A reprieve for landlords?

Beleaguered landlords have some cause to cheer at least in relation to grazing leases, following recent court decisions

The Journal, December 2006, page 42

Some landlords feel they have had a rough ride recently. The debate leading up to the Agricultural Holdings (Scotland) Act 2003, the Act itself, some decisions by the courts and publicity over such matters as new entrants to the agricultural industry have not, exactly, been pro-landlord.

However, in one area at least, that of grazing leases, there is some qualified good news for landlords. The long-held theory that possession of grassland following the natural expiry of a grazing lease automatically converted the right of the occupant to that of a tenancy fully protected by the Agricultural Holdings Acts has been dealt some blows, first by the Scottish Parliament and more recently by the Court of Session.

First, there was the important provision of s 4(2) of the 2003 Act to the effect that, where the tenant remains in occupation after the expiry of a grazing lease, the tenancy continues as if it were for a term of five years (or such lesser period as the parties may agree) and is treated as a short limited duration tenancy.

Section 4(2), of course, applies only to grazing leases entered into after the Act came into operation on 27 November 2003. In relation to pre-2003 Act grazing tenancies, a highly significant decision was, recently, issued by the Inner House in Bell v Inkersall Investments [2006] CSIH 16; 2006 SLT 626. In that case the pursuer argued that by not removing between a series of seasonal grazing leases granted between 2000 and 2003, or after the expiry of the last of these, by paying rent and by occupying and improving buildings, he had established an agricultural lease, notwithstanding the written agreements.

Written arrangements rule

The pursuer’s argument was based on Morrison-Low v Paterson’s Exrs 1985 SLT 255, where the sons of the deceased tenant established an informal lease in their favour by occupation and payment of rent. In Bell, however, the court held that no protected lease had been created and distinguished Morrison-Low on the basis that, in the latter, there was no documentation on which to rely, while in Bell there were written leases. Indeed it went on to hold that occupation beyond the expiry of the last written agreement was in breach of that agreement, there being no averments that rent had been paid other than for the grazing leases themselves or that the written leases were sham transactions. It also held that occupation and improvement of the buildings was consistent with the occupier having illegally exceeded his rights under the lease.

Bell does not exclude the possibility of a full agricultural tenancy being claimed following a grazing lease where, for example, the “tenant” was able to show that the lease (or series of leases) was/were a sham arrangement, or that rent had been paid for the periods between grazing lets or after the termination of the last lease (i.e. a situation akin to that in Morrison-Low). But Bell is, in my opinion, important as development of the principle expounded, for example in MacFarlane v Falfield Investments Ltd 1998 SLT 145, in which, effectively, it was held that parties cannot look to actings (or in that case inaction!) to establish a relationship between them which is different from that which they intended, as expressed in the documentation.

Bell is, therefore, good news for landlords, not only in its own right but also because it reduces the scope for a grazier to claim that he has a 1991 Act tenancy following on a grazing lease, or series of grazing leases, as the basis of registering a right to buy under Part 2 of the 2003 Act.

Predominant purpose

The principle of the paramountcy of the written word was also examined in O’Donnell v McDonald, which again related to grazings. Sheriff Principal Lockhart (on 24 August 2006) held that, in deciding whether or not a tenancy constituted an agricultural tenancy, it was necessary to look at the predominant purpose for which the lease was granted. In that case the lease was for a riding school but, in addition, the tenant was allowed to graze horses and crop hay for winter feed. Over the passage of time, the predominant use had been grazing, ancillary to the riding school use. Nevertheless the sheriff held that the lease was not one of an agricultural holding, the “overall purpose” of the lease being the riding school. O’Donnell does not, therefore, override Rutherford v Maurer [1962] 1 QB 16, where the predominant purpose was that of grazing horses belonging to a riding school adjacent to, but not part of the subjects of lease, and the lease expressly forbade riding school use. It is, however, important as confirmation that the courts will look for their decision at the parties’ documented intentions, and not at what follows, in practice.

    Alasdair G Fox WS, Anderson Strathern