Agricultural holding — Forfeiture clause in lease — Whether forfeiture clause void under section 65 of Agricultural Holdings Act 1948 because it did not provide for the right of re-entry to be exercisable only after notice of more than one month — Principle of Coates v Diment — Lease of land to company engaged in intensive pig-rearing — Alleged breaches of obligations under tenancy by, inter alia, infestation by weeds — Notice under section 146 of Law of Property Act 1925 with schedule of breaches and requirement that the breaches should be remedied within six months — Subsequent issue of writ complaining that breaches had not been remedied and asking for possession — Held that the forfeiture clause was void as providing for re-entry without notice, thus frustrating the possible rights of the tenants to give the necessary notices under section 34(2) or section 56 of the 1948 Act — Held also that in any case the time of six months allowed to remedy the breaches of covenant was too short to be reasonable — Tenants’ contentions upheld
In this action
the plaintiffs, Mr and Mrs Parry, who had granted a lease of agricultural land,
Venus Bank Farm, Minsterley, near Shrewsbury, to the defendants, Million Pigs
Ltd, claimed possession, mesne profits and other remedies on the ground that,
as a result of the defendants’ breaches of obligations and a notice under
section 146 of the Law of Property Act 1925 which had not been complied with,
the lease had been forfeited.
M Lewis-Jones
(instructed by Harry W Hughes & Son, of Shrewsbury) appeared on behalf of
the plaintiffs; R W Moxon Browne (instructed by Evershed & Tomkinson, of
Birmingham) represented the defendants.
Giving
judgment, EWBANK J said: In the 1960s Mr and Mrs Parry senior bought four
farms. They amalgamated them. They were what have been described as high
banking farms. They created out of what they had bought a farm called Venus
Bank Farm with its farmhouse and something of the order of 300 acres. The
condition of the land at the time that they bought it was not particularly good
and they did a great deal of work in draining, reseeding, liming, slagging and
fencing. They got grants for some of the work and they planted shelter belts of
trees. In about 1970 they built a 20,000-gallon reservoir, so that from that
time there was water in every field, either from the reservoir or from the
brooks. About the same time they put up a large cowhouse with room for 100
cows. By about 1970 this was a well-designed and maintained farm but the land
itself was not of high quality and this was a matter of some concern to Mr and
Mrs Parry.
In about 1971
a company was incorporated called Million Pigs Ltd. Mr Wells and his brother
became directors. It was a company which was going to be involved in intensive
pig-rearing. In the area of Venus Bank Farm there was a dairy, which was
prepared to provide free whey for the pigs and so Mr Wells and his brother
looked around for land. The process in intensive pig-rearing is that pigs are
in a piggery. Whey is in tanks at one end and is fed to the pigs. Slurry comes
out of the other end. Mr and Mrs Parry when approached thought that an
intensive application of slurry over a number of years would bring good heart
into their land and accordingly it suited both the company and the Parrys to
enter into a 21-year lease of the land. That lease was dated November 25 1972.
The 21 years
was given because the Wells brothers required some security which they could
put up for a loan for the buildings that they were going to erect.
Under clause 4
of the tenancy the tenants agreed in subsection 6 that they would carry out all
repairs and maintenance to the farm-house and farm buildings, to the
satisfaction of the landlord, also to the roads, hedges and fences, ditches,
drains, culverts and water mains hydrants and dam. Under subclause 8 they
agreed to cultivate the land in good and husbandlike manner so as not to injure
or deteriorate the same. Under subclause 9 they agreed not without written
consent of the landlord to plough any of the land and they agreed to cut and
destroy all thistles and other weeds in proper season and also to keep the
pasture-land clear of unspread manure, mole hills, ant banks and properly
fertilise the ground. Under paragraph 13 they agreed, and this was fundamental
to the tenancy, that they would distribute all the slurry from the pig unit
over the land. Under clause 7 there was an agreement that if there be any
breach of any of the obligations set out in the tenancy then it would be lawful
for the landlords to re-enter upon the farm and determine the agreement. This
forfeiture clause plays a large part in the case which is before me because in
due course the landlords asserted that there had been a forfeiture under that
clause. The tenants now say that the forfeiture clause is void. That is one of
the matters which I have to deal with in due course.
The company
moved in on the land. They erected a piggery. The cost of the piggery was some
£270,000. I have seen photographs of it and a very impressive place it seems to
be. The Wells brothers put in £100,000 and the balance came from the bank, from
the Agricultural Credit and from 40 per cent subsidy. In due course, with the
consent of the landlords, the tenants let out the rest of the land for grazing.
Mr A A Hector
is a Fellow of the Royal Institution of Chartered Surveyors, a partner in Burd
& Evans, of Shrewsbury, and has been employed by the plaintiffs as an
adviser over a number of years. He first visited the farm in the spring of 1975
and at that time the pig unit was not completed. He noticed then, he told me,
an excess of weeds — ‘a spread of weeds rampant’ — and he also noticed the
ditches were not in a satisfactory condition. He says that in 1975 the land was
not in good heart.
Mr Stokes was
employed in the piggery at the time and he himself has been a farmer for 35
years. He is not qualified in the way Mr Hector is. He took a different view
and thought there had been a vast improvement in the land.
About 1975 Mr
and Mrs Parry senior went to Australia and their son, Roger Parry, has had
their power of attorney and has been acting on their behalf. He became
concerned about the land and in June 1977 Mr Hector was instructed to inspect
the land again. On June 16 he signed a schedule of the breaches which he
asserted had taken place in the obligations which the tenants had taken on
under the tenancy and on August 19 1977 a notice under section 146 of the Law
of Property Act was issued. That notice sets out three of the covenants that I
have already read and then annexes a schedule of alleged breaches and requires
the tenants within six months to
solicitors. The schedule which was sent with the section 146 notice consists of
something over 100 items. A number of items concern fields which are said to
have weeds of one sort or another on them, and one of the problems which arises
in this case is due to the timelag which took place in issuing the notice,
because the schedule, which is dated August 19, is based on the inspection Mr
Hector made in June. Some of the weeds which Mr Hector had seen in June had
already been dealt with by the time that the notice was issued. The notice
required the weeds to be eradicated.
I have been
given evidence about the methods of eradication of weeds. There are apparently
three general methods. One is the application of a systemic weedkiller. This
needs to be done at the time of rapid growth of the weeds in the spring or the
early summer. The second method is that of mowing the weeds before they seed
and that needs to be done in June or July. The third method is the application
of a substance like sodium chlorate which kills all growth where it is applied.
This method of applying sodium chlorate has been recommended by Mr Hector in
the witness box but by none of the other expert witnesses that I have heard. It
is not a selective method. It kills everything and stops all growth for a
period of months. It can be applied at any time, but the weight of evidence
before me quite clearly indicates that it is not an appropriate weedkiller for
the type of weeds that we are dealing with here. It follows that in so far as
the weeds were required to be eradicated and had not already been eradicated
the appropriate time to do it with any effect, unless sodium chlorate is to be
used, was the following spring or early summer.
Shortly before
the inspection made by Mr Hector there had been trouble with the company. I was
told that the trouble was basically political and that the company had run into
problems because of the competition from Danish Bacon. It does not really
matter what the trouble was; the effect was that the bank who had lent money
appointed a receiver and that was done on March 11 1977. Mr G E Holmes on
behalf of the bank is also a chartered surveyor. He comes from Shrewsbury and
is nominated by the Lord Chancellor to assist in agricultural rental decisions.
He valued the tenant-right at about £70,000 to £75,000.
Since the
appointment of the receiver the pig unit has been empty.
Mr Holmes was
asked by the receiver to inspect the farm after the section 146 notice had been
issued. He inspected the farm, I suppose, towards the end of September 1977 and
he wrote a letter, which was put in evidence, dated October 6 1977. His letter
deals in detail with the schedule which had been issued. One of the matters
complained of in the schedule was that certain buildings were becoming derelict
and he says in relation to some of the buildings ‘It is obvious from even the
most cursory inspection that the greatest part of the dilapidations occurred
before the commencement of the lease and in any event from an agricultural
point of view the building is redundant’. In relation to weeds which existed at
the time that he was examining the farm, he says ‘I consider that the only
suitable time to spray this type of infestation is the spring. It is not
possible to comply with this item of the schedule during the currency of the
notice’. In relation to other items which suggest that particular fields are
infested with weeds, he says that the condition is satisfactory. That arises
because, as I have mentioned already, some of the fields had been dealt with
between Mr Hector’s examination and the section 146 notice. Mr Holmes says that
the claims are spurious and he asserts that spurious claims are made in
relation to 10 fields. I do not think that spurious is the correct word at all.
The fields had already been dealt with. That I think is what Mr Holmes was
meaning. The landlords had put in a dilapidations claim of £10,842 and Mr
Holmes says in his letter that the claim ought properly to be put at £4,264.
On December 22
1977 the receiver made a list of the work which was done, the work which was
still to do and the work which he asserted was not his responsibility. Those
schedules were sent with a letter of January 6 1978. It reads:
We must
apologise on the receiver’s behalf for the length of time taken to investigate
the situation fully and take expert advice on the actual conditions specified
in the schedule.
It is said in
the sixth paragraph that:
you
appreciate in view of the nature of farmwork this is the wrong time of year for
certain items of remedial work to be carried out.
They said they
are reserving their rights to make a further representation.
The reply to
that was that there was little purpose in instigating any check; the
appropriate time for inspection would be the expiration of the six months’
period. It is the liability, they say, of the tenants to carry out all repairs
and maintenance; that is to say, regardless of the condition of any particular
items when the lease started.
That is a
reference to the repairing covenant and I would have thought it clearly did not
represent the true position. I do not think that it was their liability to
carry out all repairs regardless of the condition of any particular item when
the lease was granted and it has not been submitted to me on behalf of the
landlords that that was their liability. It seems to me that this is the first
sign of an unreasonable and intransigent attitude on behalf of the plaintiffs.
It was wrong in law and I think also probably an indication of the attitude
that the plaintiffs were adopting.
In reply to
that the receiver says that work has been proceeding. Progress had been made
difficult because of the extremely bad weather during the past six weeks. In
addition a number of the items, the tenants say, are not materially worse now
than when the lease was granted. Then they make mention that the receiver is
hoping to assign the lease to a firm called Robinson Wiley Ltd (pig breeders)
and then they say that they want to continue to let out the grazing.
That was
replied to on February 24 1978. No accommodation is given to the receiver and
the letter reads:
The breaches
of convenant set out in the schedule were not remedied within the period of six
months mentioned in the notice. Our clients have therefore forfeited the lease
and have instructed us to issue proceedings for possession which we shall do on
Monday next, February 27.
The writ was issued
on March 3 1978. The writ has been amended and so has the defence. The writ
refers to the covenants which I have referred to, to the section 146 notice,
the fact that six months have expired as given on the notice but that the
defendants have failed to remedy the breaches and the lease has been forfeit.
The plaintiffs ask for possession and rent and mesne profits and they ask in
effect for the money received from the grazing to be paid to them.
The defence
was filed on April 4 1978 and asserts that the forfeiture clause in the lease
is void, that the proceedings taken by the plaintiffs were premature in that
having regard to the nature of the breaches a reasonable period would have been
18 months rather than six months and a counterclaim for relief from forfeiture
on the grounds of the investment in the premises, the length of the lease and
the fact that most of the breaches have been remedied.
Meanwhile on
October 31 1978 the receiver entered into a conditional sale of the lease to
the firm referred to in the letter, Robinson Wiley, for a purchase price of
£100,000. That conditional sale is hanging fire, as I understand it, pending
these proceedings. The receiver has continued to let out the grazing despite
the landlords’ refusal to consent and has received the rents from the grazing,
and it is part of the plaintiffs’ case that the receiver has had plenty of
money with which to remedy the breaches as a result of the rent from the
grazing which he has received.
I propose to
deal first of all with the evidence relating to what would be a reasonable time
to require these breaches to be put right. Roger Parry says that all these
items could have been done by December 1977 and he points out that this was not
a case of a working farmer having to deal with these matters and trying to run
the farm at the same time, but a case of a bank receiver occupying a farm where
no operation was being carried on and with sufficient money from the grazing
rents to deal with it. Mr Hector takes the same view and he goes on to say that
the breaches were indeed as set out in the schedule which he prepared and that
even in February 1980 the farm could not be said to be in good heart and for
his part he would certainly issue a certificate of bad husbandry.
Mr P H
Joseland gave evidence; he is also a Fellow of the Royal Institution of
Chartered Surveyors and he is on the Lord Chancellor’s panel of arbitrators for
appointments by the Ministry of Agriculture. He went to the farm in February
1980. He thought the general condition was good, above average. He was
satisfied with the heart of the land. When he went there was not much evidence
of any weeds or thistles. He certainly would not have issued a certificate of
bad husbandry. He thought that sodium chlorate as a weed-killer was not used in
farming and his evidence was that six months was not a reasonable period of
time to expect the breaches which were set out in the schedule to be dealt
with, but that a reasonable time would have been 12 months. Mr Holmes also took
the view that six months’ notice was insufficient; he thought 12 months would
have been reasonable. He thought the farm was now in good heart. That is
contrary to the evidence of Mr Hector. He also thought that soldium chlorate
was unsuitable and he thought that there was no chance at all of anyone issuing
a certificate of bad husbandry now or in 1977. Mr Wells gave evidence. He said
that he had no axe to grind, but I am not at all sure that that is necessarily
correct. He thought that the land was not going down.
The first submission
made on behalf of the defendants is that the forfeiture clause is void in law.
The argument is put this way. Under section 56 of the Agricultural Holdings Act
1948, where there is a system of high farming, where a tenant can show that by
the continuous adoption of a system of farming which has been more beneficial
to the land and the value of the holding has been increased during the tenancy,
the tenant is entitled on termination of the tenancy to obtain compensation of
an amount equal to the increase in value. But compensation cannot be recovered
unless the tenant has not later than one month before the termination of the
tenancy given the landlord notice in writing. It is said that the forfeiture
clause in this tenancy does not give the tenant any opportunity to make that
application. It is not said that this tenant necessarily had the right to make
the application, but it is said that he might have had the right to make the
application and that the forfeiture clause prevents his doing so.
It is said
that, under section 65(1):
a tenant . .
. shall be entitled to compensation in accordance with
the provisions
of this Act
. . . and
shall be so entitled notwithstanding any agreement to the contrary.
I have been
referred to Coates v Diment [1951] 1 All ER 890. The facts are
different but in the judgment, at p 897, Streatfeild J said:
Any provision
of an agreement which deprives or even curtails, or which necessarily results
in deprivation or curtailment of, any right to compensation under this Act
and he was
referring to the 1948 Act there
must, so it
seems to me, be unenforceable. Here clause 1 of the agreement, by giving the
landlord power to re-enter at any time without notice, would prevent the tenant
from setting in motion the statutory machinery to obtain higher compensation
under section 34(2) or compensation under section 56 by giving one month’s
notice in writing before the termination of the tenancy, by virtue of which,
‘and not otherwise’, he is entitled to claim such compensation, but by section
65 he is entitled to it as of statutory right if he gives the requisite notices
notwithstanding any agreement to the contrary. Counsel for the defendant points
out that there are only four conceivable results of section 65 in relation to
clause 1:
and here I
must interpolate that Mr Moxon Browne said that the same results flow from the
consideration of the forfeiture clause in this case
(i) That the section renders the clause void, as
the defendant contends. (ii) That the landlord is entitled to possession
without notice, and the tenant cannot get compensation. This is in accordance
with the clause, but directly contrary to the section. (iii) That the landlord
is entitled to possession without notice, and the tenant can get compensation
without serving notices. This is contrary to both the clause and the section.
(iv) That the landlord is entitled to possession on giving more than one
month’s notice. This is in accordance with the section, but contrary to the
clause, and, in any event, more than one month’s notice was not given. . . . In
my judgment,
he continues
. . . the
first alternative is correct.
that is that
the section of the Agricultural Holdings Act in this case renders the
forfeiture clause unenforceable because the landlord, under the forfeiture
clause, has an immediate right to re-enter.
Scammell
and Densham’s Law of Agricultural Holdings, on p
132 at the bottom, reads (having quoted Coates v Diment and Re
Disraeli’s Agreement):
In those
cases it was held that clauses giving a landlord a right to resume possession
of part for some non-agricultural purpose, either on demand or on notice too
short to enable the tenant to exercise a possible right under section 34 or
section 56 of the 1948 Act, were void as being in conflict with the provisions
against contracting out of the right to compensation. It would seem illogical
if the same principle were not to apply to forfeiture clauses. Accordingly,
when drafting such clauses it would be prudent to provide that the right to
forfeit should be exercisable on the expiry of, say, six weeks’ notice given by
the landlord.
I agree that
it is illogical and I hold that the same principle does apply to forfeiture
clauses. It is not only prudent but in my judgment essential that if a
forfeiture clause is to be valid there should be provision for the right to
forfeit to be exercisable on the expiry of notice of some period of more than
one month. I accordingly hold that the forfeiture clause is void.
That is
sufficient to dispose of this case, but in case I am wrong in the law I go on
to consider the facts. I have heard, as I have pointed out, the evidence of the
three experts and of the plaintiff and of Mr Wells. My conclusion on the
evidence is that Mr Parry and Mr Hector have become too involved in this case
for their evidence to be entirely reliable and I prefer the evidence of Mr
Joseland and Mr Holmes. I think the plaintiffs regarded the receivership and
the breaches and the failure of the piggery as an opportunity to get vacant
possession of the land and the piggery, but although there were a number of
breaches of covenant I have come to the clear conclusion that the time allowed
to remedy them was too short and that the proceedings were brought too early.
Twelve months in my judgment on the evidence would have been a reasonable time
to allow for these breaches to have been remedied.
I have been
addressed on the question of relief from forfeiture. Of course it does not
arise on my findings of fact, but I must say that if I had to consider the
question of relief I would have relieved the receiver from forfeiture on the
grounds of the large investment which has been made in the land, the length of
the lease remaining and the fact that at any rate by now most of the work has
been done. The outstanding matter is the barn, which has been progressively
getting more derelict. I have a photo of it in 1974 which shows small holes in
the roof and I have photos of it now which show large holes in the roof. Mr Wells
says that when he took the lease Mr Parry said that the outbuildings were going
to be knocked down and I am by no means convinced that this particular barn and
the nextdoor structure were intended to be kept up as part of the farm
buildings. I am by no means convinced that they were not intended to fall into
disuse and dereliction.
