Notice to quit for non-payment of rent — Tenant setting off land drainage rates — Arbitrator finding that no debt owing as tenant not having paid rates — Tenant’s appeal to county court allowed — Landlord appealing to Court of Appeal — Appeal allowed
The case concerned a tenancy of Dunsby Fen Farm, Rippingdale and Dunsby, near Bourne, Lincolnshire. The rent was £21,500 pa. The tenant failed to pay the rent due and on November 8 1990 the landlord served a notice requiring the payment of £10,500 within two months of service. The period for compliance expired on January 11 1991. On January 7 1991 the tenant paid a sum of £9,821.38, stating by letter that the sum was to cover the rent less the landlord’s portion of the drainage rate. On January 14 the landlord served a notice to quit under the Agricultural Holdings Act 1986, Schedule 3, Part 1, Case D, asserting that the notice to pay had not been complied with.
The farm was situated within a fenland area and was assessed for drainage rates to defray the operating expenses of the drainage board pursuant to the Land Drainage Act 1976. That rate was recoverable against the occupier, who could recover the sum from the owner and “may deduct that amount from any rent payable by him to the owner”: section 72 (5)(d). The arbitrator found for the landlord on the ground that the tenant had not complied with the notice to pay and that he had wrongly deducted the drainage rates because, at the time of payment of farm rent, he had not in fact paid them. The tenant’s appeal to the county court was allowed; the judge holding that there was a right in equity for a set-off in that there was a sufficient nexus between the payment of rent and the owner’s drainage rate. The connection could hardly be closer: the burden to pay the drainage rate arose out of occupation of the land as did the rent.
Held The landlord’s appeal was allowed.
1. The landlord had submitted that it was apparent from section 72(5)(d) that there was no right accorded to the tenant to recover from the landlord unless and until the tenant had paid the drainage rate. If there was no debt, there was nothing to set off either in equity or anywhere else. Once there was no debt, there could be no set-off. That submission was too obvious to require elaboration.
2. However, it was argued for the tenant that the notice to quit under Case D (supra) of the 1986 Act called for “rent due”. That should be given a reasonably benevolent construction in favour of the tenant (see Dickenson v Boucher (1983) 269 EG 1159 and Dallhold Estates (UK) Pty Ltd v Lindsey Trading Properties Ltd [1993] EGCS 195) because the tenant stood to lose his livelihood and in many cases his home.
3. However, even given the most benevolent construction the phrase “rent due” was not liable to be misconstrued; it was clearly stated as £21,500, half of which was due on the date notice was given.
4. If the tenant had paid the owner’s drainage rate then he would have been entitled to a set-off. There might then have arisen a contingent liability on the landlord to reimburse the tenant. However, it was entirely within the tenant’s power to bring that liability about.
5. The same argument applied on equitable set-off: there was no possible ground for equity granting relief in circumstances where the remedy lay in the tenant’s own hands. There had to be an existing debt or claim to unliquidated damages for the right of set-off to arise. There was no such claim in this case. When the notice to pay rent was served and the notice to quit given the rent was payable in full and the tenant had not done anything to entitle him to a deduction.
William Poulton (instructed Lee & Pembertons) appeared for the landlord; Derek Wood QC (instructed by Burges Salmon, of Bristol) appeared for the tenant.
