A debate to be resumed

Uncertainty reigns pending an appeal ruling on the validity of irritancy and resumption clauses with limited notice periods

The Journal, June 2006, page 42

In The Law of Agricultural Holdings in Scotland (3rd ed), para 13.08, Lord Justice Clerk Gill wrote: “Resumption clauses commonly stipulate the period of notice. If none is specified, the common law appears to permit the landlord to resume with no period of notice at all. In practice, however, notice of at least two months is required so that the tenant may have the benefit of sections 18 (removal of fixtures), 43 (disturbance compensation) and 44 (high farming compensation) [of the Agricultural Holdings (Scotland) Act 1991]; and any notice of resumption that gives a period of notice insufficient to enable the tenant to make these claims is invalid”. He continued: “If the resumption clause provides for short notice, or no notice at all, it may not necessarily be void ab initio. The landlord may choose to give a period of notice sufficient for the tenant’s statutory claims. This point has not been tested judicially”.

Recent case law has thrown some light on Lord Gill’s assertions although, we suggest, not such as to bring us entirely out of the fog. The cases relate to irritancies, but it is generally recognised that the principles would apply equally to resumptions.

Opportunity knocked

In Palmer’s Executors v Shaw 2004 SLT 261, in a lease governed by the Agricultural Holdings (Scotland) Act 1923, events covered by the irritancy clause included the tenant allowing one half-year’s rent to remain unpaid for three months. The Court of Session, in a special case stated by the Land Court, held (a) that an irritancy clause which allowed for immediate termination of the lease, thus denying the tenant the opportunity to make a statutory claim (such as compensation for high farming), was null and void; but (b) that, in the particular circumstances, the clause was not null and void because the irritancy notice could only be served where the tenant was three months in arrears with rent and, during that period, he should have known that the lease could be terminated at the end of that period and so have taken the opportunity to make relevant claims.

On 10 June 2005, Robert Sutherland, advocate, delivered a lecture to the Agricultural Law Association/WS Society joint seminar on “Agriculture” in which he opined that the principle followed in Palmer’s Executors applies just as much to leases governed by the Agricultural Holdings (Scotland) Acts of 1949, 1991 and 2003 as to leases under the 1923 Act, and that any provision of a lease having the effect of overriding statutory rights to compensation, whether under an irritancy or resumption clause, would be treated as void – in other words an irritancy or resumption clause which provided for no notice period or notice of a month or less would be void ab initio.

Mr Sutherland’s theory was put to the test before the Land Court in Trustees of the Earl of Stair’s 1970 Trust v Robert Downie on 24 November 2005. The irritancy clause in a lease governed by the 1991 Act provided that if the tenant allowed a half-year’s rent to remain unpaid for one month after it had become due, the landlords could irritate the lease. When the Martinmas 2004 rent remained unpaid at 28 December, the landlords served notice of irritancy requiring the tenant to remove in two months. The tenant argued that the clause was unenforceable in that it did not give him time to claim for compensation for high farming, whether or not he had such a claim. In summary, the court held that an irritancy clause which did not contain a notice period allowing the tenant sufficient time to claim statutory compensation before the lease came to an end should be struck down only if it defeated “a live practical claim” by a tenant – i.e. in this case the clause was upheld because the tenant did not, in practice, have a claim for high farming.

The landlord’s quandary

It is, of course, arguable that this is currently the law, certainly in relation to irritancies and possibly in relation to resumptions, BUT an appeal to the Court of Session is due to be heard on 23 November. Until the appeal decision is issued, a state of confusion will reign, at least to the extent that no tenant could be advised to succumb to a notice of irritancy or resumption served on the strength of a clause containing a notice period of one month or less – or no timescale, in excess of one month, within which the tenant can rectify the default which is to give rise to the irritancy or resumption. This state of affairs is clearly causing great difficulties to landlords.

Alasdair G Fox WS and John A Mitchell WS, Anderson Strathern