Win some, lose some

This month’s briefing consists of short commentaries on three important decisions by the courts issued since I last contributed, with differing fortunes for landlords and tenants.

Trustees of The North Berwick Trust v James B Miller & Co

On 27 February 2009 the Inner House pronounced its decision on the appeal by the landlords against the Land Court’s dismissal (previously reported) of their application under s 24(1)(b) of the 1991 Act. The landlords sought consent to the operation of a notice to quit on the ground that their proposals to sell a small area of ground in North Berwick (representing the landlords’ whole estate) for housing purposes were desirable in the interests of sound estate management.

The appeal was refused on the grounds that the landlords’ proposals to obtain planning permission and then sell the estate did not constitute management, as such, as defined by the subsection, nor a change in management, in respect that the landlords would no longer have an estate to manage.

The Inner House disagreed with the Land Court that s 24(1)(e) could be invoked where planning permission for a non-agricultural use was required but had not yet been obtained, pointing out that that approach made it possible for a landlord to seek consent to the operation of a notice to quit even where there was little or no prospect of planning permission being obtained. The court went on to state that outline planning permission was sufficient for s 22(2)(b), as amended, to operate.

Fleming v Ladykirk Estates Ltd SLC/62/08

On 28 April 2009 the Land Court issued its decision following debate on a number of matters in relation to s 10A of the 1991 Act (added by s 66 of the 2003 Act, giving the tenant under a 1991 Act lease the right to assign the lease to a person entitled to succeed to his estate on intestacy).

The debate was wide ranging but there were two main issues. The first concerned the form of notice of intention to assign required by the tenant. The section provides that the notice must include the particulars of the proposed assignee, the terms upon which the assignation is to be made, and the date on which it is to take effect.

In short, the court held that notice setting out the name and address of the assignee, that the assignation was to be for no consideration and was to take effect on 1 October 2005, along with a covering letter to the effect that the assignee was the nephew of the tenant and that “as you [the landlords] may be aware”, he had been farming for a considerable number of years and was of sound financial standing, also offering to provide further details, was sufficient to constitute notice (including the particulars of the proposed assignee).

If (as they did) the landlords thought that they had been supplied with insufficient particulars in order to decide within 30 days, as required, whether or not to object to the assignation, it was for them to request such particulars – the tenant’s failure to respond to such a request being, perhaps, a reasonable ground for the landlords to withhold consent to the proposed assignation.

The second main issue was whether the probability that the landlord could look forward to the prospect of recovering possession in the foreseeable future under s 25 of the 1991 Act (as the tenant was at the time of the giving of the notice in his 80s and the assignee was his nephew – not, therefore, a near relative), was a reasonable ground for the landlord to withhold consent to the proposed assignation. The court held that it was not, being neither a breach of the landlord’s property rights under article 1 of the First Protocol to the ECHR nor in line with the intention of the Scottish Parliament. This intention had been that s 10A was to be available to tenants, provided that assignation was within the favoured class, as a matter of policy and without disturbing s 25.

No other guidance was given as to what constituted a “reasonable ground”.

This decision, which practitioners should read carefully, has wide implications for both landlords and tenants. It has clearly shifted the balance from the former to the latter and, suffice it to say, it has almost immediately been appealed by the landlords to the Inner House.

Telfer v Buccleuch Estates Ltd SLC/225/07

The latest round in the ongoing dispute between these two parties concerned the interpretation of s 5(4A) of the 1991 Act, introduced by the 2003 Act, s 60. This gives the tenant the right, by notice, following a determination of the rent, to nullify a post-lease agreement (PLA) provided that, on the date specified for nullification, (i) the buildings and other fixed equipment are in a reasonable state of repair; or (ii) if they were in an unreasonable state of repair when the agreement was made, they are not in a worse state of repair than they were then.

The case concerned, principally, head (i). Head (ii) has been referred for “further procedure” which, it seems to me, is an invitation to the tenant to amend his pleadings to allow consideration of the state of the fixed equipment at the time he entered the holding, in 1971.

Once more, there is no substitute for a close study of the court’s note on its deliberations with regard to head (1), although, conveniently, the main findings are neatly set out in eight paragraphs at the end of a lengthy document. The main headlines on head (i) are:

The tenant is required (under s 5(2)(b)) to repair an item of fixed equipment, even if the damage is due to natural decay (such as frost damage) or fair wear and tear (such as animals rubbing against a fence). The natural decay or fair wear and tear exception kicks in only where the item of fixed equipment requires to be renewed or replaced.

If particular provisions of a PLA can be separated from other provisions, it is appropriate to nullify only those provisions whereby the tenant is to relieve the landlord of the obligation to replace or renew fixed equipment rendered necessary by natural decay or by fair wear and tear.

Section 5(4B)(b) is to be construed as relating only to buildings or fixed equipment affected by the terms of the agreement.

An item of equipment which has not been declared to be redundant does not cease to be part of the fixed equipment simply because it is worn out and requires replacement.

The concept of a reasonable state of repair is an objective one, to be determined by looking at the state of the equipment without regard to the issue of which party is responsible for its condition. The court also stated (though it is not in its explicit findings) that the fixed equipment as a whole, and not item by item, requires to be in a reasonable state of repair. If some equipment is in a less good condition than the rest, that will not necessarily mean that the equipment as a whole fails the test, unless it is in such a significant state of disrepair as to require significant expense to remedy it. This, therefore, is a question of fact and degree.

It is not possible to construe s 5(4B) as if it included a provision allowing a PLA to be nullified when the fixed equipment was not in a reasonable state of repair but the work necessary to put it into that repair was to be carried out by the landlords.

Lastly with regard to head (i), the court indicated that, in accordance with the normal rule, the onus of proving whether or not the fixed equipment was in a reasonable state of repair lay with the tenant, albeit a concession by the landlords in this particular case that the burden of establishing that it did not apply rested on them was a helpful, practical concession in the circumstances of the case. The court did not, however, preclude further submissions on the point.

The court had no doubt, on the other hand, that the onus in relation to head (ii) lay on the tenant, and found that failure to make a record did not preclude the leading of evidence as to the condition of the fixed equipment at the date of the lease. Nor did it preclude the landlords from relying on other provisions of the lease – such as, in this case, that the tenant had accepted the buildings and fixed equipment as being in a sufficient tenantable and habitable condition and adequate for the purposes for which the farm was let.

Alasdair G Fox, Anderson Strathern LLPa