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SECOND DIVISION, INNER HOUSE, COURT OF SESSION
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Lord Justice Clerk
Lord Macfadyen
Lord Eassie
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[2007] CSIH 38
XA97/06
OPINION OF THE
LORD JUSTICE CLERK
in the Appeal
by
THE FIRM OF A C STODDART
& SONS, COLSTOUN (1995)
Tenant and Appellant;
against
BALFOUR THOMSON CA, Mrs
HILARY FLORENCE BURN CALLANDER and DOUGLAS ANDREW CONNELL WS (The
Trustees of the Colstoun Trust)
Landlords and Respondents:
______
|
For the tenant and appellant:
Sir Crispin Agnew of Lochnaw, QC; Morton Fraser
For the landlord and respondent:
Haddow QC; Turcan Connell
1 June 2007
Introduction
[1] This is an
appeal from the Scottish Land Court
relating to the tenancy of the holding of Colstoun Mains, Haddington. The tenant is a limited partnership. The landlords are the present trustees of the
Colstoun Trust.
[2] The
lease runs for fifteen years from Martinmas (28 November) 1995 to
Martinmas 2010 and thereafter from year to year until it is terminated by
either party on not less than one year's written notice. There are breaks at Martinmas in every third
year of the contractual term; but these are available to the landlord only. The breaks are exercisable upon the
landlord's giving to the tenant not less than one year's and not more than two
years' written notice.
[3] The
rent review clause is in the following terms:
"The Landlord and the Tenant may, by notice in
writing served on the other party not less than one year but not more than two
years prior to Martinmas in each of 1998, 2001, 2004 and 2007, demand a
reference to arbitration of the question of what rent should be payable in
respect of the farm as from Martinmas 1998, Martinmas 2001, Martinmas 2004 and
Martinmas 2007, and failing agreement between the landlord and the tenant as to
the said rent the question shall be referred accordingly."
[4] By
notice dated 27 November
2003 the general partner of the appellant demanded a rent review
in the following terms:
"I, Andrew Alexander Stoddart ... hereby demand a
reference to the Scottish Land Court to determine the question of what rent
shall be payable in respect of the above holding as from 28 November 2004,
being the next day after the date of this notice on which the tenancy could
have been terminated by Notice to Quit or Notice of Intention to Quit given at
this date".
On 26 November 2004 the tenant
applied to the Land Court for a
determination of the rent. Its pleadings
request the Land Court to revise the rent in accordance with section 13 of
the Agricultural Holdings (Scotland) Act 1991 (the 1991 Act), as amended by the
Agricultural Holdings (Scotland) Act 2003 (the 2003 Act).
[5] By Order
dated 12 May 2006 a Divisional Court, consisting of the Chairman and one
member, held that the tenant was entitled to have a rent review as at Martinmas
2004 carried out by the Land Court "on the basis of what is fair and reasonable
as between the parties to a continuing lease."
That is the Order appealed against.
Section 13 of the 1991 Act
[6] At
the date of the lease, section 13(1) of the 1991 Act provided as follows.
"Subject to subsection (8) below, the landlord or
the tenant of an agricultural holding may, whether the tenancy was created
before or after the commencement of this Act, by notice in writing served on
the other party, demand a reference to arbitration of the question what rent
should be payable in respect of the holding as from the next day after the date
of the notice on which the tenancy could have been terminated by notice to quit
(or notice of intention to quit) given on that date, and the matter shall be
referred accordingly."
[7] As
part of the major reform of jurisdiction in agricultural holdings disputes
effected by the 2003 Act, the jurisdiction of the arbiter under section 13 was
superseded by that of the Land Court (2003 Act, s 63; Sched 1, para 15).
[8] Section 13(1),
as amended by the 2003 Act, provides as follows:
"Subject to subsection (8) below, the landlord or
the tenant of an agricultural holding may, whether the tenancy was created before
or after the commencement of this Act have determined by the Land Court the
question what rent should be payable in respect of the holding as from the next
day after the date of the notice on which the tenancy could have been
terminated by notice to quit (or notice of intention to quit) given on that
date.
The
remainder of section 13 sets out intricate provisions for the valuation
exercise in a review carried out under that section. It provides for an open market basis of
valuation and gives detailed directions to the Land Court as to the way in
which it should deal with the sitting tenant factor, distortion of rent by
reason of scarcity of lets, comparison evidence, current economic conditions in
agriculture, improvements, dilapidations, non-agricultural uses of the holding,
and so on.
The decision of the Land
Court and its reasons
[9] The
Land Court held that the tenant was entitled under the rent review clause to a
review as at Martinmas 2004, and that, in light of the subsequent amendment of
section 13, the tenant's notice dated 27 November 2003 should be treated as if
it were a demand for a review by the Land Court. Its decision on these points is not
challenged by the landlords.
[10] However, the Land
Court held (1) that the tenant was not entitled
to have such a review carried out under section 13; and (2) that, instead, the review should be carried out on the basis
of what was fair and reasonable as between the parties to a continuing
lease. These are the two questions raised
in this appeal.
Applicability of section 13
[11] The Land
Court considered that the tenant was not entitled
to have the review carried out under section 13(1) because the break at
Martinmas 2004 was open only to the landlord.
It held that the plain intention of section 13 was that the right to
have a rent review carried out under it was available only to a party who had
the right to terminate the lease as at the review date. It expressed its conclusion on this point as follows.
"Where a break provision is explicitly in favour of
the landlord only there is no reason to think that Parliament intended to
confer an extra benefit on the tenant. We consider that the plain intention of the section [sc section 13] is that the giving of
notice relates to notice given by the person invoking the provisions of the
section" (Note, at p 8).
[12] The Land Court referred
to two particular considerations. The
first was that in the reference to the review date as being the next day after
the date of the review notice on which the tenancy could have been terminated "by
notice to quit (or notice of intention to quit)," the parentheses appeared to
be significant and conveyed the same sense as words such as "as the case may
be." If the real intention of that
provision had been that the right to a review was to be open to either party, whether
or not that party had the right to give notice terminating the tenancy at the
review date, there would have been no need for the parentheses. The Land
Court, however, came to accept the
submission for the tenant that, in light of the legislative history of the
section, little weight could be given to this point (Note, at pp 8-9).
[13] The second consideration, which the Land
Court thought was important, was
expressed as follows.
"However,
in looking at the intention of Parliament, we think that an important factor is
the need to look beyond the specifics of the instant case. The tenant's argument is, in effect, that the
word 'could' is not restricted by reference to the person giving the
notice. The argument is based on a
contention that no limitation is to be implied.
However, it seems clear to us that some limitation is necessary and a
limitation based on the power of the person giving the notice is an obvious one
which would work clearly and in accordance with commonsense expectation" (ibid, at p 9).
The court summarised its approach as follows.
"We are satisfied that the intention of the
legislation must have been to allow a party to apply for review of rent only
where the right to bring the lease to an end was within his control. It follows that the tenant
was not entitled to invoke section 13 in the circumstances of the present case"
(ibid, at p 10).
Basis of valuation
[14] The Land Court then had
to consider on what other basis the review could be conducted. It was satisfied that there was no real basis
for the implication that the parties intended from the outset to incorporate
the statutory review mechanism. It found
it difficult to imagine that the parties would freely have invoked section 13
as a method of settling their rent disputes.
This was its conclusion.
"In the context of attempting to identify what
parties must be assumed to have accepted at the time when they entered the
lease, we have no reason to suppose an intention to adopt the whole provisions
of [section 13] and there is no basis upon which an intention to adopt
part of it could be identified."
[15] Relying on City of Aberdeen Council v Clark (1999 SLT 613), the Land
Court then decided that "the basis of
rent should be a fair and reasonable one as between parties." It said that
"We are satisfied that the only reasonable inference
is that parties intended the arbiter to fix such rent as he thought fair and
reasonable. Although there is, of
course, much scope for dispute as to what is fair and reasonable in any
particular case, the lease provides, as between the parties, a fixed method of
having a rent determined. They will be
bound, without further negotiation, by the independent decision of the third
party ... we are satisfied that there is no real basis for an implication that parties
intended from the outset to incorporate the statutory mechanisms" (Note, at p
12).
Its overall conclusions were as
follows.
"For the reasons set out above, we conclude that the
tenant is entitled to seek review of rent in terms of the lease but not under
section 13; that the Court is able to act in place of the arbiter; and that the
basis of rent should be a fair and reasonable one as between parties. For avoidance of doubt, we add that we
consider that it would not be fair, as between parties to a continuing lease,
for a tenant to be rented on his own improvements, although the question of
what improvements are properly to be regarded as his own, may not be free from
difficulty" (Note, at p 14).
The submissions for the parties
[16] Counsel for the tenant
contended that on a proper construction of section 13(1) either party could
require a rent review under section 13(1) at any break point in the lease,
even if the break was open only to the other. The wording of section 13(1) pointed
unambiguously to that conclusion. In any
event, the Land Court erred in
its construction of the rent review clause, the proper construction being that a review
demanded in terms of it should be carried out in accordance with
section 13(1). If the intention of
the legislature could be invoked as an aid to construction, it was more likely
that that intention was to protect the tenant against unfairness in relation to
reviews during the contractual term (Johnson
v Moreton, [1980] AC 37, Lord Salmon at p 52G; MacFarlane v Falfield Investments, 1998 SC 14,
Lord President Rodger at p 28).
[17] Counsel for the landlord adopted the reasoning of the Land
Court on both questions. He submitted that the point as to the
parentheses in the amended section 13 had greater significance than the Land
Court had given to it. Section 13(1) should be read to mean, in a
case where the tenant sought a rent review, that the
tenant could require it only at the date at which he could have terminated the
lease by notice of intention to quit.
Because the 1991 Act gave the tenant the benefit of security of tenure,
that did not mean that it gave the tenant in this case the additional benefit
of the right to a section 13 review at a date at which it could not terminate
the lease. The arbitration contemplated
by the rent review clause, when required by the tenant at a break, would have been
conducted under the general arbitration provisions of the 1991 Act that then
applied (1991 Act, s 60, now amended by the 2003 Act).
Conclusions
The section 13 point
[18] In my
opinion, the Land Court has
erred on this point. The parties agree
that, in general, a rent review is competent at a break date (Strachan v Hunter, 1916 SC 901; Edell v Dulieu, [1924] AC 38). The question is whether in this case the
review that the tenant has required can be conducted under section 13 although
the tenant cannot terminate the tenancy at the review date.
[19] The Land
Court has reached its conclusion on this question
by considering what Parliament must have intended in enacting section
13(1). In my opinion, that approach to
the problem is both unnecessary and inappropriate if section 13(1) yields a
clear and unambiguous meaning (Stair
Memorial Encyclopaedia, vol 12, paras 1102-3; 1105, 1107, 1109). In my opinion, it does. On the plain wording of section 13(1), the
right to a review is open to either party at any date at which the tenancy
could have been terminated by notice to quit or by notice of intention to
quit. The section does not limit that
right by providing, as it could readily have done, that the right should apply only
at any date at which the lease could have been terminated by the party seeking
the review.
[20] In the
legislation before the 1991 consolidation, notice of termination of tenancy,
whether given by landlord or tenant, was referred to as a notice to quit
(Agricultural Holdings (Scotland) Act 1949, s 24). In the 1991 Act such a notice, when given by
the tenant, was referred to by the new nomenclature of "notice of intention to
quit" (s 21(2)). This required the
consequential amendment of section 13(1) by the insertion of the words "or of
notice of intention to quit." The fact
that those words were inserted in parentheses is, in my opinion, a matter of
style only. It cannot bear the
interpretation to which the Land Court
referred and for which counsel for the landlords contended.
[21] Since I
consider that the question turns on the construction of section 13(1), I
consider that the case law on trigger clauses in commercial leases to which
counsel for the landlord referred has no bearing on the point.
[22] I would not
have accepted the submission of counsel for the tenant that if the intention of
Parliament in section 13 could legitimately be considered, the likely intention
was that of protecting the tenant against unfairness in relation to rent
reviews during the term of the lease. The
valuation method set out in section 13 favours the tenant in certain respects;
for example, by providing that he shall not be rented on his improvements and
by requiring that scarcity should be valued out; but it favours the landlord in
other important respects, not least in requiring that the valuation should be
made on an open market basis and that the sitting tenant factor should be
disregarded. From section 13 as a whole,
I cannot discern any legislative intention of the kind suggested by counsel for
the tenant.
[23] I conclude
that on a straightforward construction of section 13(1), the tenant is entitled
to have a review as at Martinmas 2004 carried out by the Land Court under that
section, and therefore that the appeal succeeds.
The basis of
valuation
[24] On the view that I have taken on the first point, this question
does not arise. I should add however
that even if I had been of the view that the rent review demanded under the
lease was not to be formally conducted as a section 13 review, I would have
nevertheless have considered that such a review would have had to be carried
out on the basis of valuation set out in section 13.
[25] In an
agricultural lease, if the parties do not stipulate that a specific valuation
method should apply at any rent review during its currency (eg Dunbar and Anderson, 1985 SLCR 1),
the proper inference is, in my opinion, that the
well-known and well-understood provisions of section 13 should apply.
[26] Moreover, in
the rent review clause in this case the review dates correspond with the dates
of the contractual breaks at which the lease may be terminated by the landlord,
and the timetable for the serving of a demand for a review corresponds with the
timetable for service by the landlord of the notice to quit by which the
tenancy could be terminated as at those dates.
In turn, the duration clause reflects the provisions of section 21 of
the 1991 Act relating to the service of notices to quit and notices of
intention to quit. The review procedure and
the review intervals set out in the rent review clause exactly reflect the
provisions of section 13 as they stood at the date of the lease. In my opinion, these provisions imply that
the parties intended that any rent review that should be carried out at a break
should be conducted under section 13.
[27] This
interpretation of the rent review clause avoids an eccentric consequence of
the Land Court's decision; namely, that if the landlord, as the party in right
of the break provision, had required the review at Martinmas 2004, the review
would have been conducted on the open market basis provided by section 13;
whereas if the tenant had required it, it would have been conducted on the fair
and reasonable basis ordered by the Land Court.
[28] In City of Aberdeen
Council v Clark (supra), on which
the Land Court relied, a formal commercial lease that appears to have been
drafted in detail, failed to specify the valuation criterion by which an
arbiter was to conduct a rent review (at p 614). An Extra Division held that it was reasonable
to suppose, in the absence of any contrary provision, that the parties intended
that the arbiter would fix the rent on the basis of what was fair and
reasonable between the parties to the lease.
The Court considered it plain that, in the absence of any contrary
provision or indication, the implication would be that the rent should be
determined on the basis of the provisions of the existing lease as they
subsisted at the review date (at p 619).
[29] I doubt whether a rent review of an agricultural holding can be
meaningfully carried out in terms of such a vague formula. A rent review under section 13 is a complex
process in which numerous factors must expressly be taken into account or
disregarded. If a review is to be
conducted on the fair and reasonable basis envisaged by the Land
Court, it is impossible for the parties
to know whether or not the starting point will be open market value; or,
whatever the starting point is to be, which of the valuation factors in section
13 are to apply and which are not. Other
than by saying that the tenant should not be rented on his own improvements, the
Land Court has left
us in the dark as to what the fair and reasonable formula means in this context. That confirms me in the view that it never
occurred to the parties to provide for rent review on any basis other than that
specified in the 1991 Act.
Disposal
[30] I propose to your Lordships that we should allow the appeal and
return the case to the Land Court to carry
out a rent review of the holding as at Martinmas 2004 in accordance with
section 13 of the 1991 Act, as amended.
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SECOND DIVISION, INNER HOUSE, COURT OF SESSION
|
Lord Justice Clerk
Lord Macfadyen
Lord Eassie
|
[2007] CSIH 38
XA97/06
OPINION OF LORD MACFADYEN
in the Appeal
by
THE FIRM OF A C STODDART
& SONS, COLSTOUN (1995)
Tenant and Appellant;
against
BALFOUR THOMSON CA, Mrs
HILARY FLORENCE BURN CALLANDER and DOUGLAS ANDREW CONNELL WS (The
Trustees of the Colstoun Trust)
Landlords and Respondents:
______
|
For the tenant and appellant:
Sir Crispin Agnew of Lochnaw, QC; Morton Fraser
For the landlord and respondent:
Haddow QC; Turcan Connell
1 June 2007
[31] I agree
that, for the reasons given by your Lordship in the chair, the appeal should be
disposed of in the manner proposed by your Lordship.
|
SECOND DIVISION, INNER HOUSE, COURT OF SESSION
|
Lord Justice Clerk
Lord Macfadyen
Lord Eassie
|
[2007] CSIH 38
XA97/06
OPINION OF LORD EASSIE
in the Appeal
by
THE FIRM OF A C STODDART
& SONS, COLSTOUN (1995)
Tenant and Appellant;
against
BALFOUR THOMSON CA, Mrs
HILARY FLORENCE BURN CALLANDER and DOUGLAS ANDREW CONNELL WS (The
Trustees of the Colstoun Trust)
Landlords and Respondents:
______
|
For the tenant and appellant:
Sir Crispin Agnew of Lochnaw, QC; Morton Fraser
For the landlord and respondent:
Haddow QC; Turcan Connell
1 June 2007
[32] I agree that, for the reasons given by your Lordship in the
chair, this appeal should be allowed and the case returned to the Scottish
Land Court to carry out the rent review in
accordance with section 13 of the 1991 Act, as amended.
