Agricultural holdings — Rent review — Whether one holding — Whether SSSI management agreement relevant — Whether marriage value with other land relevant
In April 1965
the respondent landlord let 154 acres of agricultural land (‘the blue land’) to
the appellant tenant. In December 1968 they let to him a further 88 acres (‘the
green land’). Each parcel was let on an annual tenancy commencing on October
11. In 1981 the landlords demanded a reference to arbitration of a single rent
for what was described as ‘the holding’; in September 1982 the parties
compromised the demand by the tenant agreeing a single aggregate rent for both
parcels of land; that process was repeated for the 1985 review. Thereafter the
landlord’s records were amended to indicate the two holdings had become one,
although the tenant was not so informed. In 1989 the tenant entered into a
management agreement with Nature Conservancy Council and became entitled to
compensation following the designation of the area as a Site of Special
Scientific Interest. In connection with the 1990 rent review, certain questions
were determined by the county court judge following a statement of case by the
appointed arbitrator. The judge decided that the rent was to be fixed on the
basis of one holding, and not two, on the separate terms of the original
agreements; the management agreement was a proper source of evidence for the
arbitrator and for him to give appropriate weight to; and the marriage value of
the holding with other land in the vicinity was a relevant consideration for
the arbitrator. The tenant appealed.
1985 did not in either case amount to a deemed surrender of the previous
tenancies and regrant of a single tenancy of the blue and green lands. All the
terms of both agreements remained in full force and effect subject to the
variation in the rent; the blue and green lands remained as separate holdings.
The statutory code in section 12 and Schedule 2 to the 1986 Act did not assume
an open market letting with vacant possession; the code required certain
factors to be taken into account and the question of whether any assumptions
should be implied must be answered directly from a consideration of the words
of the Schedule and not indirectly by attaching a label, such an open market
value, to the Schedule as a whole. The existence of the SSSI, the management
agreement and compensation payments were relevant factors for the purposes of
the statutory formula under the rent provisions in section 12 of the
Agricultural Holdings Act 1986. Marriage value is a relevant factor for the
consideration of the arbitrator. It will be a matter for the arbitrator to
determine what weight (if any) to be attached to the management agreement and
marriage value.
The following
cases are referred to in this report.
Baker v Merckel [1960] 1 QB 657; [1960] 2 WLR 492; [1960] 1 All ER
668, CA
Electricity
Supply Nominees Ltd v London Clubs Ltd
[1988] 2 EGLR 152; [1988] 34 EG 71
GMS
Syndicate Ltd v Gary Elliott Ltd [1982] Ch
1; [1981] 2 WLR 478; [1981] 1 All ER 619; (1980) 41 P&CR 124; [1981] 1 EGLR
37; [1981] EGD 331; 258 EG 251
Jenkin R
Lewis & Son Ltd v Kerman [1971] Ch 477;
[1970] 3 WLR 673; [1970] 3 All ER 414; (1970) 21 P&CR 941, CA
Knights
Case (1588) 5 Co Rep 55
99
Bishopsgate Ltd v Prudential Assurance Co Ltd
[1985] 1 EGLR 72; (1985) 273 EG 984, CA
Pepper
v Hart [1993] AC 593; [1992] 3 WLR 1032;
[1993] 1 All ER 42, HL
This was an
appeal by the tenant, Sidney Ronald Anker, from the decision of Judge Bromley
QC, sitting in Peterborough County Court, who determined certain questions in a
case stated by the arbitrator on the application of the landlord, J W Childers
Trustees, in a rent review under section 12 of the Agricultural Holdings Act
1986.
David
Neuberger QC and David Elvin (instructed by Mills & Reeve, of Norwich)
appeared for the appellant; Derek Wood QC and Janet Bignell (instructed by
Burges Salmon, of Bristol) represented the respondent.
Giving the
first judgment at the invitation of Neill LJ, Morritt LJ said: Mr Sidney Ronald Anker, to whom I shall
refer as the tenant, is the tenant of the Trustees of the Childers Will Trust,
to whom I shall refer as the landlord, of 242.5 acres of agricultural land at
Elderness Wash, Elderness, Whittlesey in the County of Cambridge. On September
22 1989 the landlord’s agent gave notice to the tenant demanding a reference to
arbitration of the question of what rent should be payable in respect of that
land from October 11 1990. Mr George WT Lock [frics,
faav] was duly appointed the
arbitrator on December 3 1990. On November 23 1993 Mr Lock stated a case for
the opinion of the county court on certain questions of law arising in the
course of the arbitration as permitted by the Agricultural Holdings Act 1986
Schedule 11 para 26. Such case came before Judge Bromley QC, sitting in
Peterborough County Court, on June 27 to 30 1984. On July 8 1984 Judge Bromley
stated his opinion on the questions so raised and it is from the declarations
containing such opinion that this appeal is brought by the tenant. To explain the
questions and the judge’s opinion it is necessary to relate the material facts.
At all
material times the tenant has owned Chapel Farm, Eldernell. That farm is an
arable farm equipped with a grain store, potato store, large dutch barn and a
shed. It carries a large amount of agricultural machinery including four
tractors, one or two combines, a baler, potato harvester, sugar beet harvester,
sprayers, ploughs, rotavators and cultivators. The tenant is, and has been, the
tenant of other agricultural land in the area in addition to that with which
this appeal is directly concerned.
The land with
which this appeal is directly concerned has been called the blue and the green
land and I will continue to use those references. The blue land was let by the
trustees to the tenant by an agreement made in April 1965. It comprises some
154 acres of agricultural land bounded on the north side by the River Nene, but
is
trustees to the tenant by an agreement made in December 1968. It comprises some
88 acres of agricultural land bounded on the north side by the blue land and on
the south by Chapel Farm. In the case of both agreements the tenancy commenced
on October 11 and was expressed to be a tenancy from year to year until
determined by either party giving to the other 12-calendar months’ notice in
writing, expiring on the October 11 in any year. The two agreements are not in
the same form and there are obligations in relation to the land demised arising
under one of them not to be found in the other. It is not disputed that both
tenancies were subject to the provisions of the Agricultural Holdings Act 1948
as amended by the Agriculture Act 1958.
After 1968
there were various communications passing between the landlord and the tenant
which were equivocal as to whether the parties regarded the blue land as held
under a separate tenancy from that of the green land. As no reliance is placed
on them by either party I can go forward to 1981. On October 2 1981 the
landlord’s agent gave notice to the tenant demanding a reference to arbitration
under the Agricultural Holdings Act 1948 ‘of the question what rent shall be
payable in respect of the said holding’ from October 11 1982. The ‘said
holding’ was referred to in the title to the notice as ‘the Holding known as
Childers Estate — Land at Whittlesey Wash 242.501 acres approx’. That question
was compromised by an agreement made on September 18 1982 and signed by, at
least, the tenant in these terms:
We hereby
agree (subject to the Notice of arbitration served having been withdrawn) that
the rent of 242.496 acres shall be six thousand pounds (£6,000) per annum with
effect from 11th October 1982 but in all other respects the rights and
liabilities of the Landlord and tenant respectively remain unaltered.
The process
was repeated at the next triennial review. By a notice dated October 8 1984 the
agent for the landlord gave notice of his demand for a reference to arbitration
of the rent payable from October 11 1985. The notice was headed ‘Re the Holding
known as Childers Estate — Land at Whittlesey Wash 242.496 acres approx’, but
the body of it described the question as: ‘what rent shall be payable in
respect of the said holdings …’ (emphasis supplied). The subsequent
agreement reached, which was the landlord’s agent’s standard form duly
completed, was in the following terms:
Re the Holding
known as Childers Estate — Land at Whittlesey Wash 242.496 acres approximately
In
consideration of the Landlord of the above holding undertaking not to refer to
arbitration under section 8 of the Agricultural Holdings Act 1948 the question
of the rent to be payable for the holding in respect of any period prior to the
11th day of October 1988, the tenant of the said holding agrees that:
(1) The rent
payable in respect of the said holding (including all existing increases in
respect of improvements or otherwise) shall as from the 11th day of October
1985 be [£7,200] [in words and figures] which shall be payable in the same way
as the rent of the said holding hereunder.
(2) The
proviso for re-entry contained in the within-written agreement shall be
exercisable in respect of non-payment of the said increased rent or part
thereof.
(3) In
consideration of the premises all the terms and considerations of the
within-written agreement varied as aforesaid shall remain in force and effect.
As the judge
observed there was no ‘within written agreement’. But I did not understand it
to be disputed and would in any event conclude that those words must refer to
the tenancy agreement of both 1965 and 1968. Thereafter the landlord’s records
were amended so as to indicate that the two holdings had become one, but the
tenant was not notified to that effect.
On November 4
1983 the tenant received notification from Nature Conservancy Council under
section 28 of the Wildlife and Countryside Act 1981 that Nene ‘Whittlesey’
Washes, which include the blue and the green land had been designated as a Site
of Special Scientific Interest (SSSI) with the consequence that if the tenant
wished to carry out on the land any specified operation he must give notice of
his proposal to Nature Conservancy Council (NCC) and might not proceed with it
except with the consent of the NCC, in accordance with a management agreement
between him and the NCC or after the expiration of three months from the giving
of the notice. The specified operations included ‘cultivation, including
ploughing, rotovating, harrowing and re-seeding’.
Thus,
unsurprisingly, the tenant entered into a management agreement with the NCC
dated August 21 1989 regulating the conduct of agricultural operations on
197.59 acres of the blue and the green land. The consideration receivable by
the tenant under that agreement is considerable and the amount thereof is
alleged by the tenant to be confidential, though a copy of the management
agreement was sent by the NCC to the landlord. It is intended to be
compensation to the tenant occupier for the net profit foregone as a
consequence of the restrictions on agricultural operations imposed by the
designation of the area as an SSSI. The agreement lasts for the shorter of 21
years or until the tenant’s interest in the land ceases.
As I have
already mentioned this appeal arises in connection with the rent payable from
October 11 1990, there having been no review since the agreement dated October
10 1985 to which I have referred.
The questions
raised by the arbitrator for the opinion of the county court in connection with
that review are as follows:
(1) i. Should
the rent or rents payable be fixed on the basis that:
(a) There are
separate agricultural holdings comprising the Blue Land and the Green Land
respectively under the agreements referred to at 1(1) and (2) of this Case; or
(b) There is
one single agricultural holding comprising both the Blue and the Green Land.
ii. In the
event that it be determined that there is one single, composite agricultural
holding comprising both the Blue and the Green Land what are the terms of the
tenancy agreement for that holding and when did the tenancy commence.
(2) i. To
what extent (if at all) the Management Agreement is relevant to the
determination of the rent or rents;
At the
request of the Landlord
ii. To what
extent (if at all) the arbitrator should take into account the fact that the
prudent and willing tenants in the market would at the review date have
included;
(a) the
actual tenant and,
(b) other
prospective tenants who are farming other land in the vicinity of the subject
holding(s).
At the
request of the Tenant
iii. To what
extent (if at all) the rent should be determined having regard to the fact that
the Tenant is in occupation of other land in the vicinity of respectively the
Blue Land and the Green Land with other land may conveniently be occupied (or
held) together with respectively the Blue Land and the Green Land.
iv. To what
extent and on what basis the arbitrator should assume (if at all) that the
hypothetical, prudent and willing tenant would be farming other land in the
vicinity of the subject holding or holdings.
v. In the
light of the Court’s opinion on issue (iv) whether the rent or rents should be
determined having regard to any enhanced rental value attributable to the
farming of such other land in the vicinity of the subject holding or holdings.
The judge’s
answers to them were as follows:
(1) i. In
sense (b)
ii. The total
rent under the Agreement made 10th October 1985 is charged upon and out of the
total holding, and the Landlord’s rights as to recovery of rent and the
consequences of non-payment apply accordingly. Subject to this the Blue Land
and the Green Land are held on the respective terms of their original leases.
The lease of the whole began on the date of the said Agreement, 10th October
1985
(2) i. The
Management Agreement is a proper source of evidence for the statutory objective
of fixing the rent. The weight to be attached to it is a matter for the
arbitrator in the light of the principles stated in the Judgment delivered on
8th July 1994
ii-v. The
marriage value of the subject holding with other land in the vicinity that may
conveniently be occupied together with it objectively ascertained is a relevant
consideration regardless of whether that other land is occupied by the tenant
or other prospective tenants. The question is not who is in the market but what
objective factors are relevant within Schedule 2 Agricultural Holdings Act 1986
to the level of the rent and common to the whole class of prudent willing
tenants (and similarly as to landlords). The identification of other land (if
any) giving rise to marriage value and the weight to be attached to marriage
value are matters for the arbitrator.
The tenant
appeals in respect of each of those answers. Before considering the submissions
of counsel it is necessary to explain the legal context in which the questions
arise. The Agricultural Holdings Act 1986, like its predecessors, provides for
arbitration of the question of the rent payable for an agricultural holding if
the parties cannot agree. The relevant provisions are the following:
1.–(1) In this Act ‘agricultural holding’ means the aggregate of the
land (whether agricultural land or not) comprised in a contract of tenancy
which is a contract for an agricultural tenancy, not being a contract under
which the land is let to the tenant during his continuance in any office,
appointment or employment held under the landlord.
(2) For the
purposes of this section, a contract of tenancy relating to any land is a
contract for an agricultural tenancy if, having regard to —
(a) the terms of the tenancy,
(b) the actual or contemplated
use of the land at the time of the conclusion of the contract and subsequently,
and
(c) any other relevant
circumstances,
the whole of the land comprised in the
contract, subject to such exceptions only as do not substantially affect the
character of the tenancy, is let for use as agricultural land …
(4) In this
Act ‘agricultural land’ means —
(a) land used for agriculture
which is so used for the purposes of a trade or business, and
(b) any other land which, by
virtue of a designation under section 109(1) of the Agriculture Act 1947, is
agricultural land within the meaning of that Act.
(5) In this
Act ‘contract of tenancy’ means a letting of land, or agreement for letting
land, for a term of years or from year to year; and for the purposes of this
definition a letting of land, or an agreement for letting land, which, by
virtue of subsection (6) of section 149 of the Law of Property Act 1925, takes
effect as such a letting of land or agreement for letting land as is mentioned
in that subsection shall be deemed to be a letting of land or, as the case may
be, an agreement for letting land, for a term of years.
Arbitration
of rent
12.–(1) Subject to the provisions of Schedule 2 to this Act, the
landlord or tenant of an agricultural holding may by notice in writing served
on the other demand that the rent to be payable in respect of the holding as
from the next termination date shall be referred to arbitration under this Act.
(2) On a
reference under this section the arbitrator shall determine what rent should be
properly payable in respect of the holding at the date of the reference and
accordingly shall, with effect from the next termination date following the
date of the demand for arbitration, increase or decrease the rent previously
payable or direct that it shall continue unchanged …
SCHEDULE 2
Section 12
Arbitration of Rent: Provisions
Supplementary to Section 12
Amount of Rent
1.–(1) For the purposes of section 12 of this Act, the rent properly
payable in respect of a holding shall be the rent at which the holding might
reasonably be expected to be let by a prudent and willing landlord to a prudent
and willing tenant, taking into account (subject to sub-paragraph (3) and
paragraphs 2 and 3 below) all relevant factors, including (in every case) the
terms of the tenancy (including those relating to rent), the character and
situation of the holding (including the locality in which it is situated), the productive
capacity of the holding and its related earning capacity, and the current level
of rents for comparable lettings, as determined in accordance with
sub-paragraph (3) below.
(2) In
sub-paragraph (1) above, in relation to the holding —
(a) ‘productive capacity’ means
the productive capacity of the holding (taking into account fixed equipment and
any other available facilities on the holding) on the assumption that it is in
the occupation of a competent tenant practising a system of farming suitable to
the holding, and
(b) ‘relating earning capacity’
means the extent to which, in the light of that productive capacity, a
competent tenant practising such a system of farming could reasonably be
expected to profit from farming the holding.
(3) In
determining for the purposes of that sub-paragraph the current level of rents
for comparable lettings, the arbitrator shall take into account any available
evidence with respect to the rents (whether fixed by agreement between the
parties or by arbitration under this Act) which are, or (in view of rents
currently being tendered) are likely to become, payable in respect of tenancies
of comparable agricultural holdings on terms (other than terms fixing the rent
payable) similar to those of the tenancy under consideration, but shall
disregard —
(a) any element of the rents in
question which is due to an appreciable scarcity of comparable holdings
available for letting on such terms compared with the number of persons seeking
to become tenants of such holdings on such terms,
(b) any element of those rents
which is due to the fact that the tenant of, or a person tendering for, any
comparable holding is in occupation of other land in the vicinity of that
holding that may conveniently be occupied together with that holding, and
(c) any effect on those rents
which is due to any allowances or reductions made in consideration of the
charging of premiums …
[2. Deals with
the treatment of improvements.]
3. On a
reference under section 12 of this Act the arbitrator —
(a) shall disregard any effect on
the rent of the fact that the tenant who is a party to the arbitration is in
occupation of the holding, and
(b) shall not fix the rent at a
lower amount by reason of any dilapidation or deterioration of, or damage to,
buildings or land caused or permitted by the tenant.
The first
question is whether the arbitrator is required to fix the rent for one holding
comprising both the blue and the green land or for two separate holdings of
those respective parcels of land. The judge considered that there was one
single agricultural holding held by the tenant since October 10 1985 on the
terms of a single rent charged upon the total holding, but otherwise on the
terms of the original tenancies so far as they affect the blue and the green
land respectively.
The judge
based his decision on the terms of the agreement dated October 10 1985. He
considered that it reserved a single rent, described in para (2) as an
‘increased’ rent, which it was impossible to apportion between the blue and the
green land. After citing from the judgment of Russell LJ in Jenkin R Lewis
& Son Ltd v Kerman [1971] Ch 477 at p496B he concluded:
In my judgment
the case shows that whether there is a surrender by operation of law turns on
(1) can the arrangement between tenant and landlord only be carried out to
achieve the result they have in mind if a new tenancy is in effect created
(page 496 C-D). The word ‘only’ used by the court would be noted. (2) Are the
arrangements to achieve the result in a mind ‘altering the nature of the
pre-existing item of property’? In my view if the result the landlord and
tenant have in mind is to have a ‘single lease of all the land at an aggregate
rent’ then, to use Russell LJ’s term, the result is to satisfy both criteria.
In my
judgment the parties in the present case decided to treat the land in question
as a single holding at a single rent. There was, in my judgment a surrender by
operation of law by the agreement dated 10th October 1985 and the creation of a
single holding.
Counsel for
the tenant, David Neuberger QC, submits that this conclusion is wrong in law.
He accepts that where a landlord and tenant agree that land is to be added to
an existing lease or a subsisting term is to be altered then the agreement is
deemed to have been implemented by a surrender and regrant for that is the only
way in which by law an existing estate in land can be created or altered. But,
he submits, there is no such addition or alteration in this case as the tenancy
from year to year subsisted in both parcels both before and after the agreement
of October 10 1985, an agreement to increase the rent may take effect otherwise
than by a deemed surrender and regrant and that conceptually there may be a
single rent reserved in respect of two or more leases. He contends that it is
plain from the terms of the agreement that it was not objectively the intention
of the parties that the holdings should be amalgamated or the separate
contracts of tenancy novated into one by a deemed surrender and regrant. He
urges that the court should be slow to deem a surrender and regrant with all
the hidden traps that that may involve for both parties.
The landlord
supports the judge’s opinion. Counsel for the landlord, Derek Wood QC, submits
that an agreement for a single rent, payable in respect of two previously
existing holdings, can only take effect as a deemed surrender and regrant as
the rent issues out of and is charged on all the land and cannot be
apportioned. He contends that agreements to that effect were made in both 1982
and 1985. He relies on the problems which would otherwise arise if the landlord
seeks to exercise
by notice to quit which by reason of the failure of the tenant to comply fully
with a prior notice to pay the rent is for that reason incontestable under Case
D of Schedule 3 to the Agricultural Holdings Act 1986, or seeks to distrain for
part of the rent.
Counsel for
the tenant’s riposte is that if necessary the rent may be apportioned at common
law where for any reason it is necessary to do so and in equity as part of its
jurisdiction to grant relief against forfeiture if there is occasion to do so.
He accepts that if there is no good reason to apportion the rent then the
landlord may exercise its remedies for non-payment over both the blue and the
green land.
I propose to
consider first the principle by which the court determines whether to deem a
surrender and regrant. There are few authorities on the subject. The first is Baker
v Merckel [1960] 1 QB 657. In that case the parties had agreed that an
existing lease for a term of seven years should be varied by the grant of an
option to the tenant to extend the term by a further four years. Sellers LJ, at
p665, recognised that not every variation of an existing lease involved a
deemed surrender and regrant, but that it was, in that case, a substantial
alteration of a character to which the rule applied. Pearce LJ, with whom all
the other members of the court agreed, said at p667:
Although the
implication of surrender and fresh grant is a fiction based on estoppel, and,
as Clauson J said in In re Bruce, Brudenell v Brudenell, it is
not to be encouraged or extended, it is not easy on the authorities to avoid
the implication of a surrender and fresh grant where such a change is made in
the term, namely, a variation of a term of seven years to a term of seven years
with an option for a further four years. But I agree with the judge when he
said that, if it be necessary that the variation of the existing term could
only operate as a surrender of the original lease and the grant of a new lease,
he should feel no difficulty in saying that the effect of the supplemental deed
was to work a surrender of the original lease and the grant of a new lease for
seven years or, on the happening of a specified event, for 11 years. So to hold
would, in my view, carry out the intention of the parties as it appears from
the document.
That case
clearly establishes that the fiction is to be applied only where the intention
of the parties cannot be implemented without it, but does not indicate the
circumstances where that is so further than an increase in the existing term.
Thus it has no direct application to this case.
The only other
authority of assistance is the case to which the judge referred, namely Jenkin
R Lewis & Son Ltd v Kerman [1971] Ch 477. That case concerned
two successive increases in rent agreed between the assignee of the original
landlord and the tenant of an agricultural holding. The question was whether
they, or one of them, gave rise to a deemed surrender and regrant for if
neither did the notice to quit given to the tenant was valid. Like the judge I
think that it is useful to quote in full the passage in the judgment of Russell
LJ starting at p496B, which clearly explains the principle. He said:
The question
then arises whether it is correct in law to say that a mere agreement by
landlord and tenant for an increase in the rent reserved on a letting
necessarily involves a new letting despite their contrary intentions.
If a tenant
holding land under a lease accepts a new lease of the same land from his
landlord he is taken to have surrendered his original lease immediately before
he accepts the new one. The landlord had no power to grant the new lease except
on the footing that the old lease is surrendered and the tenant by accepting
the new lease is estopped from denying the surrender of the old one. This
‘surrender by operation of law’ takes effect whether or not the parties to the
new lease intend it to take effect. Moreover, even if there is no express grant
of a new lease the old lease will be surrendered by operation of law if the
arrangements made between the landlord and the tenant are such as can only be
carried out so as to achieve the result which they have in mind if a new
tenancy is in fact created.
If, for
example, a tenant holds a lease of land for 20 years and he and his landlord
wish the period of his right to hold the land to be extended by a further 20
years, their object can be achieved by the landlord granting the tenant a
reversionary lease to take effect on the expiry of the existing lease, but if
they wish a single term for the extended period to come into being that result
can only be achieved if the existing term is surrendered and a new term is
created. It is not possible simply to convert the existing estate in the land
into a different estate by adding more years to it, and even if the parties use
words which indicate that this is what they wished to achieve the law will
achieve the result at which they are aiming in the only way in which it can,
namely by implying a fresh lease for the longer period and a surrender of the
old lease: see In re Savile Settled Estates [1931] 2 Ch 210; Baker
v Merckel [1960] 1 QB 657.
Again, if the
parties wish further adjoining land to be added to the existing holding and the
rent to be increased the transaction can, of course, be carried out by means of
a separate lease of this fresh land at a separate rent. But if they wish there
to be a single lease of all the land at an aggregate rent the transaction may
well amount in law to the granting of a new lease preceded by a surrender by
operation of law of the old. However they express themselves it may well be
that they cannot convert a rent of £x issuing out of the original land into a
rent of £x + £y issuing out of the aggregate land. The question which has been
debated before us is whether it is possible simply to increase a rent of £x
issuing out of land into a rent of £x + £y issuing out of the same land without
there being contemplation of law the grant of a new lease preceded by a
surrender by operation of law of the old. Viewing the matter apart from
authority it is difficult to see why the fiction of a new lease and a surrender
by operation of law should be necessary in this case; for by simply increasing
the amount of the rent and providing that the additional rent shall be annexed
to the reversion, one is not altering the nature of the pre-existing item of
property. Further, if one looks to convenience it would be most unfortunate if
in these days, when arrangements for increase of rent are so common, the
increase should be taken to involve of necessity a legal fiction which, though
in most cases it may do no harm, may in some cases have serious repercussions.
Unless therefore constrained by authority so to hold we ought not to accept the
defendant’s contentions.
He concluded
that he was not so constrained by authority.
It is plain
from that passage that, as in Baker v Merckel, the fiction is not
to be applied unless it is the only way in which the intention of the parties
may be achieved. But it goes further in indicating that such cases are confined
to those which involve ‘altering the nature of the pre-existing item of
property’. However, it leaves open the case in which the parties wish to
convert a rent of £x issuing out of the original land into a rent of £x + £y
issuing out of the original land and further land which is added to the
original holding.
For the
tenant, it is submitted that the principle does not apply as this is not a case
of the addition of land not formerly let. It is pointed out, rightly, that the
tenant enjoyed a tenancy from year to year in both the blue and the green land
before the agreement of October 10 1985. Thus, it is submitted this is
analogous to the case of an increase in rent which may be achieved without a
deemed surrender and regrant. For the landlord it is submitted that the fiction
must apply as the total increased rent by virtue of the agreement issues from
and is charged on all the blue and green land.
I prefer the
submissions for the tenant. The items of property to which Russell LJ referred
are in this case the legal estate in the blue and the green land held by the
tenant. That was and is, in each case, a term of years absolute within section
1(1)(b) of the Law of Property 1925 because it falls within the
definition of that expression contained in section 205(1)(xxvii) as a term from
year to year. Neither that definition nor the common law required such a term
of years to be at a rent at all cf Knights Case (1588) 5 Co Rep 55. Thus
the items of property strictly regarded were unaltered by the agreements of
1982 and 1985. It is not disputed that the rent for each might be increased to
the agreed level without involving a deemed surrender and regrant. I do not see
why, in principle, a surrender and regrant must be deemed to occur merely
because the increased rent now issues out of the blue and the green land
together rather than separately.
The
consequence of two tenancies but one aggregate rent is that the tenant has to
pay in full if he is to avoid the risk of forfeiture or termination of both of
them. It may be that if the landlord chose to forfeit or terminate one only of
the tenancies then it would be possible, at common law, to apportion the single
rent on the division of the ownership of the separate tenancies cf
Woodfall’s Law of Landlord and Tenant para 7.119. Likewise if he sought to
forfeit both for a failure to pay all the single rent then the court would have
jurisdiction to relieve against forfeiture in respect of the blue or the green
land as the case might be cf GMS Syndicate Ltd v Gary Elliott Ltd
[1982] Ch 1 at p13.
accepting that the agreements made can only be implemented by deeming a
surrender and regrant.
Finally, I
turn to the agreements themselves. Counsel for the landlord relied on the
agreement of 1982 in addition to that of 1985. The former was not mentioned by
the judge or in the notice of appeal, but no objection was taken on that
account. In the view I take, it is only necessary to consider the 1985
agreement for if that did not achieve a single tenancy the 1982 agreement could
not have done so.
As I have
already indicated, in my view, the reference to ‘the within written agreement’
in the landlord’s standard form must be a reference to the tenancy agreements
for both the blue and the green land. The fact that the reference is in the
singular is immaterial given section 61 of the Law of Property Act 1925 and the
manifest intention to refer to the agreements relating to the 242.496 acres of
land in question. Thus, para (2) provides expressly that each proviso for
re-entry is exercisable in respect of non-payment of the increased rent and
pursuant to para (3) all the terms of both agreements remain in full force and
effect subject to the variation as to the rent. It seems to me, to be a
necessary consequence that each contract of tenancy, as defined in section
1(5), has continued so that the blue and the green land remain separate
holdings as defined in section 1(1).
Accordingly I
disagree with the judge. I do not think that the result the parties sought to
achieve was ‘a single lease of all the land at an aggregate rent’. They sought
to provide for a single rent, but the continuation of two otherwise separate
tenancies. That result may be achieved otherwise than by a surrender and
regrant so that there is no occasion to deem one. Thus in respect of the answer
to the first question posed by the arbitrator I would allow the appeal and
answer question (1)(i) in sense (a). In consequence question 1(ii) does not
arise.
As a
preliminary to the second and third questions counsel for the tenant advanced
arguments before the judge and this court as to the nature of the arbitration
required by section 12 and Schedule 2 to the Agricultural Holdings Act 1986.
His submission is that the letting assumed for the purpose of ascertaining the
rent payable is an open market letting with vacant possession. This was
rejected by the judge. At p16E of the transcript he said:
In my
judgment, the legislative intention was by section 12(2) and Schedule 2 to
provide a complete statutory code to fixed (sic) rent and that code
should be applied without addition, or, I add, subtraction.
Later, at p17
he said:
What is
relevant in this particular case is this particular statutory formula, and that
requires an objective approach to the fixing of the rent. It is a barren
exercise to compare that with the open market; such a comparison is not relevant
and it takes the arbitrator’s eye and the court’s eye off the ball.
The judge’s
approach was criticised by counsel for the tenant on the basis that it would
permit the arbitrator to produce any figure he liked provided that he took only
relevant matters into account. It was submitted that the requirement that the
rent ‘shall be the rent at which the holding might reasonably be expected to be
let by a prudent and willing landlord to a prudent and willing tenant’
necessarily required an open market approach to be varied if at all by the
subsequent provisions of the Schedule.
Counsel for
the landlord accepted that those words pointed to a market and required the
arbitrator to use his knowledge of the market. But he did not accept that the
Schedule required what is known as an open market valuation.
For my part I
think that the judge’s approach was right. The predecessor of Schedule 2, para
1, was section 8 of the Agricultural Holdings Act 1948. Originally it contained
no reference to open market. It was amended by section 2 of the Agriculture Act
1958 so as to require the rent to be that at which ‘having regard to the terms
of the tenancy (other than those relating to rent) the holding might be
reasonably expected to be let in the open market by a willing landlord to a
willing tenant, there being disregarded …’. That formula was amended in turn by
the Agricultural Holdings Act 1984, section 1, so as to exclude the reference
to the open market and subsequently consolidated into the Agricultural Holdings
Act 1986, Schedule 2. There is no reason to suppose that such exclusion was not
intended to have effect.
But in any
event the use of the expression ‘open market valuation’ is only convenient
shorthand for the various assumptions to be made in carrying out such a valuation.
If those assumptions are different to those required by Schedule 2 then to
describe that valuation as an open market valuation is likely to lead to the
adoption of the wrong assumptions. If the assumptions are the same then the
description adds nothing. I suspect the problem has arisen because those
required to operate the Schedule have taken the judge too literally. In stating
that the code should be applied without addition or subtraction he did not mean
assumptions could not be implied on the basis of well known principles of
statutory construction; rather that the question of whether that assumption
should be implied must be answered directly from a consideration of the words
used in the Schedule not indirectly by attaching a label to the Schedule as a
whole.
I turn then to
the second question which asks to what extent, if at all, the management
agreement is relevant to the determination of the rent. The judge considered
that the arbitrator was entitled to have regard to it and that the extent to
which he paid regard to it was a matter for him. His conclusion was on the
basis that non-farming income was a relevant factor included in the statutory
formula in addition to the farming income referred to in para 1(2).
Counsel for
the tenant submits that the judge was wrong. He claims that an agreement
entered into by the individual tenant cannot be relevant when the formula, in
para 1(1) requires consideration of a hypothetical prudent and willing tenant
and, in para 3(a) requires the occupation of that tenant to be
disregarded when the agreement is personal to the tenant and will terminate
with his tenancy. He submits, in the alternative, that if its consideration is
required by the statutory formula the arbitrator may not consider it unless it
would be known to the hypothetical prudent and willing tenant. For this purpose
he relies on Electricity Supply Nominees Ltd v London Clubs Ltd
[1988] 2 EGLR 152 for the proposition that if the arbitrator is concerned with
how the market would have assessed earning capacity then the arbitrator may
only take account of information which would have been available to the market.
I do not
accept these submissions. In my view, the answer given by the judge was right
though I would add to it a reference to the principles stated in the judgments
of this court. The designation of the land as an SSSI has the effect of
restricting or delaying to the point of restriction the agricultural operations
which may be carried out on it. The designation is a local land charge and therefore
known to all those concerned in the market. The market also knows that those
disadvantages and restrictions, which may well affect the productive capacity
of the land and its related earning capacity, may be offset by compensation
payments made to a tenant of the holding as part of a management agreement. It
seems to me that the existence of such offset and its likely amount must be
relevant factors for the purposes of the statutory formula. Were it otherwise
one side of the equation would be considered, but not the other. Given that the
ability to restrict normal agricultural operations and the existence of
compensation payments are relevant factors, then this management agreement may
be the best evidence of the stringency of the restrictions likely to face the
hypothetical tenant and the amount of the offset available to compensate for
them. Thus it must be a relevant document for the arbitrator to consider on
that basis. No doubt one or other of the parties will submit to him that it
should not be followed because of other aspects of the case, as no doubt they
will do with rent comparables. It will be a matter for the arbitrator to
determine the weight (if any) to be attached to the management agreement. As
the matter to be determined is the equivalent of actual earning capacity, not
how the market would have seen it, the fact if it be one that the management
agreement, and the details it contains are normally confidential, is
immaterial. I would
second question.
The third and
last question is that of marriage value, as it has been labelled. The judge
concluded that it is a relevant factor which the arbitrator is entitled to
investigate and give such weight as he sees fit regardless of whether the land
is farmed by the tenant or a third party. The tenant submits that the judge was
wrong. In so far as he thought that the arbitrator might consider other land
occupied by the tenant that was contrary to the requirement in para 3(a)
that his occupation of the subject holding should be disregarded. In so far as
he thought that other land occupied by third parties might be considered this
was contrary to the assumption that the tenant of the subject holding was
hypothetical and the hypothesis did not import any assumption of occupation of
other land. He relied on Schedule 2, para 1(3)(b) as indicating that
marriage value must be excluded in relation to the subject holding if it is to
be excluded from the rent of comparables.
This last
point was based on the proposition that the rental valuation of the subject
holding must exclude any premium based on scarcity and that as the only words
capable of achieving that result are those contained in Schedule 2, para 1(3)(a)
the same outcome must result from the provisions of para 1(3)(b).
Reliance was placed on the judgment of Oliver LJ in 99 Bishopsgate Ltd
v Prudential Assurance Co Ltd [1985] 1 EGLR 72 at p75 to the effect that
if an assumption, in that case as to vacant possession, is to be made or
excluded at one stage of the assessment of a fair rent it should likewise be
made or excluded at others. We were also referred to a dissertation in Muir
Watt on Agricultural Holdings 13th ed pp50 to 53 on whether either or
both scarcity and marriage value are excluded.
This case is
not concerned with whether scarcity (whether of demand or supply) is to be
considered or excluded in the assessment of the rent for the subject holding,
that question must await determination in a case in which it is raised. So far
as marriage value is concerned I do not think that the provisions of para 1(3)(b),
which in terms relate to the exclusion of marriage value from a comparable, can
be used to exclude such value from the assessment of the rent for the subject
holding. That subparagraph does not in terms apply; and there is every reason
to exclude marriage value from the former and not the latter so as to avoid
potential double counting.
Thus one is
thrown back to the terms of para 1(1). The ‘character and situation of the
holding (including the locality in which it is situated)’ plainly bring in
consideration of the fact that the subject holdings are bare land less in area
than what might be considered as an economic unit yet potentially attractive on
that account to a farmer seeking to expand. Such a farmer is a hypothetical
figure included in the range of prudent and willing tenants that the arbitrator
is required to consider. In my view, it is plain that marriage value is a
relevant factor for the consideration of the arbitrator. As with all the
relevant factors the weight (if any) to be attached to it is a matter for him.
I would dismiss the appeal against the judge’s conclusion on the third question
also and affirm the form of the answer he has given.
Before the judge
and this court it was suggested by the landlord that assistance might be
derived from a consideration of passages in Hansard reporting statements
of the Minister of State, Ministry of Agriculture, Fisheries and Food made on
April 3 1984 during the report stage of the 1984 Act. The judge did not
consider that the conditions for a reference to Hansard were satisfied
for he did not find that the legislation under consideration in this case to be
either ambiguous, or obscure or productive of absurdity cf Pepper
v Hart [1993] AC 593 at p640. In case he was wrong on that point he did
look at the passages in question and found them to confirm his interpretation
of the legislation.
I agree that
the legislation in question is neither ambiguous, obscure nor potentially
productive of absurdity. Thus, in my view, there is no occasion to refer to Hansard
and I have not done so.
In summary, I
would allow the appeal on the first question set aside the declarations made by
the judge and answer that question in sense (a), dismiss the appeal on the
second and third questions, but amend the answer to question 2 in the manner I
have indicated.
Agreeing, Evans LJ said: I agree with the
judgment of Morritt LJ. I add only the following on the first question where we
differ from the learned judge.
The underlying
principles as I understand them are these. A lease agreement creates for the
tenant an interest in the land. The nature of that interest is defined by law.
If the agreement is varied then the changed terms may create a new and
different interest, but they do not necessarily do so. That is because the
scope of the interest is a matter of law. So, if the area of land covered by
the agreement is increased and the parties intend that the whole area shall
form part of one interest, then the former interest is extinguished and the new
one takes its place. This is the process known as ‘surrender and re-grant’
which although described as a legal fiction is more accurately regarded as the
straightforward application of these rules of law. There cannot simultaneously
be two inconsistent interests in the same land. Similarly, if the term of the
lease is extended: Baker v Merckel [1960] 1 QB 657. But the interest is not
changed if the only alteration is to the amount of the rent: Jenkin R Lewis
& Son Ltd v Kerman [1971] Ch 477.
The issue in
the present case is whether the two tenancies of separate parcels of land were
replaced by a single tenancy of the whole, either in 1982 or in 1985. It cannot
be doubted that if the parties intended that they should be merged into a
single tenancy in this way, then there was an implied surrender and regrant
when the existing tenancies were replaced by the new. But whether that was
their intention depends upon what they agreed. This therefore, in my judgment,
is a question of construction of their agreement and a question of fact.
All that was
expressly agreed in 1982 was that a single sum should be paid as the annual
rent for the combined acreage. All other terms etc, of the existing agreement
or agreements were to remain unchanged. Applying normal principles of
construction, I cannot see how it can be argued that by this agreement the
parties indicated that they intended that the existing interests would be
wholly extinguished and replaced by a new one.
The conclusion
might follow, however, if as a matter of law the agreement to pay a single rent
for both properties had the effect of merging the two interests, whether the
parties intended it or not. I agree with Moritt LJ’s reasons for holding that
it does not. Authorities were cited to us as to the circumstances in which the
rent payable for a single holding might be apportioned between different
parts of the property. But this approach, in my judgment, begs the question,
because it assumes that a single holding has come into existence. The question
here is whether one did.
Whether the
single rent which was agreed can be apportioned between the two properties, if
they remained separate holdings is, in my judgment, a question of contract
rather than of law. There is no objection in principle to the court finding
what is a reasonable apportionment, if it becomes necessary to do so in the
absence of agreement. Then it is a matter of evidence and one example will
suffice. Suppose the evidence was that the total payment was made on a basis
which had been calculated as, say, a percentage uplift on each of the existing
rents. A single payment of the total sum in these circumstances would provide
no basis for inferring that the two holdings were intended to be merged. The
evidence would be stronger and the position clearer if the parties had
calculated the two rents separately and the tenant had then made a single
payment which the landlord accepted as such.
For these
reasons, it is not inevitable as a matter of law that a single payment in
respect of the combined acreage must be regarded as creating a new single
interest in the whole of the land. Whether such an interest was created depends
upon what was agreed, taking all relevant evidence into account.
Here, although
there is no evidence as to how the amount of the single payment was calculated,
there is no other evidence that the parties intended to merge the two interests
into one. The 1985 agreement which clearly was intended to be contractually
binding contains an express reservation of all other terms, etc. It matters
not, in
agreement’, when there was no such reference, is interpreted as meaning the existing agreements or
not. If it was, then it can be construed as a reference to both agreements. If
it was not, then the reference is meaningless and there is no express agreement
apart from that relating to the single payment of rent. That, in my judgment,
for the reasons given above does not of itself give rise to an inference the
two interests were intended to be merged into one.
If such an
intention was demonstrated then there would be no objection in principle to
holding that the two parcels of land although held in a single tenancy were
each held upon different terms, these being found in the former separate
leases. But that, in my view, was not the case here.
Neill LJ also
agreed and did not add anything.
Orders
accordingly.
