Agriculture: A right less exercised

It is safe to say that part 2 of the Agricultural Holdings (Scotland) Act 2003 (Tenant’s Right to Buy Land) caused some consternation among agricultural landlords at the time of its introduction. In practice, I am unsure to what extent the provisions have been used. North Berwick Trust v Miller SLC/220/06 touched obliquely on the issue of right to buy: the landlord argued (unsuccessfully) that the existence of the right was preventing it serving an incontestable notice to quit.

I know of only one case where a purchase has been carried through using the provisions. There will have been many instances of farms being sold to, or deals being done to buy out, the sitting tenant but in practice I think there have been few situations where the actual provisions have been used. However, they were considered by the Inner House in Sweeney, Noters [2020] CSIH 65.

The case concerned a longrunning feud between the Sweeney and Urquhart families. It centred on land in Inverness owned by a company, West Larkin Ltd (WLL), which after a chequered history was in liquidation. It was formerly owned by the Sweeneys. The Urquharts claimed they had occupied the land as agricultural tenants since 1990. The Sweeneys contended that the lease had terminated or was no longer an agricultural tenancy. If the Urquharts were agricultural tenants they would be entitled, if the land were offered for sale, to purchase it for about £28,000. The Sweeneys believed the open market value with vacant possession would exceed £1 million.

WLL’s liquidator agreed to sell the land to Amanda Urquhart, who had petitioned for the winding up, under the right to buy provisions at agricultural value. Not surprisingly, the Sweeneys opposed this disposal at what they saw as a knockdown price.

Joseph Sweeney sought an order that the liquidator challenge Urquhart’s right to buy the land, and rectification so that his name was listed in WLL’s registers of members. Separately Donalda Sweeney sought assignation of a debt from Urquhart, who opposed both notes.

After debate, Lady Wolffe dismissed Joseph Sweeney’s note and granted Donalda Sweeney’s. The unsuccessful party in each action appealed.

To challenge or not?

The history is complicated, but briefly Urquhart’s contention was that the land had been leased to her parents since October 1990 for 25 years at a rent of £1,250 per annum. In an action by the Urquharts in 2001, the sheriff granted summary decree declaring that they had an agricultural tenancy and interdicted Owen Sweeney from interfering with their use and possession of the land. The sheriff principal upheld that declarator but recalled the interdict. The Inner House subsequently held that there was an agricultural tenancy.

The winding-up petition was based on an unsatisfied decree for expenses in an action challenging a transfer of shares in WLL. In a third action, unresolved at the time of winding up, Urquhart sought rectification of WLL’s register of members to list her as a member.

Right to buy notices had been registered by Urquhart or her predecessors in 2006, 2011 and 2016. The liquidator did not challenge the last notice, and agreed to sell the land to Urquhart in terms of part 2 of the 2003 Act. In his note Joseph Sweeney argued that the liquidator should challenge this notice.

At first instance Lady Wolffe found that the liquidator’s decision that a challenge to the notice was not in the interests of the general body of creditors, was reasonable, taken in good faith and one open to him in the exercise of his powers.

The liquidator made his decision on the following factors:

1. The Keeper would not generally rescind a notice of interest without a court order.
2. The outcome of any challenge was uncertain.
3. The parties’ history suggested that any court proceedings would be robustly defended.
4. The cost of any litigation would be significant.
5. The land was only valued at £27,000.

Sweeney’s note submitted that Lady Wolffe had applied the wrong tests, and failed to consider the strength of the case and an offer of funding from another member of the Sweeney family.

Grounds for interference?

The Inner House considered the question of the liquidator’s responsibility rather than the validity of the right to buy. A court would only interfere if a liquidator’s decision was “so utterly unreasonable and absurd that no reasonable man would have done it”. Given the history, the animosity between the parties and the value of the asset, that test had not been met.

Although it was maintained for Sweeney that there was a strong argument that the agricultural tenancy had been abandoned, the liquidator stated that Urquhart would vigorously contest any such challenge on the bases that (a) given the earlier Inner House decision, strong evidence would be required to show that agricultural activities had been abandoned, neglect not being sufficient (Wetherall v Smith [1980] 1 WLR 1290); (b) the registration of the three notices had not been queried; (c) Urquhart was WLL’s only substantial creditor and did not wish a challenge to be made.

The Inner House found that having regard to the whole picture, the liquidator was entitled to determine that success was far from assured were a challenge to be made. The costs were substantial, the funding of such challenge problematic and the financial return in doubt. The liquidator’s decision to uphold the notice and proceed with a sale to Urquhart could not be characterised as “utterly unreasonable and absurd”.

The case was complicated by the relationship between the parties, the ownership of the shares, the fact that the actions of a party who held shares in the company resulted in the landlord going into liquidation, and that party also being the party entitled to exercise the right to buy. The challenge to the registration of the right might well have been more robustly pursued without the complications of the liquidation.