Agricultural tenancy – Rent review – Arbitration – Parties adding additional land to tenancy by memorandum – Automatic surrender and re-grant of tenancy thereby effected by operation of law – Memorandum expressly continuing terms of original tenancy save for addition of land and consequent amendment to rent – Whether rent payable by appellant tenants that stated in memorandum or higher figure determined by arbitrator on rent review in process at date of memorandum – Appeal dismissed
The respondent was the landlord and the appellants were the tenants under an annual tenancy of an agricultural holding comprising 256 acres of farmland. By 1999, the rent under that tenancy was £16,250 pa. In 2000, an arbitrator was appointed to conduct a statutory rent review under the Agricultural Holdings Act 1986. Subsequent to that appointment, the parties made a supplemental memorandum to the original tenancy, by which they added a small area of land, comprising approximately 1.3 acres, to the holding with a consequent rent increase to £16,333; that increase was stated to have retrospective effect from September 1998, when the appellants had first entered into possession of the additional land. The memorandum further stated that, in all other respects, the terms, conditions and covenants of original tenancy agreement as varied by the memorandum should remain in force unchanged.
In 2004, the arbitrator made an award in the rent review, fixing a rent of £27,700 pa with effect from a review date in September 1999. A challenge to the validity of the arbitrator’s appointment failed; in that litigation, it was held that the variations made by the memorandum had, by operation of law, effected a surrender of the original tenancy and a re–grant of a new tenancy of the enlarged holding. The parties had been unaware of that legal position when they entered into the memorandum.
An issue arose as to whether the rent payable under the tenancy was that set out in the memorandum or that determined by the arbitrator. The county court took the former view but that decision was reversed by the High Court, which held that, on a proper construction of the memorandum, the rent was agreed to be either £16,333 or such other rent, from September 1999, as the arbitrator should determine in the rent review: see [2012] EWHC 120 (Ch); [2012] PLSCS 39
The appellants appealed. They contended that, although the reviewed rent applied up to the date of the memorandum, thereafter the original tenancy was replaced with the re-granted tenancy and the rent review process set in motion under the original tenancy died with it.
Held: The appeal was dismissed.
The appellant’s case that liability for the reviewed rent did not continue past September 1999 hinged solely on the automatic operation of the doctrine of implied surrender and re-grant. However, that submission failed to give full effect to the express agreement of the parties, contained in the memorandum, that the terms, conditions and covenants of the original tenancy would continue to apply unchanged. The effect of that agreement was that the contractual provisions in the original tenancy were expressly continued, subject only to the varied acreage and the consequent pro rata increase to £16,333. The rent reserved and payable under the original tenancy was subject to retrospective revision by the arbitrator’s award in the rent review. At the time when the memorandum was made, the parties had known that there was an ongoing rent review process, which would potentially affect the rent payable from September 1999. In the belief that the original tenancy continued in force, the parties had expressly agreed a provision for the continuing effect of the pre-memorandum state of affairs; that unchanged state of affairs included the retrospective impact of the ongoing rent review.
The express continuation provisions in the memorandum meant that the ongoing rent review process, and its ultimate outcome, were not robbed of their retrospective effect on rent by the implied surrender and re-grant of the tenancy or by the fact that the review was triggered by an event occurring before the memorandum was made. The doctrine of implied surrender and re-grant, unknown to the parties when they made the memorandum, did not invalidate or eliminate the express agreement of the parties that the existing state of affairs under the original tenancy should continue unchanged. Accordingly, the revised rent of £27,700 pa, determined by the arbitrator on the review, continued to be payable as a result of the express agreement of the parties in the memorandum.
William Batstone (instructed by Thrings LLP, of Bath) appeared for the appellants; Caroline Hutton (instructed by Bircham Dyson Bell LLP) appeared for the respondent.
Sally Dobson, barrister