by J Muir Watt
Over the past 12 months since the last article in the issue of September 2 1989, there have been a number of interesting agricultural cases. This article reviews the cases and their implications.
Note: The following decisions, briefly reported in Estates Gazette Case Summaries, will be fully reported in Estates Gazette in due course and discussed in a subsequent article:
Mann v Gardner [0] EGCS 79 (Surrender of building a change in holding, not fixed equipment, for the purpose of the time-limits for a rent arbitration) [1990]
Sparkes v Smart [0] EGCS 52 (Collusion between freeholder and tenant with a view to destroying subtenancy)
Rent valuation formula: section 12 and Schedule 2
Enfield London Borough v Pott
In this county court decision, to be reported shortly in Estates Gazette, Judge Bridges made some helpful comments when setting aside an arbitrator’s award. Although dealing with the rent valuation formula in Schedule 2 to the 1986 Act, he did not have occasion to express an opinion on the controversial question as to whether scarcity in the rent of the subject holding, as distinct from comparable holdings, has to be disregarded. He came very near to that question but was not required to go right into it. The judge’s criticisms may be briefly summarised as follows:
1 Relevance of earlier rent
The arbitrator in his award had said: “I disregard the evidence of the rent tendered in 1984 as any proper rent payable at that time, in view of the fact that the rent tendered included an element of scarcity value.” The judge held that the previous rent was a “relevant factor” within para 1(1) of Schedule 2 and that the arbitrator was wrong in disregarding evidence of it. The judge was, however, right to reject an argument that the previous rent was rent under a “comparable letting” within para 1(3). Para 1(3) refers, of course, to lettings of properties other than the subject holding.
2 Shop on holding
The arbitrator was held to be wrong in not making a clear finding as to whether a shop on the holding was a tenant’s improvement or a landlord’s fixture. The shop was a “relevant factor” in the broad sense to take into account in determining the rent, but it was wrong to take it into account under the specific heading of “productive capacity”.
3 “Productive capacity” and “related earning capacity”
The arbitrator was under some misconception as to correct use of the notions of “productive capacity” and “related earning capacity” in para 1(2) of Schedule 2. These were only two among many other factors to be taken into account. The arbitrator’s misconception was reflected in statements that the productive capacity should produce a net profit before rent of slightly in excess of £12,000 per annum and that “the split should be based on 50% each to landlord and tenant”.
4 “Motivation of rental increases”
The arbitrator was in error in making a finding that there had been a failure by the landlord “to properly manage the holding by motivating rental increases at the appropriate time”. This finding apparently referred to a cottage which had been sublet, but in any case there was no such obligation on a landlord.
5 De minimis failings
Some other complaints were dismissed by the judge as de minimis. He made the useful point that the arbitrator is not required to cover every single matter which has been raised. He must deal with all important issues, of course, but there must be a sensible limit on the details referred to in his award. It would be helpful for him to draw up a check list of those points which he is obliged to cover.
Schedule 3: Cases in Part I
Case B: Bell v McCubbin and Agricultural Holdings (Amendment) Act 1990
The special interest of Bell v McCubbin [9] 2 EGLR 3; [1989] 40 EG 100 is that it gave rise to a Private Members’ Bill designed to overrule it. This became the Agricultural Holdings (Amendment) Act 1990. Before considering the effect of this amending legislation it is desirable to look at the decision. Why did it create so much excitement?
The factual background was that this particular agricultural holding had been added to one already held by the tenant from the same landlord. The result was that the tenant did not require to use the farmhouse on the additional land as he already had a farmhouse. He accordingly obtained a licence in his agreement allowing him to let the farmhouse which was surplus to his requirements. It was this farmhouse of which the landlord sought possession, relying on Case B.
The arbitrator decided that the landlord was in the right, but the county court judge reversed the decision. The Court of Appeal restored the view of the arbitrator. The court held that the facts fell plainly within Case B(b). The land was required for a non-agricultural use for which, otherwise than by virtue of the planning enactments, planning permission was not required. It was not required because there was no change of use; the existing use was residential, not agricultural, and the landlord’s proposed use was for a residential letting. The tenancy agreement enabled the landlord to resume possession for a non-agricultural use. It will, of course, be observed that the landlord was not proposing to deprive the tenant of his occupation of a farmhouse but merely of his source of income from the letting of the farmhouse to residents.
The reason for the drama was the unexpected use of Case B, which had hitherto been filed tidily away in people’s minds under the key words “Crown exemption”, “afforestation”, “Ministry of Agriculture v Jenkins”. The Bell v McCubbin decision, however, seemed to reveal sinister new possibilities of dispossession, provided that the tenancy agreement contained a resumption clause and the landlord did not need to make a change of use.
The Agricultural Holdings (Amendment) Act 1990, which received Royal Assent on June 29, seeks to remedy the situation by amendments which have proved to be somewhat more elaborate than was at first envisaged. The amendments affect both the wording of Case B in Part I of Schedule 3 to the 1986 Act and the Supplementary Provisions in Part II of the Schedule.
Case B as amended now reads as follows:
Case B
The notice to quit is given on the ground that the land is required for a use, other than for agriculture —
(a)for which permission has been granted on an application made under the enactments relating to town and country planning,
(b)for which permission under those enactments is granted by a general development order by reason only of the fact that the use is authorised by —
(i)a private or local Act,
(ii)an order approved by both Houses of Parliament, or
(iii)an order made under section 14 or 16 of the Harbours Act 1964
(c)for which any provision that–
(i)is contained in an Act, but
(ii)does not form part of the enactments relating to town and country planning, deems permission under these enactments to have been granted,
(d)which any such provision deems not to constitute development of the purposes of those enactments, or
(e)for which permission is not required under the enactments relating to town and country planning by reason only of Crown immunity and that fact is stated in the notice.
In Part II of Schedule 3 a new para 8A is inserted after the pre-existing para 8
8A–(1) For the purposes of Case B–
(a)”general development order” means an order under section 59 of the Town and Country Planning Act 1990 which is made as a general order, and
(b)”the enactments relating to town and country planning” means the planning Acts (as defined in section 336(1) of the Town and Country Planning Act 1990) and any enactment amending or replacing any of those Acts.
(2)In relation to any time before the commencement of Part III of the Town and Country Planning Act 1990, sub-paragraph
(1)above shall have effect as if–
(a)in paragraph (a) for “59” there were substituted “24” and for “1990” there were substituted “1971”, and
(b)in paragraph (b) for the words from “planning Acts” onwards there were substituted “repealed enactments (as defined in section 1(1) of the Planning (Consequential Provisions) Act 1990)”.
The intention of the amending Act is to make clear the circumstances in which what used to be called an “incontestable” notice to quit may be served when land is resumed for a purpose other than agriculture. It should prevent further surprises.
Para (a) of the new model Case B is the same as before, namely, where land is required for a non-agricultural purpose for which permission has been granted on an application made under the enactments relating to town and country planning.
The old para (b), which gave rise to all the trouble, has been superseded by a sharper but more complex definition of the circumstances, other than the grant of planning permission in response to an application, in which possession for a non-agricultural use may be secured. Broadly, these circumstances cover the situations where Parliament has, by one method or another, given its sanction to a particular development. The new paras (b), (c) and (d) cover not only private or local Acts but also public Acts, such as the Channel Tunnel Act 1987, and, in rare cases, orders approved by both Houses of Parliament. There is a certain link preserved with the planning system, either through a “deemed permission” provision or through a provision in a non-planning Act “deeming” that a particular act or use does not constitute development and so does not require permission. An example of the last category is section 30 of the Dartford-Thurrock Crossing Act 1988.
The explanation of the new para 8A in Part II of Schedule 3 is the complication caused by the consolidation of the town and country planning legislation, which has resulted in four Acts, namely Town and Country Planning Act 1990, Planning (Listed Buildings and Conservation Areas) Act 1990, Planning (Hazardous Substances) Act 1990 and Planning (Consequential Provisions) Act 1990. Transitional provisions are included in para 8A because it was not certain whether the consolidation provisions would be in operation before the amending provisions of the Agricultural Holdings (Amendment) Act.
Case D: Milton (Peterborough Estates Co) v Harris
The issue in this case, reported at [9] 2 EGLR 229, was one of fact, there being a conflict of evidence as to whether the tenant was given a licence to carry on farming after the expiry of a notice to quit, in order to obtain the benefit of the harvest. No issues of law were involved but the case did illustrate, once again, the vital importance for a tenant of giving notice requiring arbitration within one month of the receipt of a notice to quit which relies on Case D (or, for that matter, on Case A, B or E).
The notice to quit here was in fact based on Case D(a), the tenant having failed to pay rent due after receiving a notice to pay within two months. The tenant did not serve a notice requiring arbitration. It should be mentioned that the landlords and their agent in this case bent over backwards to be fair and helpful to the tenant. They had given the tenant several chances and were far from being quick to enforce the strict letter of the law. The effective notice to quit was eventually given on March 23 1987 terminating the tenancy on April 6 1988 (old Lady Day).
The conflict of evidence centred on a critical meeting between the parties on August 7 1987 at which, the tenant alleged, he had been given a licence to carry on the farm until October 1988; the effect of section 2 of the 1986 Act would have been to convert such a licence, if established, into a fully protected agricultural tenancy. Alternatively, the tenant claimed that assurances had been given at the meeting in question, in reliance on which he had carried out husbandry operations and planted some 67 acres, so that the landlords were estopped from claiming possession. The allegation of estoppel was based on precisely the same evidential material as was relied on for the submission that a licence had been created. This evidence was decisively rejected by the judge, Mr David Gilliland QC, sitting as a deputy judge of the Chancery Division.
The following points may be noted.
(1)No notice requiring arbitration
There was no issue about this in the present case, but (at the risk of tedious repetition) the opportunity is taken of repeating the warning that a failure to require arbitration within one month after the service of the notice to quit will deprive the tenant of the right to contest questions arising in relation to reasons stated in the notice. It is surprising how many times this essential step is overlooked.
(2)Re-presentation of cheque: too late for compliance
This was one of those cases where a cheque given in payment of rent was at first not honoured; when re-presented (and this time honoured) the payment was too late for compliance with the two months’ limit. It is a well-known rule that it is not a compliance if the rent is paid after the time-limit of two months but before the service of the notice to quit: Stoneman v Brown [3] 1 WLR 459.
Case E: Stradbroke (Earl of) v Mitchell
This case, reported at [9] 2 EGLR 5; [1989] 49 EG 59 and 50 EG 45, is interesting chiefly because of a novel point successfully raised by the tenant, namely, the fraudulent nature of the landlord’s notice to quit.
The factual background was as follows. The tenancy, which included two farms, contained a covenant by the tenant not to assign, let or part with possession of the farms or any part thereof (except cottages and gardens to workmen on the farms). There were a number of cottages comprised in the tenancy. After a deterioration in the relationship between the parties, the landlord at first served a notice requiring arbitration as to rent, then a notice to remedy invoking Case D in Schedule 3 complaining of alleged breaches of the tenancy agreement in relation to the letting of cottages, and finally a notice to quit referring to Case E in Schedule 3 and stating as the grounds thereof alleged breaches of covenant by letting farm cottages to persons who were not workmen on the farms. The tenant served a counternotice which stated that he required section 26(1) of the 1986 Act to apply to the notice to quit. The facts in regard to the cottages at the date of the notice to quit were that one was let to a retired farmworker and the others were either vacant or let in accordance with specific written permissions given by the landlord.
The judgment of Aldous J dealt with a number of different matters, but the two main questions were whether the tenant’s counternotice could be treated as a notice requiring arbitration and whether there were grounds for impugning the validity of the landlord’s notice to quit. Although the tenant lost on the first question, he succeeded on the second.
The tenant made a vigorous submission that his counternotice, although expressed to be in the form of a requirement that section 26(1) of the 1986 Act should apply (thus making the effectiveness of the notice to quit dependent on the tribunal’s consent), could and should nevertheless be treated as if it were a notice requiring arbitration under Article 9 of the Agricultural Holdings (Arbitration on Notices) Order 1987.
On the face of it this was a difficult submission. It was true that a person with a working knowledge of agricultural holdings law would have realised that the wrong type of notice had been used in error, as the correct response was a notice requiring arbitration. It could not, however, be said that the notice was in terms which made it clear to the ordinary landlord what rights the tenant was purporting to exercise under the legislation. The tenant’s submission was equivalent to saying that it was enough if the response made it clear that the tenant was challenging the notice to quit — that approach was contrary to the reasoning of the Court of Appeal in Mountford v Hodkinson, an agricultural holdings case, and to other authorities of a general landlord and tenant kind. The tenant’s submission on this point was rejected.
The tenant was, however, successful in striking down the landlord’s notice to quit on the ground that it was fraudulent and therefore void. Although, as Denning LJ said in Lazarus Estates Ltd v Beasley [6] 1 QB 702 at p 712, “fraud unravels everything … it vitiates judgments, contracts and all transactions whatsoever”, this is probably the first time that the general doctrine has been applied in this particular context.
The landlord in the present case denied that his notice to quit was fraudulent but argued that, even if it were, the tenant had failed to challenge it by his only effective remedy, namely, by arbitration. The judge quickly disposed of the latter argument. If the notice is a nullity because of fraud, there is no question of restricting the tenant’s challenge to the arbitration procedure, which is intended for a contest relating to reasons in a notice which subsists. “A notice to quit which is fraudulent in the sense that it was made without an honest belief in its truth is no notice to which the court will give effect and the recipient need take no action to serve any counternotice.” The issue here was whether it had been established that the notice was fraudulent in that sense. It was not necessary to show that the tenant had actually been deceived. In the present context the fraudulent element was the landlord’s lack of any honest belief in the grounds he was putting forward in the notice to quit, namely, breaches by the subletting of cottages to persons other than farm workmen, with consequential material prejudice to himself. There was evidence that the landlord knew that the tenant was not in breach of obligations of the tenancy in regard to any of the cottages mentioned. The alleged breaches were negated, to the knowledge of the landlord, by the facts of permissions, vacancies and occupation by an ex-farmworker. At best the landlord’s approach was perfectly described in the well-known words of Lord Herschell in the classic case of Derry v Peek, namely, that he acted “recklessly, careless whether it be true or false”. The notice to quit was a nullity.
Case G: Relevant notice: BSC Pension Fund Trustees Ltd v Downing; Lees v Tatchell
In these two cases the landlord succeeded because no “relevant notice” was served by or on behalf of executors or administrators. Time did not begin to run against the landlord.
In the BSC Pension Fund case [0] 1 EGLR 4; [1990] 19 EG 87, owing to the great age attained by the deceased tenant (101) the two sons who had been appointed executors predeceased him. There was thus no executor or administrator to serve the relevant notice and so no question of the three months mentioned in Case G running or expiring. It was, the judge ruled, a simple instance of Case G applying and the landlord’s notice to quit was held to be good. Suggestions that an obituary notice inserted in the local paper, or a small news item that the deceased had probably been the oldest farmer in the county, did not merit much consideration. A letter to the landlord’s managing agents from a firm of solicitors stating that they did not act in connection with the estate of the late tenant, and giving the name of the solicitors who did act, was not sufficient.
In Lees v Tatchell [0] 1 EGLR 10; [1990] 23 EG 62 the curious position arose that both the landlord and his agent were well aware of the tenant’s death, the landlord having in person attended the funeral, but the documents relied upon by the tenant’s executors as a relevant notice were held not to qualify as such. The landlord was not, therefore, “informed” of the death within the meaning of Case G. The executors relied on the return of the rent demand, plus a cheque for the correct amount due, to the landlord’s agents as fulfilling the conditions. The county court judge had accepted this submission but it was rejected by the Court of Appeal. A relevant notice for the purpose of Case G must be in terms which are sufficiently clear to bring home to the ordinary landlord that the tenant’s representatives are purporting to exercise their rights under the Case. The fact that the landlord is for other reasons fully aware of the tenant’s death is immaterial.
The result of these cases is that if no valid relevant notice is given, and the landlord after the death serves a notice to quit which is otherwise valid and effective, the notice to quit will take effect. (It has, of course, been assumed in the above comments, as was the fact in the two cases, that the landlord had not been informed of a succession application under section 39 or section 41 of the 1986 Act.)
Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1973 (SI 1973 no 1473)
Grayless v Watkinson
In this case, reported at [0] 1 EGLR 6; [1990] 21 EG 163, the Court of Appeal cleared up misunderstandings as to the effect of the proviso to para 12(27) of the above regulations. Para 12 deals with the failure of a landlord to execute replacements of fixed equipment which are his liability. It enables the tenant to execute such replacements himself and recover the reasonable cost thereof from the landlord. The proviso, however, places a limitation on the recovery in the following words: “provided that the tenant shall not be entitled to recover in respect of the aggregate of the replacements so executed by him in any year of the tenancy any sum in excess of whichever is the smaller of the two following sums, that is to say, a sum equal to the rent of the holding for that year or £500”.
The tenant in the present case, in which the rent was more than £500, exercised the right to replace the roof of a barn on the landlord’s default at a cost of £7,992.50. He claimed to recover the full £7,992.50 on the ground that the limitation in the proviso applied only to the statutory procedure under the regulations, which was an optional alternative to a common law claim for damages for the full amount.
The recorder in the county court accepted this submission. The landlord appealed and contended that the tenant could recover only, once for all, the single sum of £500, a wildly unjust result. The Court of Appeal held that neither the recorded nor the landlord had got it right. The tenant was entitled to recover £500 in each year of the tenancy commencing in 1985 until the full sum had been reimbursed. The court rejected the “optional” argument; para 12(2) was the sole source of the right of recovery.
The amendment made by the Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) (Amendment) Regulations 1988 (SI 1988 no 281), which substituted the rent or £2,000 (whichever was the smaller) as the amount recoverable, did not apply as the replacement was executed during a year of the tenancy terminating before March 24 1988. Nevertheless, the court found the wording and punctuation of the 1988 regulations an aid to the correct construction of the 1973 regulations. The placing of the commas in the new para 12(4) supported the interpretation mentioned above.
Section 2(2)(B) of 1986 Act: exclusive possession: Street v Mountford
McCarthy v Bence
In this decision, reported at [0] 1 EGLR 1; [1990] 17 EG 78, the most interesting part of the judgment of Dillon LJ (with which Mustill and Bingham LJJ concurred without adding anything) is perhaps the passage in which he considers section 2(2)(b) in the light of Street v Mountford. The passage is worth quoting:
If exclusive occupation is, as held in Street v Mountford, the hallmark of a tenancy and a licence under section 2(2)(b) also requires exclusive occupation, as held in the Bahamas case, it would seem that the licence is itself a tenancy and there is nothing for section 2(2)(b) of the 1986 Act to bite on. The explanation of that may be that the wording used in section 2(2)(b) goes back well before Street v Mountford to the Agricultural Holdings Act 1948 and has not been updated in recognition of Street v Mountford. Another explanation may be that the wording of section 2(2)(b) is intended to catch licensees to use land for grazing or mowing (or both) which are not, by being limited to some specified period of the year, excluded from section 2 by subsection (3) thereof.
The litigation arose from the terms of a share milking joint venture and the question was whether the arrangements led to the creation of the tenancy of an agricultural holding. The owner of the land made available to the operator a certain area of land with the necessary buildings for stocking by the operator with dairy cattle. The operator did the milking and received 85% of the profits. The operator was made responsible for exercising good husbandry over the area allocated and the written agreement included repairing and other obligations typical of tenants’ covenants in an agricultural tenancy agreement. There was, however, an express statement by the owner that the agreement “will not involve exclusive occupation and I may alter the area of land and the fields available from time to time but will not do anything thereby to prejudice the arrangement”. Relations deteriorated and, following the introduction of the milk quota, the owner claimed to reduce the area allotted to the occupier. In the ensuing litigation, Tucker J granted the owner a possession order and the operator appealed.
In order to succeed, the operator had to show either that he had been granted an agricultural tenancy of identifiable land or that he had been granted a licence which, by virtue of section 2(2)(b) of the 1986 Act, had been converted into a tenancy from year to year. In either case, however, the operator would need to have been given exclusive possession; and in this he failed. He was defeated both by the express negation of exclusive possession in the sharing agreement and by the fact that the owner carried out a number of activities on the allocated land which were incompatible with the transfer of exclusive possession to the operator.
As mentioned above, Dillon LJ discussed briefly the relationship between section 2(2)(b) of the 1986 Act and the common law as now expounded in Street v Mountford and succeeding cases. Where section 2(2)(b) goes beyond the common law seems to be in converting a licence for a fixed term into a tenancy from year to year. It may be that some future amending Act will tidy the matter up, but it does not appear to be doing any harm.
Agricultural Holdings (Arbitration on Notices) Order 1987, art 9: Notices requiring arbitration signed by one only of two joint tenants
Combey v Gumbrill
A report of this county court decision appeared at [0] 27 EG 85. It is, of course, clear law that as a general rule a notice requiring arbitration, to be given by the tenant under art 9 of the above-mentioned order, must in the case of a joint tenancy be given by all the joint tenants and not by one or some only. The same rule applies to a counternotice under section 26(1): Newman v Keedwell (1977) 244 EG 469, following other authorities. An exception was established on grounds of public policy in Featherstone v Staples [1986] 1 EGLR 6, where one of three joint tenants was a company wholly controlled by the landlord and a provision in a partnership agreement between the two individual joint tenants and the company stated expressly that no counternotice could be served without the consent of the company. It was against public policy that a counternotice served by the individual joint tenants should be frustrated by the failure or refusal of the company joint tenant (a creature of the landlord) to join.
The tenancy in the present case had been granted to the husband and wife jointly, but there had been a divorce with hostile and complex matrimonial proceedings. Although the tenancy was never formally assigned to the wife, the orders made by the court showed a clear intention that she should be entitled to his interest. These orders included an undertaking by the husband to vacate the holding, a prohibition of access by him to it, an order for him to assign his interest to the wife and not to assign it otherwise or surrender it, and generally a recognition that the wife should have full power to conduct the farming business. In reply to notices to quit from the landlords, Mrs Gumbrill served notices requiring arbitration. Clearly, if the law allowed it, she had a strong moral case on the merits for claiming that the notices were effective, although her ex-husband had not joined in them.
Although the judge agreed that the effect of the orders in the matrimonial proceedings was to entitle Mrs Gumbrill to the entire beneficial interest in the tenancy, he did not feel able to decide that she had actually become “the tenant” within the definition section in section 96 of the 1986 Act. However, fortunately, he found another ground on which to decide in Mrs Gumbrill’s favour. One joint tenant may give a valid notice if he acts with the authority of the other or others. By virtue of the orders in the matrimonial proceedings Mrs Gumbrill did have such authority as a general agent responsible for the management of the holding. It was immaterial that the notices did not expressly purport to be given on behalf of her ex-husband as well as herself. Thus a decision in accordance with the merits of the case was reached.
Judicial review: undue delay
?
R v Dairy Produce Quota Tribunal, ex parte Carswell
The decisions of Popplewell J and the Court of Appeal in this case were noted in the last article (September 2 1989 at p 26). The case was, however, taken to the House of Lords by the appellant dairy farmers and the decision of the House was given on May 17 1990 [0] 2 All ER 434. The House of Lords were interested in matters of importance affecting the remedy of judicial review and, in dismissing the appeal from the Court of Appeal, they considered the relationship between RSC Ord 53, r4 and section 31(6) of the Supreme Court Act 1981. There was no appeal from or interference with the decision of Popplewell J on the interpretation of the Dairy Produce Quotas Regulations 1984. Popplewell J decided that the Dairy Produce Quota Tribunal had erred in law in making an award limited to the number of cows which the producers had on their farm at March 31 1985, in an application under the exceptional hardship provisions.
The House gave a ruling, of importance for administrative law, on the reconciliation of the two provisions mentioned above concerning delay in the application for judicial review. There had been a certain ambiguity in the expression “an application for judicial review”, but it was now clear that, where appropriate, they referred to the ex parte application for leave to apply as well as to the substantive application. The point had been discussed in R v Stratford on Avon District Council, ex p Jackson by the Court of Appeal. The following propositions were formulated by Lord Goff of Chieveley in his speech:
(1)The combined effect of section 31(7) of the Supreme Court Act 1981 and RSC Ord 53, r4(1) is that there is undue delay for the purpose of section 31(6) whenever the application for leave to apply is not made promptly and in any event within three months from the relevant date.
(2)It followed that, where an application for leave to apply is not made promptly and in any event within three months, the court may refuse leave on the ground of delay unless it considers that there is good reason for extending the period.
(3)Even if the court considers that there is such good reason, it may still refuse leave (or, where leave has been granted, substantive relief) if in its opinion the granting of the relief sought would be likely to cause hardship or prejudice (as specified in section 31(6)) or would be detrimental to good administration.
