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The power of agreement

15 December 08

Two recent decisions show the power which agreement (or acceptance) and actings can have over statutory and contractual provisions

by Alasdair Fox, Douglas Reid

Ending agricultural leases by agreement

Section 2 of the Agricultural Holdings (Scotland) Act 2003 provides that a 1991 Act lease can be terminated by agreement and converted into a 25 year limited duration tenancy (“LDT”) without using the 1991 Act, s 21 notice provisions. Some argued that, by disapplying s 21 in this situation, it must be followed in every other case. Others think that s 2 means that a tenant relinquishing a 1991 Act tenancy is, in all circumstances, entitled to a 25 year LDT.

In City of Edinburgh Council v Little the court decided, first, that parties can still agree to terminate 1991 Act tenancies and, secondly, that LDTs are not automatically created where termination is by agreement.

In Little the tenant agreed to renounce his 1991 Act lease and all claims against his landlord in exchange for £130,000. The agreement took effect the day after execution when the landlord paid the tenant, who, ostensibly, left the farm. No notice was served by either party under s 21. The tenant called on the landlord to implement s 2 by granting an LDT and, when the landlord refused, applied for declarator that he was either so entitled, or that his original lease continued as it had not been terminated by s 21.

The court rejected both contentions. It pointed out that s 2 sets out the criteria for its operation, namely: (1) the agreement terminating the 1991 Act lease must be in writing and specify the end date for the lease; (2) not less than 30 days must pass between the making of that agreement and the date it takes effect; (3) the new lease must be an LDT for not less than 25 years; and (4) the land let by the LDT must be the same as that let under the previous lease. Conditions (2), (3) and (4), had not been met, so the court decided that

s 2 could not operate, noting (applying the principle of freedom of contract) that, “an arrangement under s 2 is not… the sort of thing that parties can fall into unwittingly”.

Regarding the tenant’s second proposition, the court, following the pre-2003 Act case law, decided that

s 21 was not mandatory where the agreement purporting to terminate the lease was not contained in the lease itself. Nor is s 21 the only method by which a lease can be terminated.

The court took the view that s 21 was designed to protect a tenant who does not want to quit a farm and is not prepared to agree to terminate the lease.

Going on to consider whether s 2 amended the previous law, it took the view that Parliament was deemed to have known what the existing law had been at the time the 2003 Act was passed. It had power to change the law on contractual termination of agricultural leases. It did not do so and the court observed that the “consequences of holding that contractual renunciations… are unenforceable are in our view too serious”, and (to summarise) “too liberal an interpretation without explicit parliamentary direction”.

Incidentally the court found it strange that the tenant had taken no steps to return the £130,000!

The decision is welcome, even if the full intent of s 2 remains puzzling. Landlords and tenants can now rely on agreements to end tenancies which have been freely negotiated and acted on, without the fear of their being set aside at a later date, or of falling into other traps.

Resumption by acceptance

In giving effect to a notice to quit in one of three cases involving Gordon’s Trust v Craig (the landlords were less successful in the other two), where the tenant had failed to serve counter notice, the court held that a small plot of land had been resumed from the tenancy even though no notice of resumption had been issued by the landlords, as required by the lease.

The ground concerned had been physically resumed. It was fenced off and made unavailable for use by the tenant. Purchasers took occupation of it as garden ground. They discussed the nature of the boundary with the tenant and served a planning application on him. They (not the landlords) paid him £500 as compensation for loss of the ground. The tenant took no steps to prevent development of the ground as garden. The court held that, in these circumstances, the tenant had, by his actings, accepted that the ground had been resumed.

As a consequence, the court also found that the purchasers were not joint landlords or landlords in common, who should have been parties to the notice to quit, and that the notice was valid even though it described the subjects as per the original lease, without exception of the ground resumed.

Alasdair G Fox and Douglas Reid, Anderson Strathern LLPL

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