Outgoing tenants — Compensation payable on surrender of milk quota — Arbitration — Tenants’ improvements — Tenants paying unusually low rent — Calculation of tenants’ fraction for compensation purposes — County court upholding tenants’ construction of Schedule 1 part 2 para 7(1)(a) on case stated by arbitrator — Landlord’s appeal dismissed
The tenancy commenced at Lane Head Farm, Seascale, Cumbria, on a farm of approximately 101 acres, in 1972. In 1975 the tenants carried out an improvement to the farm by erecting a milking bale. They were allocated a milk quota and the amount was by reference to milk production for the year 1983. In 1990 they gave notice to quit and vacated the farm in February 1991. The whole of their quota passed to the landlord on termination.
The rent payable for the farm in 1983 was £400 pa and it was common ground that that was unusually low. The question which the arbitrator put to the county court judge for the purposes of assessing the compensation was, inter alia, whether for the purposes of determining the numerator of the tenants’ fraction in accordance with Schedule 1 Part 2 para 7(1)(a) of the Agriculture Act 1986, the “rent payable by the tenant” was the actual rent passing that had to be taken into account or the open market rent. The tenants’ dairy improvements were valued in 1983 as £500 pa.
Held Appeal by landlord dismissed.
1. In Grounds v Attorney-General of the Duchy of Lancaster [1989] 1 EGLR 6, it was stated that the compensation was paid to a tenant quitting his holding for a registered milk quota. It was apparent that milk production depended upon a number of factors, eg the aulity of the land itself. However, in part it depended on the tenants’ dairy improvements and to the fixed equipment brought into business. That was the tenants’ fraction, which was calculated as “being … that proportion of the total of the factors which go into milk production which the tenant’s dairy improvements and fixed dequipment contribute” (para 7).
2. In the present case where rent was concessionary, it artificially increased the tenants’ fraction payable to the tenant in respect of his milk quota on quitting the holding. The advantage of a low rent was thus reflected in the amount of compensation giving the tenants a double benefit.
3. The landlord argued that that was too anomalous a result and not one which Parliament could have intended in enacting paras 7(1)(a) and 7(1)(b). Therefore Parliament must have assumed that the rent payable was the open market rent and that that assumption should have been made by the arbitrator when assessing the rental value of the tenants’ improvements. Accordingly, since that process included assessing the rental value of the land with and without the tenants’ improvements, the actual value should be substituted.
4. However, para 7 did not require anything so complex or elaborate. The words were plain and unambiguous. The rental value of the improvements was assessed because they were not in fact let on their own or paid for in the form of rent.
5. Even if the result were anomalous, the court could not accept the landlord’s contention as it would involve a wholesale rewriting of the paragraph. However, the court was not at all satisfied that the result was anomalous. Further, it would be idle to speculate as to the policy which Parliament had in mind. In legislation as closely articulated as that under construction, the issue must be decided from the words of the statute. It was at least possible that Parliament intended that the landlord’s contribution was to be taken at the value which the parties had themselves placed upon it.
Paul Morgan QC (instructed by Blake Lapthorn, London agents for Burges Salmon, of Bristol) appeared for the landlord; Anthony de Freitas QC (instructed by Cartmell Shepherd, of Carlisle) appeared for the tenants.
