Salvesen: the proposed fix

The Agricultural Holdings (Scotland) Act 2003, s 72, provided that, where a limited partnership is dissolved by the limited partner and, as a result, a 1991 Act tenancy comes to an end, the general partner can claim the tenancy in his own right. But, if he does, the landlord may terminate the tenancy at the end of three years (or later, if he chooses) by serving the notices required by s 73. However, where the limited partner took action to dissolve the tenancy between 16 September 2002 and 30 June 2003, the landlord was given the benefit of s 73 only where he obtained an order from the Land Court that the dissolution notice was issued otherwise than to deprive the general partner of rights accruing to him under s 72 (“a s 72(8) order”). If the landlord fails to obtain a section 72(8) order, the lease becomes a 1991 Act tenancy, with all that that means in terms of security of tenure, succession and statutory regulation.

Salvesen v Riddell

In Salvesen v Riddell [2013] UKSC 22, the Supreme Court found that this exception was a breach of the landlord’s property rights under ECHR, as it discriminated against landlords whose tenancies were terminated by notices given before 1 July 2003 (who cannot invoke s 73 to terminate the tenancies) as against those whose tenancies were brought to an end by actions taken on or after that date (to whom s 73 is available). The provision was, accordingly, outwith the legislative competence of the Scottish Parliament. The court’s judgment was suspended for 12 months to allow the defect to be corrected and for the correction to take effect.

Proposed draft order

The Government has now issued the draft Agricultural Holdings (Scotland) Act 2003 Remedial Order 2014 for consultation. The draft order serves to remedy two unlawful outcomes resulting from the defect identified by the Supreme Court, namely:

• where the landlord has been landed with a 1991 Act tenancy because the tenant’s notice taking up the tenancy was not contested; and
• where a dissolution notice served before 1 July 2003 has still to take effect.

The draft order does not, on the other hand, address cases where action has been taken by one or other party beyond the defect, e.g. the sale of the property by the landlord, or the parties entering into a bilateral agreement, for example a SLDT or LDT, or a new 1991 Act tenancy, or even the continuation of the existing 1991 Act tenancy.

In my view, the human rights of landlords in both these categories were just as much breached by s 73 being put potentially beyond their reach as those in other categories discussed below. I suggest that the effect of the Supreme Court’s judgment is that the offending provision of s 72 was void from the moment it was enacted in 2003, with the result that the Scottish Government should be looking at the problem as if it was starting again, from scratch, in 2003 and not in light of what may, or may not, have happened since. If that is correct, the defective provision affected all landlords where dissolution notices were served between the offending dates and accordingly the question of “remoteness”, in 2014, is technically irrelevant, although I can see that it may, in practice, be difficult to unravel the situation where the parties today are different, because of sale, than they were in 2003. Where they are, however, still the same parties, albeit in a different contractual relationship, that difficulty should not arise.

The draft remedial order proposes to address the defect in the legislation by identifying three different groups of tenants and landlords for whom solutions are required which are ECHR compliant, providing for each group a different avenue into s 73 as a means of recovering vacant possession, as follows:

1. Where the limited partner served a dissolution notice before 1 July 2003 which is still to take effect and the general partner takes up the tenancy, s 73 would apply.

2. Where the tenant has already acquired a 1991 Act tenancy as a result of the landlord not obtaining a s 72(8) order, the landlord will be given the option to convert into the s 73 process during the period of 12 months starting in November 2014 (allowing for a “cooling off period” during which the Government will offer to assist with mediation if required, in recognition of the long term nature and complexity of farming businesses and to provide for time for parties to discuss options and prepare for change).

I question whether a cooling off period is required, given that s 73 already provides for a period of approximately three years before vacant possession can be obtained. The cooling off period is, furthermore, of itself arguably discriminatory against landlords in this category. There is no cooling off period where the dissolution notice was given on 1 July 2003 or later. Furthermore, I cannot see why such landlords should have to opt into s 73, and consider that it should be available to them automatically (as it is to other landlords) unless they opt out.

3. Where the tenants’ claims for full tenancies have been challenged by landlords and proceedings have been sisted pending the outcome of the Salvesen case, if the case is removed from the Land Court, s 73 will kick in. If, on the other hand, it remains in court, discretion will be given to the court to decide when it is reasonable for the landlords to recover vacant possession.

The consultation process is to be completed on 7 February 2014.

NB This paper does not consider what compensation may be claimed, by landlords or by tenants (both may be adversely affected) for losses arising from the defective provision, about which the consultation paper is equally silent. This is clearly a matter on which practitioners should advise their clients soon, to ensure they are not, in due course, time barred.