Agricultural holdings — Notice to quit — Head tenancy — Head tenants failing to serve counternotice — Whether subtenancy determined — Whether prior arrangement between freeholder and head tenants a consensual transaction tantamount to a surrender — Whether Sparkes v Smart [1990] 2 EGLR 245 wrongly decided
On 1 March 1970 the fourth Earl of Eldon granted a yearly tenancy
of 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 appellants. The appellants were either
related to the remaining two tenants, the fifth earl and S, or were family
trustees holding land for the benefit of relatives.
trial to be a subtenancy, the respondent farmed the land. On 1 April 1992 a
notice to quit was served by the appellants on the two remaining tenants (who
by then were head tenants), which terminated the head tenancy. In accordance
with a scheme advised by solicitors, the two head tenants did not serve any
counternotice claiming the protection of the Agricultural Holding Act 1986. It
was assumed that the subtenancy would determine with the head tenancy by
operation of law. The appellants brought proceedings against the respondent
claiming possession of the land. The deputy judge dismissed the appellants’
claim on the ground that such a scheme did not destroy the subtenancy. The
Court of Appeal dismissed the appellants’ appeal on the basis that the
arrangements were tantamount to a surrender, because the transactions were
consensual by reason of the prior agreement with the head tenants. The
appellants appealed.
appellants and the two head tenants were not tantamount to, but very different
in character from, a surrender. The head tenants were willing to have the head
tenancy brought to an end in accordance with the terms of the notice to quit.
In so far as the head tenants consented to the service of the notice to quit,
their consent was unnecessary; the freeholders were only doing what they were
entitled to do under the terms of the head tenancy. Once the notice to quit
expired, the head tenancy came to its predetermined end in accordance with the
terms of the tenancy agreement. The respondent’s derivative interest was
determined, not by any agreement between the freeholders and the head tenants,
made after he took his subtenancy and without which it could not have been
determined, but by the natural expiry of the tenancy from which the interest
was derived. The proposition that the service of a notice to quit by the
freeholder on the head tenant or by the head tenant on the freeholder, by prior
arrangement with the other, is a ‘consensual transaction which is tantamount to
a surrender’ must be rejected, since, unlike a surrender, it does not need the
consent of the recipient to be effective. Sparkes v Smart [1990]
2 EGLR 245 overruled.
The following cases are referred to in this report.
Baron Sherwood
v Moody [1952] 1 All ER 389; (1952) 1 TLR 450; 50 LGR 180
Barrett v Morgan
[1999] 1 WLR 1109; [1998] 4 All ER 179; (1999) 78 P&CR 17; [1998] 3
EGLR 3; [1998] 50 EG 87, CA
Brown v Wilson
(1949) 208 LT 144
Doe d Beadon v
Pyke (1816) 5 M&S 146
Johnson v Moreton
[1980] AC 37; [1978] 3 WLR 538; [1978] 3 All ER 37; (1978) 37 P&CR 243;
[1978] 2 EGLR 1; 247 EG 895, HL
Mellor v Watkins
(1874) LR 9 QB 400
Newlon Housing
Trust v Al-Sulaimen [1999] 1 AC 313; [1998] 3 WLR 451; [1998] 4 All
ER 1; (1998) 30 HLR 1132, HL(E)
Pennell v Payne
[1995] QB 192; [1995] 2 WLR 261; [1995] 2 All ER 592; [1995] 1 EGLR 6;
[1995] 06 EG 152, CA
Phipos v G&B
Callegari (1910) 54 SJ 635
Rye v Rye [1962]
AC 496; [1962] 2 WLR 361; [1962] 1 All ER 146, HL
Sparkes v Smart
[1990] 2 EGLR 245
Webb v Russell
(1789) 3 TR 393
This was an appeal by the appellants, Robert Asheton Barrett,
Philip Adrian Scrope and Mary Isobel Scott, from a decision of the Court of
Appeal ([1998] 3 EGLR
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
respondent, Robert Cecil Morgan.
Derek Wood QC and John McGhee (instructed by Burges Salmon, of
Bristol) appeared for the appellants; Andrzej Kolodziej (instructed by Smith
Roddam, of Bishop Auckland) represented the respondent.
LORD SLYNN OF HADLEY, LORD WOOLF MR, LORD NICHOLLS OF
BIRKENHEAD and LORD HOPE
OF CRAIGHEAD all agreed with the speech of Lord Millett and did not
add anything.
Giving his opinion, LORD
MILLETT said: My lords, section 26 of the Agricultural Holdings Act
1986 entitles the tenant of an agricultural holding who is given notice to quit
to serve a counternotice on his landlord. If he does so within one month after
the service of the notice to quit upon him, the notice to quit has no effect
unless it is confirmed by an Agricultural Land Tribunal. The section applies to
a notice to quit given to a subtenant by the head tenant as it applies to a
notice to quit given to a head tenant by the head landlord. But a subtenant is
given no protection from the automatic determination of his subtenancy at
common law on the determination of the head tenancy out of which it is derived.
There is no provision in the Act to extend the tenancy of a subtenant after the
determination of the head tenancy. Nor is there any requirement in the Act or
in any statutory regulation made thereunder to require a head landlord to serve
a copy of the notice to quit on a subtenant, or to enable a subtenant to serve
a counternotice on the head landlord. The Lord Chancellor has been given power
by section 29 of the Act and para 6 of the Fourth Schedule to make provision
for subtenancies, but this power has never been exercised.
A head landlord can, therefore, by his own unilateral act in
serving notice to quit on the head tenant, bring a subtenancy to an end if the
head tenant fails to serve a counternotice. This much has been clear ever since
Baron Sherwood v Moody [1952] 1 All ER 389 and is common ground
before your lordships. The question in this appeal is whether such a notice
served by prearrangement with the head tenant, and on the common understanding
or agreement that the head tenant will not serve a counternotice, is effective
at common law to determine the subtenancy as well as the head tenancy.
The facts are set out at length in the judgment of the
Vice-Chancellor reported in [1999] 1 WLR 1109*, and I need not repeat them in
full. The respondent, Mr Morgan, has farmed a holding of several parcels of
farmland in County Durham since November 1980. At the material time he was in
occupation of the land under a subtenancy from John Scott, the fifth Earl of
Eldon, and his brother, Mr Simon Peter Scott. They in turn held the land as
yearly tenants of the appellants, who held the freehold as trustees for Mr
Scott’s children.
*Editor’s note: Also reported at [1998] 3 EGLR 3
In April 1992 Mr Scott’s children wanted to raise capital by a sale
of the land with vacant possession. This required both the tenancy and the
subtenancy to be determined. This could not be achieved by a surrender of the
head tenancy, as this would still leave Mr Morgan’s subtenancy on foot. For
reasons that will become apparent, it was thought that a notice to determine
the head tenancy served by the head tenants on the head landlords would be
equally ineffective.
Mr Morgan’s subtenancy, however, was undoubtedly terminable by
notices to quit served by the freeholders on the head tenants, and it was
decided to adopt this course. The head tenants had the right to challenge any
notice to quit by serving a counternotice, and any agreement that purported to
exclude or curtail that right would be unenforceable: see Johnson v Moreton
[1980] AC 37†. But, as the freeholders knew, the head tenants were equally
desirous that the land should be sold with vacant possession and had no intention
of serving counternotices. Accordingly, after discussions between the parties
in which it was informally (but unenforceably) agreed that no counternotices
would be served, the freeholders duly served notices to quit on the head
tenants. As expected, the head tenants did not serve any counternotices. Mr
Morgan refused to give up possession, and the freeholders brought the present
proceedings for possession.
† Editor’s note: Also
reported at [1978] 2 EGLR 1
The deputy High Court judge (Mr Peter Smith QC) found that the
freeholders wanted to obtain vacant possession and Mr Morgan’s subtenancy was
the only obstacle in their way; that the head tenants were equally anxious that
the freeholders should obtain vacant possession; that the head tenants never
consulted their own interests as tenants and never contemplated serving any
counternotices; that the freeholders would not have served notices to quit
(because they would have served no purpose) if they had not known that the head
tenants
was to destroy the subtenancy.
The question for decision, therefore, is whether the fact that the
notices to quit were served by the freeholders pursuant to an agreement or
understanding in that behalf with the head tenants deprived them of the effect
that they would have had if they had been served without any prior agreement or
understanding.
The Court of Appeal held that it did. It observed that a subtenancy
is not determined by the surrender of the head tenancy and, while it recognised
that the head tenancy had not in fact been surrendered, it treated a notice to
quit given by a landlord by prior arrangement with the tenant as tantamount to
a surrender because both transactions are consensual. As Sir Richard Scott V-C
put it, at p117:
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.
Now this is, with respect, a very curious doctrine. If correct, it
means that a person cannot achieve with consent what he could achieve without
it. It also means that parties whose interests happen to coincide must take
care not to discuss the matter beforehand, or risk failing to achieve together
what either could achieve on his own. One would suppose that, if a person is
entitled to achieve a particular result by unilateral action on his part
without the consent of another party, he can achieve that result whether or not
he obtains the consent of that party. I think that the Court of Appeal confused
two different senses in which a transaction may be said to be consensual. Some
transactions (and a surrender of a tenancy is one of them) are consensual in
the sense that they are dependent for their effectiveness on the consent of
some other party. Other transactions (such as the determination of a tenancy by
notice to quit) are effective whether or not the other party gives his consent
to them. If such consent is forthcoming, the transaction may no doubt be
described as consensual; but that does not alter the fact that its
effectiveness does not depend on consent.
I propose first to consider the question as a matter of principle
and then to review the principal authorities on which the Court of Appeal
relied for its conclusion.
A lease or tenancy for a fixed term comes to an end by effluxion of
time on the date fixed for its determination. A periodic tenancy comes to an
end on the expiry of a notice to quit served by the landlord on the tenant or
by the tenant on the landlord. As Lord Hoffmann explained in Newlon Housing
Trust v Al-Sulaimen [1999] 1 AC 313 at p317, it also comes to an end
by effluxion of time. In each case the tenancy is determined in accordance with
its terms. By granting and accepting a periodic tenancy with provision, express
or implied, for its determination by notice to quit, the parties have agreed at
the outset on the manner of its termination. The parties and their successors
in title, including those who derive title under them, are bound by their
agreement.
A lease or tenancy may also be surrendered at any time by the
tenant to his immediate landlord. A surrender is simply an assurance by which a
lesser estate is yielded up to the greater, and the term is usually applied to
the giving up of a lease or tenancy before its expiry. If a tenant surrenders
his tenancy to his immediate landlord, who accepts the surrender, the tenancy
is absorbed by the landlord’s reversion and is extinguished by operation of
law.
A surrender is ineffective unless the landlord consents to accept
it, and is therefore consensual in the fullest sense of the term. In Coke on
Littleton II 337b the nature of a surrender is described as follows:
‘SURRENDER’, sursum redditio, properly is a yeelding up an
estate for life or yeares to him that hath an immediate estate in reversion or
remainder, wherein the estate for life or yeares may drowne by mutuall
agreement betweene them.
On its surrender, the tenancy is brought to an end prematurely at a
time and in a manner not provided for by the terms of the tenancy agreement. In
this respect it differs from the case where a tenancy is determined by notice
to quit. It is because the landlord or his predecessor in title has not, by
granting the tenancy, previously agreed that the tenant should have the right
to surrender the tenancy prematurely that the landlord’s consent is necessary.
The destruction of the tenancy by surrender reflects the principle
that a person cannot at the same time be both landlord and tenant of the same
premises. Nemo potest esse tenens et dominus: see Rye v Rye [1962]
AC 496 at p513 per Lord Denning. Formerly, the extinguishment of the
tenancy by surrender also extinguished the reversion to any subtenancy, so that
the remedy for the rent and the covenants attached to the reversion ceased with
the reversion to which they were annexed. The subtenant held the property as
tenant of the head landlord for the residue of the term of the extinguished
tenancy but without privity of estate and accordingly without any obligation to
pay the rent or perform the tenant’s covenants: see Webb v Russell (1789)
3 TR 393. This unsatisfactory state of affairs was remedied by statute in two
stages. Section VI of the Landlord and Tenant Act 1730 (now section 150 of the
Law of Property Act 1925) effected a partial reversal of the common law rule.
Section 9 of the Real Property Act 1845 (now section 139 of the Act of 1925)
reversed it more generally. These provisions apply only where the head tenancy
is surrendered.
Although a person such as a subtenant having a derivative interest
may benefit by the surrender and consequent extinguishment of the estate out of
which his interest is derived, he cannot be prejudiced by it. It is a general
and salutary principle of law that a person cannot be adversely affected by an
agreement or arrangement to which he is not a party. So far as he is concerned,
it is res inter alios acta. It would conflict with this principle if the
destruction of a tenancy by surrender carried with it the destruction of the
interest of a subtenant under a subtenancy previously granted. It has been
clear from the earliest times that it does not do so. In Coke on Littleton
II 338b the effect of a surrender on third parties such as subtenants is stated
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…
In Doe d Beadon v Pyke (1816) 5 M&S 146 it was
argued that a surrender of a lease would annihilate all interests derived under
the lease. This was firmly rejected, Lord Ellenborough CJ at p154 considering
it to be:
clear law, that though a surrender operates between the parties as
an extinguishment of the interest which is surrendered, it does not so operate
as to third persons, who at the time of the surrender had rights, which such
extinguishment would destroy, and that as to them, the surrender operates only
as a grant, subject to their right, and the interest surrendered still has, for
the preservation of their right, continuance.
This account is sufficient to demonstrate that there are major
differences in the way in which a tenancy is brought to an end by surrender and
the way in which the head tenancy was brought to an end by the arrangements in
the present case.
First, when a tenancy is surrendered it is brought to an end
prematurely, otherwise than at the time and in the manner stipulated by the
tenancy agreement. When it is determined by notice to quit it is determined in
accordance with the provisions of the tenancy agreement and at a time and in
the manner previously agreed between the parties or their predecessors in
title.
Second, the landlord or his predecessor in title has not agreed in
advance to accept the premature determination of the tenancy by surrender, and
accordingly a surrender is ineffective without his consent. But by granting and
accepting a periodic tenancy, the parties or their predecessors in title have
agreed in advance that the tenancy should be terminable by notice to quit
served by either party on the other, and accordingly no further consent is
necessary whether or not it is forthcoming in fact.
Third, a subtenant holds a derivative title that cannot be
prejudiced by the surrender of the head tenancy from which it is derived, or
any other agreement between the parties to the head tenancy that is later
than the creation of his subtenancy. His title is, however, precarious, for it
cannot survive the natural termination of the head tenancy in accordance with
its terms, agreed before his subtenancy was created.
Fourth, when the head tenancy is surrendered, it is treated as
continuing until its natural termination so far as this is necessary to support
the derivative interest of the subtenant. That is all that is meant by saying
that ‘the estate hath… a continuance’. But when it is determined by notice to
quit, it has come to the end of its natural life. There is no further period
remaining during which the tenancy can have continuance.
In my opinion, this is sufficient to demonstrate that the
arrangements in the present case were not tantamount to, but very different in
character from, a surrender. The head tenants were willing to have the head
tenancy brought to an end in accordance with its terms by notice to quit. They
were content to receive the notices and not to serve counternotices, and informed
the freeholders of the fact. Although the parties’ legal interests were
potentially conflicting, their commercial interests coincided. In so far as the
head tenants consented to the service of the notices to quit, their consent was
unnecessary; the freeholders were only doing with their consent what they were
entitled to do under the terms of the head tenancy without it. Once the notices
to quit expired, the head tenancy came to its predetermined end in accordance
with the terms of the tenancy agreement. Mr Morgan’s derivative interest was
determined, not by any agreement between the freeholders and the head tenants,
made after he took his subtenancy and without which it could not have been
determined, but by the natural expiry of the tenancy from which his interest
was derived.
I now turn to the authorities on which the Court of Appeal relied.
The first is Mellor v Watkins (1874) LR 9 QB 400. The case is a
classic example of a surrender. Allen held a yearly tenancy of premises subject
to a yearly subtenancy of part. The subtenancy was afterwards acquired by the
defendant. Allen surrendered his tenancy to the freeholder, who relet the
premises to the plaintiff. Neither the tenancy nor the subtenancy was
determined by notice to quit. The plaintiff’s action for possession of the part
occupied by the defendant failed.
So far the case is unexceptional. In the course of argument,
however, Sir Henry James QC, who appeared for the plaintiff, is recorded as
saying 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 undertenant.
(My emphasis.)
It is not clear what Sir Henry James had in mind. In my opinion,
his concession was correct only if limited to acts of the same character as a
surrender, that is to say acts outside the terms of the tenancy agreement. In
his judgment, however, Cockburn CJ understood him to include the giving of an
upwards notice to quit by the tenant to the landlord. He said at p404:
Sir Henry James admitted that there had been no notice to quit,
and, moreover, that Allen could not by giving notice to his landlord determine
the underlease…
This was not necessary to the decision, for no such notice had been
given, and despite exhaustive researches no previous authority has been found
for the proposition. Blackburn J explained the position in the following terms
at p405:
Allen had no power to derogate from his landlord’s rights. Subject
to those rights, he had a right to sublet; 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.
Again, this is unexceptional if by in invitum
Blackburn
‘voluntary act’ on Allen’s part he meant an act outside the terms of the
tenancy agreement. If his observations were meant to be understood more widely
than this, they were obiter and unsupported by authority.
As a result of that case and an obiter dictum of Warrington
J in Phipos v G&B Callegari (1910) 54 SJ 635, it was formerly
thought that the service of an upwards notice to quit on a head landlord by a
head tenant had the same effect on a subtenancy as a surrender. This view of
the law was accepted by Hilbery J in Brown v Wilson (1949) 208 LT
144. Following the approach indicated by Blackburn J, he held that the
principle underlying the cases was that:
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 to a third party.
But this cannot be accepted without qualification, since it must
depend upon the order in which the parties’ rights were created.
But for this decision, the parties would have determined Mr
Morgan’s subtenancy by an upwards notice to quit served by the head tenants on
the freeholders. Brown v Wilson, however, was overruled by the
Court of Appeal in Pennell v Payne [1995] QB 192*, which held
that a subtenancy of an agricultural holding is determined by service of a
notice to quit by the head tenant on the head landlord. I have no doubt that
this case was correctly decided. If a head landlord can determine a subtenancy
by serving notice to quit on the head tenant, at least where he does so without
the consent of the head tenant, why should the head tenant not be able to
achieve the same result by serving an upwards notice to quit on the head
landlord?
*Editor’s note: Also reported at [1995] 1 EGLR 6
The answer suggested by Mellor v Watkins and the
cases that follow it is that, by determining the subtenancy that he himself has
created, the head tenant is derogating from his grant. This is true, at least
in the case where the head tenant has unwisely granted a subtenancy for a fixed
term that has not yet expired at the date when he serves the notice to quit. If
so, then service of the notice to quit may expose the head tenant to an action
for damages at the suit of the subtenant. But it does not at all follow that
the notice to quit is ineffective. It would be contrary to principle to deprive
the head landlord of the immediate right to possession in the circumstances for
which he stipulated, merely because they constitute a breach of a later
contract between other parties. Moreover, as the Court of Appeal pointed out,
if the upwards notice to quit does not determine the subtenancy, the head
landlord is left in an unenviable position. He is not only saddled with a
tenant not of his choosing, but is unable to enforce the tenant’s obligations
under the subtenancy, since the statutory provisions that provide for their
enforcement despite the destruction of the reversion by surrender have no
application. I would observe that this is the case if the head tenancy is
determined by notice to quit, by whichever of the parties it is served.
In reaching its decision in the present case, the Court of Appeal
approved an earlier decision of its own in Sparkes v Smart [1990]
2 EGLR 245, where the notice to quit was served by the head landlord in
collusion with the head tenant. There the court had simply applied the dicta
in Mellor v Watkins, the correctness of which had not been
challenged. No doubt was thrown on Sparkes v Smart in Pennell v
Payne, but, as will appear, the two cases cannot, in my opinion, stand
together.
My lords, the decision of the Court of Appeal in the present case
has the extraordinary result that the parties to a tenancy cannot achieve
together by agreement what either can achieve alone without it. It also
produces the situation that a head tenant can determine a subtenancy that he
has himself created by the unilateral act of serving a notice to quit on the
head landlord, but cannot achieve the same result by telling the head landlord
that he will not object to a notice to quit served by him. Such a result is
sometimes the consequence of ill-digested legislation, but it has no place in
the orderly development of the common law.
In my opinion, the proposition that a notice to quit served by
prearrangement with the recipient is ‘a consensual transaction tantamount to a
surrender’ and is incapable of determining a subtenancy is unsupportable. It
cannot, without injustice to the head
tenant. He can protect himself from the consequences of a surrender by
withholding his consent. But he cannot protect himself from the even more
unwelcome consequences of an upwards notice to quit by the head tenant since
the service of such a notice does not need his consent. The same unwelcome
consequences would follow from the service of a notice to quit by the head
landlord by prior arrangement with the head tenant if this does not operate to
determine the subtenancy. Of course, he need not serve notice to quit at all,
but he is entitled to serve it and does not need the consent of the head tenant
to do so. All he needs in practice is an assurance that the head tenant does not
intend to serve a counternotice, which he is not obliged to serve. There is no
reason why the head landlord should be prevented from exercising his legal
rights merely because he has taken the sensible precaution of ascertaining that
their exercise will not be challenged.
In my view, the head landlord has a stronger claim to be allowed to
exercise his rights with or without the consent of the head tenant than the
head tenant has to be allowed the corresponding right with or without the
consent of the head landlord. The subtenant could, if forewarned, apply for an
injunction to restrain the head tenant from serving an upwards notice to quit
in derogation of his rights. But he has no legal right to prevent the head
landlord from serving notice to quit on the head tenant, or to compel the head
tenant to serve a counternotice to protect his rights.
Accordingly, I reject the proposition that the service of a notice
to quit by either party by prearrangement with the other is ‘a consensual
transaction which is tantamount to a surrender’ since, unlike a surrender, it
does not need the consent of the recipient to be effective. The proposition
that such a transaction is incapable of determining a subtenancy is not tenable
and does not gain by the substitution of the pejorative word ‘collusive’ for
the word ‘consensual’. I would overrule Sparkes v Smart and allow
the appeal.
Appeal allowed.
