the Agricultural Act 1947) but K,
who plainly wanted to put an end to his tenancy, did not refer the matter to
the relevant tribunal. At the expiration of the respective notices to quit, W
refused to give up possession to B. Hilbery J found in W’s favour. He said,
among other things at p145:
In my view,
the effect of the decided cases is that a lessee cannot, by putting an end to
his own tenancy, impair or destroy the interests which he has granted to his
under-tenant.
He said also:
the law will
not allow a man, by an act done between him and another, to impair or destroy
the rights which he has granted a third party.
He referred in
particular to Mellor v Watkins and to Sir Henry James’ concession
in the course of argument in that case.
Johnson v Moreton [1980] AC 37* was a case in which the House of
Lords held that the statutory regime for the protection of tenants of
agricultural holdings gave the tenant of an agricultural holding an option
whether or not to serve a counternotice claiming the protection of the relevant
statutory provisions, and that the tenant could not by a prior agreement divest
himself of the benefit of that option. Consequently, a clause in a tenancy
under which a tenant agreed not to serve a counternotice was held by the House
of Lords to be unenforceable. The case casts doubt on the enforceability
against a tenant of an agreement to surrender an agricultural tenancy. It does
not, in my opinion, detract from the conclusion that a notice to quit given pursuant
to an agreement between landlord and tenant is tantamount to a surrender.
*Editor’s
note: Also reported at [1980] 1 EGLR 1
Gisborne v Burton [1989] QB 390* is the next case I should mention.
In this case an individual owned an agricultural holding. He wanted to let it
but, in doing so, to deprive the tenant of the benefit of the statutory regime
giving security of tenure. So he let the property to his wife, and his wife
granted a subtenancy to the defendant. The freeholder subsequently died and his
personal representatives wanted to recover possession. So they served notice to
quit on the wife determining her tenancy. She refrained from serving any
counternotice, nor did she serve any notice to quit on the subtenant. The
scheme was, in substance, the same scheme as was put into effect in the present
case. The personal representatives, after the expiry of the notice to quit,
claimed possession from the subtenant. A majority in the Court of Appeal held
that the tenancy to the wife was a sham, a pretence without any reality. They
held that the subtenant was in reality a tenant holding directly from the
landlord to whom he had, for years, been paying his rent. No notice to quit had
been served on the subtenant, so his agricultural tenancy continued. The notice
to quit served on the wife was so much waste of paper. Ralph Gibson LJ
dissented in this case. He held that the tenancy granted to the wife was not a
sham, was a reality, and should be treated on that footing. It is of interest
that nowhere in the case is there to be found any discussion of what the
consequence would have been had Ralph Gibson LJ’s view, that the tenancy to the
wife was effective, had been the majority view. There was no consideration
given to the question of whether the apparently collusive arrangement between
wife and personal representatives under which notice to quit would be served on
the wife and she would refrain from serving any counternotice invoking the
statutory protection, made any difference to the effect of the notice to quit
on the subtenancy and whether the freeholders could claim possession from the
subtenant.
*Editor’s
note: Also reported at [1988] 2 EGLR 9
Harrison v Wing [1988] 2 EGLR 4 was another Court of Appeal decision.
In this case the owner of an agricultural holding died. His executors allowed
one of their number, described in the report as S, to occupy the land paying
£12 per acre for it. S then granted Harrison an annual tenancy. Harrison
thought, and there was nothing to indicate the contrary, that S was the owner
of the land. Later S, who had become the sole surviving executor, assented to
the land vesting in him and two other persons. The three of them then served
notice to quit on S, S being one of those serving the notice as well as the
recipient of it. S, an agricultural tenant, did not serve a counternotice
claiming the benefit of the statutory regime nor did he serve a notice to quit
on Harrison. The county court judge held that S did not have a tenancy and
therefore could not create a valid subtenancy. But the Court of Appeal (a
two-man Court of Appeal) decided the case on a different ground. They agreed
with the judge below that a valid subtenancy had not been created. But
Croom-Johnson LJ, who gave the judgment with which Sir Denys Buckley (the other
member of the court concurred), noted that Harrison had been allowed into
occupation by S. Harrison could not have been described as a trespasser; he was
therefore a licensee. He was a licensee occupying agricultural land and his
interest was, accordingly, transformed by the relevant Act into a tenancy from
year to year. On that footing Croom-Johnson LJ held that notice to quit had
been given by the freeholders terminating S’s tenancy and that S had been under
no obligation to serve a counternotice. S’s duty as executor or trustee, would
have required him not to serve such a notice. So the freeholders were entitled
to possession against Harrison. No consideration was given in this case,
anymore than had been given in Gisborne v Burton, to the effects
of the collusive arrangement between the three freeholders, one of whom was S,
and the tenant, S himself, as to the steps to be taken to obtain possession as
against Harrison. There was no discussion of that matter and, for that reason,
no opinion expressed on it.
The
consequence of a collusive arrangement made between head landlord and
intermediate tenant was, however, considered in Sparkes v Smart
[1990] 2 EGLR 245. This was a case in which an agricultural holding was farmed
by a farmer under a tenancy from freeholders. Their identity does not matter.
The father had, apparently, a number of children, one of whom was a son,
Rodney. The father allowed Rodney to take over the farm. The arrangement
between the father, the tenant, and Rodney, his son, was construed as
constituting Rodney a subtenant of the farm. The family turned out to be
thoroughly disunited and everybody wanted (bar Rodney) to ease Rodney out of
his position as subtenant farming the land. It was learned that the freeholders
were desirous of selling. So the husband of a daughter of the tenant purchased
the land from the freeholders. He then, by prior arrangement between himself
and his father-in-law, the intermediate tenant and Rodney’s landlord, served
notice to quit on his father-in-law. His father-in-law did not serve a
counternotice claiming the protection of the statutory regime and did not serve
any notice to quit on Rodney. The scheme was so far as possible concealed from
Rodney. At the expiry of the notice to quit, the son-in-law, Sparkes, brought
proceedings for possession against Rodney, contending that his father-in-law’s
tenancy had been determined by the notice to quit and that Rodney’s subtenancy
had gone with it. The Court of Appeal would not accept that that was so. The
main judgment was given by Purchas LJ. At p249 he said:
It is
necessary to consider the position of Rodney when the notice was served by [the
son-in-law] upon William [the father] and in the further context of William’s
failure to serve a counternotice. On this aspect of the case Mr Evans readily
conceded that his only hope was to attack the findings made by the judge that
the whole of this operation was collusive. If it was collusive then Mr Evans
did not seek to argue that Rodney was entitled to be placed in the position of
William as Kelston’s tenant. Notwithstanding Mr Evans able arguments, I find it
quite impossible to entertain any doubt as to the judge’s finding on this
aspect of the case. The evidence was overwhelming.
Ralph Gibson
LJ agreed. He referred to what he described as ‘the issue of collusion’ at p251
and went on:
I have no
doubt that the judge’s findings were open to him on the evidence and could not properly
be disturbed by this court.
Stuart-Smith
LJ also agreed. He dealt with the point at p253 of the report. He said:
In my
judgment, the judge was fully justified in holding that there was a collusive
agreement.
I would,
therefore, dismiss the appeal on this ground.
Mr Wood has
pointed out, with justification, that there does not seem to have been in Sparkes
v Smart any argument addressed to the court to the effect that even if
there had been a collusive agreement the subtenancy would still have been brought
to an end by the notice to quit. It seems to have been accepted that if the
finding of a collusive agreement was correct, the notice to quit terminating
the tenancy could not also have determined the subtenancy. I agree with Mr Wood
that it appears that that was the way the matter proceeded before the Court of
Appeal in Sparkes v Smart. But that circumstance does not, in my
judgment, deprive the case of its status as an authority. The question of the
consequence of a collusive agreement was clearly before the court
as one of the main issues in the case. The language of Purchas LJ, in saying Mr
Evans, who was counsel for the freeholder, readily conceded that his only hope
was to attack the finding made by the judge that the whole of the arrangement
was collusive, suggests, to my mind, that the court agreed with the sense of
the concession and that Mr Evans was swimming with the tide: ‘Mr Evans readily
conceded.’ Sparkes v Smart is a Court of Appeal authority and is
binding on us. In my judgment, it is authority for the proposition that if
there has been an agreement between landlord and tenant, entered into for the
purpose of enabling the landlord to obtain possession as against a subtenant,
and the terms or the gist of which are that the landlord will serve a notice to
quit and the tenant will refrain from serving any counternotice invoking the
protection of the statutory regime, then the agreement between landlord and
tenant, the ‘collusive’ agreement, has the consequence that the notice to quit
may determine the tenancy but does not determine the subtenancy. In effect, the
determination of the tenancy is as though it were brought about by a surrender.
For my part, I
find this conclusion consistent with principle. In such a case as the Court of
Appeal was considering in Sparkes v Smart the tenancy was brought
to an end not by a unilateral act on the part of the freeholder in deciding to
serve a notice to quit on the intermediate tenant, but by a consensual
agreement, and intermediate tenant as to how the subtenant, Rodney, was to be
defeated. The sharp distinction between notice to quit and a surrender to which
I have already referred, between a unilateral act on the one hand and a
consensual arrangement on the other, requires, to my mind, that the sort of
arrangement facing the Court of Appeal in Sparkes v Smart, and
indeed facing us in this case, be placed on the consensual side with a
surrender, rather than on the unilateral side, with a notice to quit.
The final case
to which I should refer is Pennell v Payne [1995] QB 192. This
was a case involving an agricultural holding with a tenancy and a subtenancy.
It was a case in which the tenant had sublet the holding to a company in breach
of a term in the tenancy agreement. The question that arose after the landlord
had given notice to quit (relying on the tenant’s breach of the term of the
tenancy agreement, and the case having been referred to an Agricultural Land
Tribunal in accordance with the statutory provisions) was whether the
landlord’s position had been in any respect adversely affected by the grant of
the subtenancy. The argument that the landlord’s position had been adversely
affected was that the tenant could no longer, by a service of notice to quit,
determine the tenancy and with it the subtenancy. The proposition was that once
the subtenancy had been granted the tenant had barred himself from being able,
by service on the landlord of notice to quit, to destroy the subtenancy. In Brown
v Wilson Hilbery J had so held. The case involved, therefore, a
consideration of whether Brown v Wilson had been correctly
decided. The Court of Appeal held that it had not. The only judgment given in
the case was given by Simon Brown LJ. Hoffmann and Leggatt LJJ agreed with it.
The case is clear authority, in overruling Brown v Wilson, for
the proposition that an intermediate tenant who serves notice to quit on the
head landlord does an act which on the expiry of the notice to quit determines
not only his own tenancy but also any subtenancy that he may have granted. The
case is not, however, an authority on the consequences of a collusive
arrangement between landlord and tenant for service by one of them on the other
of a notice to quit. It does not, and could not, detract from the authority of
the decision of the Court of Appeal in Sparkes v Smart to which I
have already referred.
There are, if
one goes down every avenue of possible facts, difficulties in reconciling Pennell
v Payne with Sparkes v Smart. But each decided a separate
point. Pennell v Payne decided that Brown v Wilson
had been wrongly decided and that a head tenant could at common law give a
notice to quit to a landlord, which, on its expiry, would determine also a
subtenancy. As to that, the case is of course binding on us. But that is not
the point that arises in the present case. Sparkes v Smart, on
the other hand, was a case dealing with consequences of a collusive arrangement
between landlord and tenant entered into for the purpose of determining a
subtenancy. In regard to that, the decision of the court, binding on us, was
that the notice to quit served pursuant to such an arrangement may determine
the tenancy, but it does not affect the continuance of the subtenancy. For the
reasons I have given, I regard the result of Sparkes v Smart as
being consistent with principle. But that perhaps is not as important as the
fact that, in my judgment, it binds this court.
In my view,
the deputy judge came to the correct conclusion, a conclusion to which he was
bound to come on authority, and I would therefore dismiss this appeal.
Agreeing, PETER GIBSON LJ said: I agree that
this appeal should be dismissed. But in deference to the closely reasoned
argument of Mr Wood QC, for the appellant landlords, I add a few words of my
own.
Mr Wood
submitted, uncontroversially, that at common law upon the determination of a
head lease any subletting created out of it automatically comes to an end. He
acknowledged an exception at common law, recognised by statute in section 139
of the Law of Property Act 1925 and its predecessor provisions, where the head
tenant surrenders his tenancy to the head lessor. But he submitted on the basis
of two Court of Appeal decisions, Harrison v Wing [1988] 2 EGLR 4
and Pennell v Payne [1995] QB 192, that the exception to the
common law rule is strictly limited to cases of surrender properly so called.
To that he added the absence of any exercise of the power in section 29 of the
Agricultural Holdings Act 1986 and para 7 of Schedule IV to that Act, or of the
corresponding power in the Agricultural Holdings Act 1948, to provide
protection for subtenants where the interest of the head tenant is terminated
by a notice to quit. This, he said, makes it plain that parliament never
intended that subtenants should (otherwise than by the recognised exception)
enjoy statutory protection against a head landlord, and it was inherent in the
position of the subtenant that he had no such protection. He contrasted the
position of business subtenants, under Part II of the Landlord and Tenant Act
1954, and residential subtenants under the Rent Act 1977, who are protected.
I acknowledge
the force of that argument, but I am not able to accept it. Like my lord, it
seems to me that the characteristic, significant for present purposes, of a
surrender, as distinct from the determination of a tenancy as a result of a
notice to quit, is that the former is consensual, there being agreement outside
the lease and the landlord not being obliged to accept the surrender, whereas
the latter is a unilateral act within the lease of the person serving the
notice. Of course the person on whom the notice to quit is served has the right
to exercise his statutory option to serve a counternotice or to choose not to
do so. But this does not alter the nature of that transaction as being
essentially unilateral, in the straightforward case, where the landlord and
tenant act as landlords and tenants ordinarily do in their own interests. Where
the facts are as they are here, that in order to obtain vacant possession and
destroy the subtenancy the mechanics of a notice to quit are employed by the
landlord, but only because the tenant himself, in agreement with the landlord,
has taken the initiative to obtain the service on him of that notice to quit on
the footing that a counternotice will not be served, then the position seems to
me to be tantamount to a consensual surrender, even though technically it would
not constitute surrender.
Why should the
form of the transaction be allowed to prevail over the substance, that is to
say that the tenant wishes to give up the tenancy by being party to a scheme to
defeat the interests of the subtenant? I can see no reason in principle why the
law should not regard that as a proper exception to the common law rule, just
as it regards a surrender as constituting an exception.
Do the
authorities preclude us from arriving at such a result? Certainly there is
nothing in Mellor v Watkins (1874) LR 9 QB 400 that is
inconsistent with this approach. The decision of this court on the relevant
point in Harrison v Wing seems to me to have turned on the narrow
question of whether a person who is both one of three landlords holding jointly
as trustees for sale and is also the tenant was voluntarily putting an end to
his own interest by joining in the notice to quit served by the landlords. In
answering that question in the negative, this court did not consider any
question of a collusive agreement designed to
v Watkins, but distinguished that case on its facts.
Sparkes v Smart [1990] 2 EGLR 245 is the closest to the present case
on its facts. The court agreed with Judge Da Cunha in the court below that the
effect of a collusive scheme between landlord and tenant for the landlord to
serve a notice to quit and for the tenant not to serve a counternotice in order
to defeat the subtenancy was in effect the same as a voluntary surrender of the
head lease, though it is right to acknowledge that counsel for the landlord in that
case was recorded (see p249G) as not seeking to argue that the subtenant was
not entitled to be placed in the position of tenant of the landlord if this
court accepted that the scheme was collusive. Nevertheless, that case is
entirely consistent with what I believe to be the right principle.
In Pennell
v Payne no doubt was cast by this court on the correctness of the
proposition that a collusive scheme between head landlord and head tenant
designed to destroy the subtenancy constituted an exception to the common law
rule. That case was concerned with the effectiveness of an upwards notice to
quit served by the head tenant, a conditional termination of the tenancy. It
was not concerned in any way with a collusive scheme. I cannot read it,
therefore, as constituting authority supporting Mr Wood’s submission that the
exception from the common law rule is confined to surrenders in the strict
sense.
I therefore
conclude that there is nothing in the authorities that compels a result
contrary to that which I am minded to accept, that is to say that where there
is an agreement between the head landlord and head tenant designed to defeat
the subtenancy, the consequent determination of the head lease leaves the
subtenant as the tenant of the landlord.
The existence
of the statutory provisions, to which Mr Wood refers, does not seem to me to
take the matter much further. We do not know the reasons why the Minister or
the Lord Chancellor has not exercised the power to provide express protection
for subtenants. It may well be that it was considered that the common law
position provided satisfactory protection in itself.
For these, as
well as the reasons given by my lord, I too would dismiss this appeal.
JUDGE LJ agreed
with both judgments and did not add anything.
Appeal dismissed.
