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URL: http://www.bailii.org/scot/cases/ScotCS/2009/2009CSIH15.html
Cite as: [2009] ScotCS CSIH_15, 2009 SLT 402, 2009 Hous LR 40, 2009 SC 305, 2009 GWD 10-164, [2009] CSIH 15

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SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk

Lady Paton

Lord Clarke

[2009] CSIH 15

XA157/07

OPINION OF THE LORD JUSTICE CLERK

in the appeal against the decision of the Scottish Land Court by

THE TRUSTEES OF THE NORTH BERWICK TRUST

Landlords and Appellants;

against

JAMES B MILLER & COMPANY

Tenants and Respondents:

_______

For the Landlords and Appellants: Sir Crispin Agnew, QC; Gillespie Macandrew

For the Tenants and Respondents: Reid, QC; Turcan Connell

27 February 2009

Introduction

[1] The parties are landlords and tenants of a holding of 103 acres forming part of North Berwick Mains, North Berwick. This is an appeal by the landlords against a decision of the Land Court dated 2 October 2007 by which it dismissed as irrelevant the landlords' application for consent to the operation of a notice to quit.

The statutory framework

(1) Notices to quit

[2] The tenant of an agricultural holding is, in general, entitled to contest a notice to quit by means of a counter notice requiring that the operation of the notice should be subject to the consent of the Land Court (Agricultural Holdings (Scotland) Act 1991 (the 1991 Act), s 22(1)). The landlords seek consent on the ground that

"the carrying out [of the purpose for which the landlord proposes to terminate the tenancy] is desirable in the interests of sound management of the estate of which [the land to which the notice relates] consists or forms part" (1991 Act, s 24(1)(b)).

In its decision in this case the Land Court also discussed the possible relevance of one of the other statutory grounds for consent, namely that

"the landlord proposes to terminate the tenancy for the purpose of the land being used for a use, other than for agriculture, not falling within section 22(2)(b) of this Act" (1991 Act, s 24(1)(e)).

The tenant's right to serve a counter notice is excluded if the notice to quit is served on one of the grounds specified in section 22(2) (cf s 22(1)). If the ground on which such a notice is based is well-founded, the notice is incontestable. The ground specified in section 22(2)(b) is that

"the land is required for use, other than agriculture, for which permission requires to be obtained, and has been obtained, under the enactments relating to town and country planning."

The present wording of section 22(2)(b) results from an amendment made by the Agricultural Holdings (Scotland) Act 2003 (the 2003 Act, s 67).

(2) The right to buy

[3] Part 2 of the 2003 Act gives the tenant what is loosely referred to in the Act as the "right to buy," but is no more than a contingent right of pre-emption. The right is conditional on the tenant's having first registered his interest in acquiring the land (2003 Act, s 25). It arises only if the owner of the land, or a standard security creditor having the right to sell, proposes to make a transfer of the land or of any part of it, other than in an excepted case, to another person. In that event the owner or the creditor must give the tenant notice in writing of the proposal (ibid, s 26(1)(a)). The giving of the notice triggers the right to buy (ibid, s 28(1)(a)). The owner or the creditor also triggers the right when he takes any action with a view to the transfer of the land or any part of it and (i) the transfer is one of which notice to the tenant is required under section 26 and (ii) such notice has not been given (ibid, s 28(1)(b)). I need not go into further detail.

[4] Part 2 of the 2003 Act applies only during the subsistence of the tenancy. It does not restrict any right that the landlord may have to terminate the tenancy on any ground available to him and thereafter sell the land with vacant possession.

The background to the application

[5] In February 2004 the landlords entered into a development agreement with the Walker Group (Walker). The agreement gives Walker an option on part of the holding. It obliges Walker to pursue a planning application for residential and commercial development. If planning permission is obtained, Walker and the landlords are to co-operate in the sale of parcels of land to other developers.

[6] The holding is proposed for housing in the draft Local Plan. The landlords understand that, as a condition of any permission that it might grant, the planning authority would require them to enter into an agreement under section 75 of the Town and Country Planning (Scotland) Act 1997 by which they would transfer to the authority part of the land for a school extension and other community facilities.

[7] The tenants own Ferrygate Farm which is nearby. They propose that it should be the preferred site for residential development in the Local Plan. On 17 August 2005, the tenants registered their interest in acquiring the holding. Since then the landlords' development proposals have gone no further.

[8] If it were not for the right to buy provisions, the obvious strategy for the landlords would be to secure planning permission for development of the holding; to serve an incontestable notice to quit under section 22(2)(b) (supra) and, having recovered vacant possession, to realise the development value of the site. On that strategy, there would be no need for proceedings in the Land Court.

[9] The landlords fear that if they negotiate with the planning authority for the transfer of any part of the land under a section 75 agreement, or negotiate to sell any part of it to another prospective developer, they will trigger the right to buy the relevant part; and that, even if they can obtain planning permission without doing so, and can then serve notice under section 22(2)(b) (supra), they will be unable to negotiate for the sale of any part of the holding while the notice is outstanding. They aver that the exercise of the right to buy part of the holding will give the tenants a ransom strip. They also fear that if the tenants exercise the right to buy any part of the land before planning permission is obtained, the price will reflect only hope value (cf Lowe v IRC, 1985 SLT (Lands Tr) 12; City of Aberdeen DC v Skean Dhu plc, 1991 SLT (Lands Tr) 22) rather than the open market value that it would have with vacant possession and with planning permission in place.

[10] The landlords therefore seek to terminate the tenancy on the ground that to pursue their proposals is desirable in the interests of sound management of the estate which the holding constitutes. Termination on that ground requires the consent of the Land Court (1991 Act, s 24(1)(b), supra).

Conclusions

The relevancy of the application

[11] The short question in this appeal is whether the application is relevant. In my opinion, it is not. In applications under section 24(1)(b) the question is usually whether the landlord's professed purpose would constitute sound management of the estate. This case raises the question whether the landlords' purpose would constitute management at all.

[12] In my opinion, "management" in the context of this provision implies that if the landlord recovers vacant possession, he will make continued use of the estate (NCB v Naylor [1972] 1 WLR 908, Ashworth J at p 913F-G; Gemmell v Andrew 1975 SLT (Land Ct) 5, at p 8); and that in that event he will replace the existing form of use of the land with a different one (Peace v Peace 1984 SLT (Land Ct) 6, at p 7; Prior v J & A Henderson Ltd 1984 SLT (Land Ct) 51, at p 53). The proposed new form of management could involve continued agricultural use; for example, by an amalgamation of the holding with another holding on the estate to make an economic unit (eg Altyre Estate Trs v McLay 1975 SLT (Land Ct) 12; Leask v Grains 1981 SLT (Land Ct) 11). It could involve the sale of part of the holding to finance improvements to the remainder of the estate (Lewis v Moss (1961) 181 EG 685 (ALT); cf Muir Watt and Moss, Agricultural Holdings, 14th ed, para 12.36). It could also involve a non-agricultural use. In all of these cases the landlord's proposal will involve his continuing to manage the estate.

[13] Counsel for the landlords submitted that the landlords would be engaged in management of the estate by taking the steps necessary to obtain planning permission and, having obtained it, by taking the steps leading to the sale of the estate. I do not agree. All such steps would merely be preparatory and incidental to the object of the exercise, which is to sell off the whole of the holding for development. That would not constitute a change in the management of the estate. The landlords would no longer have an estate to manage.

[14] For this reason, I conclude that the application is irrelevant. If I am right, that is sufficient to dispose of the appeal.

Other issues raised in connection with the 1991 Act

The effect of the amended section 22(2)(b) of the 1991 Act on section 24(1)(e)

[15] At the request of the Land Court the parties addressed it on the relevance, if any, of section 24(1)(e) (supra), which is directly linked to section 22(2)(b) (supra). Under the original wording of section 22(2)(b) and its predecessors, the landlord was entitled to serve an incontestable notice to quit on the ground that the land was required for a use, other than agriculture, for which planning permission had been granted or for which, "otherwise than by virtue of any provision of the [planning acts]," such permission was not required. The landlord could invoke that provision only if he had obtained planning permission or if he was exempt from requiring it, not by virtue of the planning acts themselves but by reason of some quite separate and independent principle. This related to the case of Crown immunity. But if the landlord was exempt from requiring planning permission because the planning acts so provided, he could terminate the tenancy for the purpose of a non-agricultural use only with the consent of the Land Court under section 24(1)(e) (Minister of Agriculture, Fisheries and Food v Jenkins [1963] 2 QB 317). The typical case was afforestation.

[16] The amended wording of section 22(2)(b) is more straightforward. It entitles the landlord to terminate the tenancy where planning permission for the proposed non-agricultural use requires to be obtained and has been obtained. Section 24(1)(e) remains unamended. It entitles the landlord to terminate the tenancy, with the consent of the Land Court, for the purpose of a non-agricultural use "not falling within section 22(2)(b)."

[17] The Land Court came to the surprising conclusion that, in consequence of the amendment to section 22(2)(b), the landlord could invoke section 24(1)(e) where he required to obtain planning permission for the proposed non-agricultural use but had not yet obtained it.

[18] In my opinion, section 24(1)(e) is of no relevance to this case; but I should say that I do not agree with the Land Court's interpretation of it. Under its amended wording, the landlord can invoke section 22(2)(b) only where planning permission is required and has been obtained. Since the amended section 22(2)(b) excludes the case where, for a reason outwith the planning acts, planning permission is not required, that case now falls within section 24(1)(e). With that change, in my view, section 24(1)(e) now applies to any proposed non-agricultural use for which planning permission is not required at all.

[19] If the Land Court's view were right, it would be possible for a landlord to seek consent to the operation of a notice to quit for the purpose of a non-agricultural use requiring planning permission in circumstances where he had little or no prospect of obtaining it. I cannot see why the Land Court should have the power to grant consent under section 24(1)(e) to the operation of a notice to quit on the ground that the landlord has a purpose that he is in no position to fulfil. To make any informed decision in such a case, and particularly in view of the new requirement that it should have regard to community benefits (s 24(2), added by 2003 Act, s 67), the Land Court would have to assess the likelihood of the landlord's being granted planning permission and, in so doing, would have to trespass on the province of the planning authority, perhaps on an inadequate knowledge of the relevant considerations. I can see no good reason why the amendment of section 22(2)(b) should have made such a radical change to the meaning and effect of section 24(1)(e).

The effect of the amended wording of section 22(2)(b) of the 1991 Act

[20] The Land Court also considered whether it is sufficient for the now amended section 22(2)(b) that the planning permission should be in outline only. A doubt has arisen on that question because of the Explanatory Notes to the 2003 Act which comment on the amendment as follows.

"[As amended], section 22(2)(b) of the 1991 Act is only complied with where the land is required for use, other than agriculture, for which [planning] permission both requires to be, and has been, obtained under the Town and Country Planning Acts. In short, it is only complied with where the proposed development has been scrutinised, and permission has been granted, by the planning authorities. Consequently, neither outline planning permission nor permitted developments, which do not require full planning permission, comply with section 22(2)(b) as amended. In these situations, the tenant will always be able to serve a counter notice and thus require the notice to quit to be scrutinised by the Land Court."

The same interpretation was given by the Minister in a statement to the Rural Development Committee of the Scottish Parliament during the passage of the 2003 Act. He said that the amendment would "ensure that a landlord would be unable to use outline planning permission as a ground for terminating a tenancy."

[21] In my opinion, that interpretation of the amendment is misconceived. In its previous wording section 22(2)(b) applied to a permission "granted on an application made under the [planning acts]." In its present wording it applies to a permission that "requires to be obtained, and has been obtained, under the [planning acts]." There is nothing in the amended wording to suggest that the nature of the permission to which paragraph (b) refers has changed in any way.

[22] In my opinion, an outline planning permission was, and still is, a permission within the meaning of section 22(2)(b). The wording of the equivalent English provision, so far as it relates to a permission granted on a planning application (Agricultural Holdings Act 1986, s 26(2); Sched 3, Case B(a)), is the same as the original wording of section 22(2)(b). The English writers have taken the view that for the purposes of that provision, an outline permission suffices (cf Muir Watt and Moss, op cit, para 12.50; Scammell and Densham, Law of Agricultural Holdings, 9th ed, para 32.19). They have generally cited the decisions of the county court in Dow Agrochemicals v E A Lane (North Lynn) Ltd ((1965) 192 EG 737) and of the Court of Appeal in Paddock Investments Ltd v Lory ((1975) 236 EG 803) in support of that view. Although those decisions provide only the most tenuous foundation for it, it has nevertheless been the accepted view on the point on both sides of the border for over thirty years. If the amendment to section 22(2)(b) was intended to depart from it, I would have expected it to say so explicitly.