Agricultural holding — Contemporaneous creation of tenancy and subtenancy — Intention to create a transaction not conferring security of tenure — Whether transaction a sham — Whether artificial scheme against policy of legislation — Whether subtenant entitled to security of tenure
In 1963 the defendant offered to take a tenancy of a farm. On the advice of his solicitors, and with the object of granting the defendant a tenancy that would not have security of tenure under the Agricultural Holdings Act 1948 (see now Agricultural Holdings Act 1986), the owner of the farm first granted a tenancy to his wife, and on the same day she in turn granted the defendant a subtenancy of the same land at the same rent. All parties, including the defendant, appreciated the purpose of the two transactions, and their artificial nature was emphasised by a letting of some of the wife’s land to the husband, who also granted a subtenancy to the defendant.
When the owner died in 1984, the plaintiffs, as his personal representatives, served a notice to quit on the widow to bring the head tenancy to an end; she did not serve a counternotice, nor did she serve any notice to quit on the defendant. The plaintiffs’ claim, that the defendant’s subtenancy ended with the head tenancy and that the plaintiffs were entitled to possession, was upheld in the Shaftesbury County Court (His Honour Judge Willcock QC, April 6 1987). The defendant appealed, contending that either the two grants were a sham and the real intention was to grant a tenancy to the defendant or that even if the agreements were not strictly a sham, for reasons of policy as explained in Johnson v Moreton [1980] AC 37, and in the light of the approach of the appellate courts in recent tax cases to artificial schemes for evading mandatory statutory provisions, the agreements only had effect as the grant of a tenancy to the defendant, who therefore had security of tenure.
Held (Ralph Gibson, LJ dissenting) The appeal was allowed and the order for possession set aside; the defendant had a tenancy protected by the agricultural holdings legislation. The principle in W T Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300, that in considering the fiscal consequences of a pre-ordained series of transactions, they are generally to be ascertained by considering the result as a whole and not by considering each individual transaction separately, applied to a scheme to avoid the agricultural holdings legislation. In the present case what was done was that by two pre-ordained steps, rather than by a single step, the defendant was granted an agricultural tenancy.
There was also the linked aspect of a sham in that in the grant of the tenancy to the owner’s wife, she covenanted to farm and cultivate the land when it was perfectly clear that she was going to do no such thing, for on the same day she granted the subtenancy to the defendant.
Snook v London & West Riding Investments Ltd
[1967] 2 QB 786 and
Somma v Hazelhurst [1978] 1 WLR 1014 considered.
David Elvin (instructed by Porter Bartlett & Mayo, of Sturminster Newton) appeared for the appellant; and Oliver Albery (instructed by Payne Hicks Beach) appeared for the respondents.
