Grazing leases Whether shams Whether year to year lease with security of tenure
Grazing leases Whether shams Whether year to year lease implied attracting security of tenure
Prosper Properties Ltd v. Bell
Sheriff Court, Dumfries : Sheriff K.A. Ross : 26 March 2008 (unreported)
P Ltd and B executed 4 grazing leases for periods of 360 days. The leases expired and P Ltd sought removal of B from the land. B claimed that the leases were a sham because he had earlier entered into an oral lease for an estate for 10 years which was not restricted to grazing, together with a separate "ad hoc" agreement. The grazing leases should therefore be annulled, he argued. On the basis of the oral lease B claimed to have security of tenure under the Agricultural Holdings (Scotland) Act 1991. B also argued that -
- even if the oral lease had not been entered into, an implied year to year lease had arisen between him and P Ltd;
- even if the grazing leases were not shams, they had despite their terms been entered into in contemplation of the use of the land for more than grazing and were covered by the security of tenure provisions of the 1991 Act.
After 66 days of evidence and a judgment extending to about 300 pages (!) depending on the font size, it was found that no oral lease had been entered into.
On that basis the sheriff decided :
(1) for the leases to be shams, it had to be shown that both parties had executed the leases in order to give the appearance to third parties of having created rights and obligations different from those actually intended;
(2) the evidence did not indicate that any such joint intention was held by the parties when the grazing leases had been executed and therefore they were not shams;
(3) given the existence of the grazing leases, which had come to an end, a building lease and the separate "ad hoc" agreement, the occupation of the land during the period of the leases could not be ascribed to an implied year to year lease;
(4) given that in the grazing leases themselves the parties expressly contemplated that the land would be used only for grazing, it was not open for B to argue that despite this he and P Ltd contemplated at the time of the granting of the leases a greater scope of use than merely grazing and they could not be covered by the security of tenure provisions of the 1991 Act;
(5) decree of declarator of termination of lease granted and removal of B ordered.
The sheriff also observed :
(1) if there had been a prior oral lease which attracted security of tenure under the 1991 Act, the subsequent written grazing leases would not have altered the terms of B's occupation so as to disapply security of tenure under the 1991 Act;
(2) if he had allowed B to amend his counterclaim for declarator of an existing lease, he would have found the declarator sought incompetent due to its failure to specify the cardinal elements of a lease, namely the extent of the subjects let, the level of rent, the duration and the parties.
Comment:
The duration of this proof seems extraordinary. It illustrates the difficulty of establishing that an agreement is a sham, given that both parties must have intended it not to govern their relationship. That will rarely be the case. The decision appears to be essentially correct.
The case is a warning to tenants in relation to improvements. Here B appeared to have carried out substantial improvements only to discover that he did not have a valid agricultural lease.
Lease of GP clinic Dissolution of partnership Ongoing liability of partners
Lease of G.P. clinic Dissolution of partnership Whether partners still liable as guarators of partnership Primary Health Care Centres (Broadford) Ltd v. Ravangave Court of Session, Outer House, Lord Glennie : 29 January 2008 (unreported) In late 2000, landlords let a health centre to Drs H and R as the then partners of a G.P. partnership, together with their permitted successors and assignees. The lease was for a period of 33 years from 16 November 2000 and provided that it would bind not only on the partners at the time of its execution but also of all persons who would become partners at any time in the future and their respective executors and representatives and that it would remain in force despite any changes in the partners in the partnership. It also provided that on the retiral, death or outgoing of any individual partner the landlords would (upon the written application of the outgoing or retiring partner or his or her executors) grant a discharge to such partner or his executors from such partner's joint and several liability in terms of this Lease provided that the number of continuing partners (including any new partners assumed in substitution of a deceased, retiring or outgoing partner) shall not fall below two and declaring that the remaining partner will use his reasonable endeavours to engage a replacement partner as soon as reasonably practicable after such retiral, death or outgoing; ..." The lease prohibited assignation or sub-letting without the prior consent of the landlords which consent would not be unreasonably withheld. About a year after the lease had come into force, Dr T was assumed as a salaried partner. She agreed with the two existing partners that she would be liable with them for the liabilities of the partnership in the lease even though she was not a party to it. It was also agreed between the 3 that Drs H and R would indemnify Dr T against any claims that might be made against the partnership other than those covered by insurance. About a year later all 3 G.Ps became salaried employees of the local health trust. In the partnership’s tax return , prepared by Dr H and submitted by the firm’s accountants, the cessation of the partnership was stated to be the date when the employment contracts came into force. First Dr H and then Dr R retired. Landlords discharged Dr H but not the other two G.P.s. Landlords sought a declarator from the court that Dr T and Dr R were jointly and severally liable for the tenant’s obligations under the lease. The landlords claimed that after Dr H retired, the partnership continued until Dr R retired whereupon the partnership came to an end. Dr T and Dr R claimed that the partnership was dissolved on or about 30 September 2002, when all three partners became salaried employees and that in effect their employer became the landlord in an informal tenancy of the centre. Lord Glennie decided (1) the partnership came to an end with the taking up of the employment contracts; (2) Dr T and Dr R were not liable as cautioners for the firm’s obligations as the landlords’ discharge of Dr H from his joint cautionary obligation operated, in terms of section 9 of the Mercantile Law (Scotland) (Amendment) Act 1856 as a discharge granted to all of the cautioners including Dr T and Dr R, and no attempt was made by the landlords to annul the discharge – and declarator refused; (3) in passing - There was no agreement, formal or informal between the firm’s partners and their new employers for the employers to take on tenancy in the long lease, thereby discharging the partners’ liability as cautioners.
Guarantee of lease Interpretation of guarantee Validity of notice to guarantor Implication of term
Credential Bath Street Ltd v. Venture Investment Placement
Court of Session; Outer House; Lord Reed 31 December 2007
Landlords in a 25 year lease entered into a separate agreement with the tenant under which the tenant would pay the landlords a periodical payment in reimbursement of repairs carried out by the landlords on the premises at the request of the tenant. Subsequent to this separate agreement, a guarantor granted a guarantee to the landlords relating to the performance by the tenants of their obligations under the lease and the reimbursement agreement. The guarantee provided
"In respect of the period from 1 January 2003 to 31 December 2004. . .
[3. 1] "....if the Tenant shall make any default in the payment of the ....rent or any other sum....or....in.....performing the said obligations (viz 'the obligations .....contained in the Lease and the [separate agreement]) ...then ....the Guarantor will pay, perform ....on demand. . .
[3. 3] ....if the Tenant shall be wound up....and if the Landlord shall...by notice in writing require a Guarantor to accept a lease....then....the Guarantor shall accept such new lease
[3. 4] The Guarantor shall be deemed to be released from its obligations under these presents on 1 January 2005 save in respect of any antecedent breach of the Guarantee occurring prior to 1 January 2005”
In March 2004 Landlords’ agents sent a letter to the guarantor which stated :
"We act on behalf of [the landlords under] the Lease . . . in respect of the premises at [x] under which you are guarantor.
We refer to clause 3.13 of the above lease and enclose the interim schedule of dilapidations . . . detailing additional services works that are to be carried out within two months of the date of this notice.
Please acknowledge safe receipt".
No further action was taken by the landlords against the guarantor until after January 2005. Landlords sued the guarantor for (1) payment for repairs under the dilapidations schedule; and (2) damages in respect of an alleged breach of an implied term of the guarantee. The guarantor claimed that the guarantee had expired before he became liable under it.
Landlords argued that (1) in the saving provision in cl. 3. 4 the word "Guarantee" in clause 3. 4 should be read as "Lease or Reimbursement Agreement", and as there had been a breach by the tenant of the repairing obligation the guarantee had not expired;
(2) even if they were wrong on that, the letter was a demand under the guarantee the failure to comply with which was a breach before the expiry of the guarantee;
(3) there was an implied term that the guarantor would not cause the tenant to oppose any motion for its winding up when it knew or ought to have known that the opposition was unjustified in law or in fact, and that the guarantor had broken this by causing a delay in the winding up of the tenant.
Lord Reed decided that –
(1) having regard to the ordinary meaning of the word “guarantee” and the fact that the word made sense in relation to the rest of the document and the factual background, it should be given the meaning of “guarantee” and the landlords’ contention had to be rejected;
(2) The question was whether the reasonable recipient of the letter would have said to himself, "I am being called on to do the work specified in the schedule";
(3) Given that the interim schedule stated that the works were to be carried out by the tenant, and no obligation could have arisen under clause 3. 13 at that time, the reasonable recipient would not have seen himself as being called on to carry out the work but would merely have seen himself as being informed of action being taken against the tenant;
(4) The letter was not a demand and the guarantor was not liable to carry out the repairs;
(5) For a term to be implied it would have to be necessary for the business efficacy of the contract;
(6) While it would have been open to the parties to negotiate a term to take account of the possibility of the guarantee expiring while the court process for winding up had been commenced but not completed, the absence of such a term did not make the contract unworkable and it was not necessary for the business efficacy of the contract;
(7) In addition the implied term could not be admitted due to its lack of clarify and specification.
Comment:
The judgment is very lengthy and takes up over 70 paragraphs ! It does give a useful summary of the principles of the interpretation or construction of contracts, despite ultimately coming to the conclusion that words mean what they say i.e. when someone says “guarantee” he means “guarantee”.
The part of the decision dealing with implied terms is interesting in that it fails to mention any Scots authorities preferring instead to dwell on the English and Commonwealth authorities. Is Lord Reed seeking to anglicize the Scots law of implied terms ? Perhaps it was the focus on the need for a clear and specific implied term which has been focussed on in England and Wales but less so in the Scottish authorities. It is interesting to note that he could have reached much the same conclusion on the basis of Rockcliffe Estates p.l.c. v. Co-operative Wholesale Society Ltd 1993 S.L.T. 592, a case which contains a useful summary of the Scots authorities.
Agricultural holding Grazing Riding School
Riding school Grazing Whether agricultural holding
O’Donnell v. McDonald (McDonald v. O’Donnell in Scotcourts website)
Court of Session, Inner House, Second Division : 25 October 2007 (unreported)
A, a farm owner agreed orally with D that D could lease 2 fields to allow D to use them for a riding school. D was allowed to graze his horses and to crop hay for their winter feed. The lease began on 5 February. A sold the land to B. D then moved a caravan onto one of the fields and took up residence there. On that field he also erected some sheds and shipping containers for the riding school which used that field with the lessons at weekends. The other field was used for grass for hay. Horses grazed on the second field. B then sold the land to P. A dispute arose between P and D over maintenance. P served a notice to quit. D served a counter notice under the Agricultural Holdings (Scotland) Act 1991. P applied to the Land Court to enforce the notice but dropped the application. In 2004 P served a further notice to quit on D. The notice as not in the form required by s. 21 of the 1991 Act. It said that it was served on the grounds that D had allegedly breached the lease and the breaches had not been remedied. It sought removal at the end of March some 9 months later.
D claimed that the two fields were an agricultural holding because they were being used for grazing, grazing was the use of land for agriculture, and they were being used for a trade or business. D relied on the English case Rutherford v. Maurer [1962] 1 Q.B. 16 and the Scottish case Crawford v. Dun 1981 S.L.T. (Sh.Ct.) 66, D also claimed that that the notice to quit was ineffective to terminate the lease on its own.
The sheriff found, applying those cases that the that the lease was of an agricultural holding, that therefore the notice to quit was by itself ineffective and in any event the specification of the wrong ish made it ineffective and D should be absolved.
The sheriff found that the permission to D to graze horses and to grow grass for hay for winter feed was in connection with and incidental to the business of the riding school He also found that "the purpose of the lease was for the running of a riding school with an entitlement to graze the horses on the subjects and to crop hay for the winter feed of the same" and that this came within the definition of agriculture in the 1991 Act. He concluded that as the fields were used to a substantial extent for the grazing of horses, the predominant use of the subjects was for an agricultural purpose
P appealed to the sheriff principal who allowed the appeal finding that for land to be used for agriculture for the purposes of the 1991 Act the substantial purpose of the lease had to be for use of the land for agriculture. In this case the substantial purpose of the lease was not for the grazing of horses but for the non-agricultural use as a riding school. He took the view that given that adequate notice of the wish to terminate was given the giving of the wrong date did not invalidate the notice. He said that there was no prescribed notice in a common law action of removing.
The Second Division decided that -
(1) for land to be used for agriculture in terms of the 1991 Act, the purpose of the lease must be for the use of the land for agriculture;
(2) in this case the purpose of the lease was the use of the land for a riding school and the rights to graze horses was merely ancillary and dependent on the operation of the riding school;
(3) the use of the land was therefore not for agriculture and the lease could not be of an agricultural holding in terms of the 1991 Act;
(4) the case of Rutherford v. Maurer was different in that there the purpose of the lease was the grazing of the horses, the riding school being carried on on premises not covered by the lease;
(5) in passing, Rutherford v. Maurer and Crawford v. Dun were wrongly decided in that on a common sense interpretation and bearing in mind the definition of “livestock” in the Act, “agriculture” in terms of the Act is the production of or direct contribution to the means of human subsistence or such that a lease of a field for the grazing of camels for the use of a commercial zoo could not involve the use of the leased land for agriculture;
(6) had the lease been of an agricultural holding the notice to quit would have been invalid but since it was not of an agricultural holding given that it gave sufficient notice, it was valid despite the error in the date of ish.
Comment:
This is an important case given that use of leased land for “agriculture” is a key pre-requisite for the security of tenure and other benefits given to tenants of agricultural holdings which are not available to other commercial tenants. It is also important for notices to quit.
The case seems rightly decided on the basis that looking the lease as a whole the use of the land was for a riding school which was not use for agriculture and that the agricultural uses that there were were incidental and ancillary to the principal non-agricultural use.
The obiter comments regarding Rutherford v. Maurer are not so convincing. Beginning with the 1949 Act Parliament decided on what tenants of leased lands should get benefits of that Act. As one of the touchstones they decided that the use of the leased land had to be agricultural. However they realized that there might be controversy over what uses were agricultural. They therefore decided to specifically provide that the word “agriculture” should include certain activities to avoid any doubt as to whether they might be “agriculture”.
Parliament did not so much define exclusively the meaning of the word “agriculture” as provided that it should include certain activities for the avoidance of doubt. In order to discover whether an activity is “agriculture” the approach appears to be to first consider whether it falls within the ordinary meaning of that word. If it is clearly within the ordinary meaning then one need go no further. If it is not, or if there is some doubt in the matter, one can go to the definition to see if the word “agriculture” has been specified to include the activity in question.
On a reading of the Oxford Concise Dictionary the definition is “the science or practice of farming including the rearing of crops and animals”. “Farming” is defined as the making of a living by growing crops or keeping livestock or using land for such purposes. If there had been no definition of agriculture in section 85 then the reasoning of the court would have been difficult to fault.
But section 85 (1) provides that certain activities are to be included within the word “agriculture”. Such activities include horticulture, livestock breeding and keeping, the use of land as grazing land, osier land and limited use of land for woodland where that use was ancillary to the farming of land for other agricultural purposes. Interestingly the last of these is qualified so as to be ancillary to the farming of land. The others are not.
Horticulture can be the growing of flowers for ornamental use. Osier land involves the growing of willows whose shoots are used in basketwork, which may be at least partly ornamental. Parliament felt that woodland would give the protection of the Act to too many undeserving tenants. Woodland was thus qualified. No such qualification was inserted for the use of land as grazing land or the other activities which need not be related to the production of food or drink.
The court said that because agriculture includes grazing, it did not follow that all forms of grazing constitute agriculture. That would be so but for the way in which Parliament appears to have approached the concept of agriculture. Parliament appears to have made a policy decision that whether or not they would fall within the common sense meaning of agriculture, grazing lets for one year or more (which will be unusual in any event) are to have the protection of the Act if they are for the purposes of a trade or business. Thus the commercial zoo which lets a neighbouring field for the grazing of its camels for a lease of one year or more, will have an agricultural holding and protection in terms of the Act.
It is interesting to note that the argument which the court upheld obiter in O’Donnell was one which was made and rejected by the Court of Appeal in Rutherford without even requiring the tenant’s Counsel to reply. Furthermore, in fairness to the court in O’Donnell neither side took issue with Rutherford so it did not have a contradictor.
The court relied on two cases in support of its view that Rutherford was wrongly decided. The first Forth Stud Ltd v. Assessor for East Lothian 1969 S.C. 1 was a case involving the meaning of the word “agriculture” unencumbered with the inclusive definition in the 1949 Act. It is not inconsistent with Rutherford. The other was Belmont Farm Ltd v. Minister of Housing and Local Government (1962) 13 P & CR 417. In that case the English Divisional court was not dealing with the use for grazing. It was concerned with an almost identical definition as that in the 1949 Act. The question was whether keeping horses for breeding and for show-jumping was “agriculture” in terms of the definition which provided that “agriculture” included livestock breeding and keeping. The Divisional court concluded that the words of inclusion in the definition of livestock acted as a restriction on the meaning of the word and that it could only include horses for breeding and show-jumping. How words of inclusion can act as a restriction is not entirely clear to this reader and the reasoning of the Divisional court seems unpersuasive. It seems to be that the ordinary meaning of agriculture must somehow, somewhere be implied into the statute to restrict the section 85 definition of agriculture itself.
The result would appear to be that the law has been left uncertain in Scotland, at least for grazing lets of a year or more. The better view would appear to be the one in Rutherford but who will challenge the Second Division’s obiter views ?
The author will return to the subject of notices to quit as soon a time allows !
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