THE COURT

(Lord McGhie, Mr J A Smith)

EXECUTORS of the LATE MRS J M GRAHAM v THE DEANSTON PARTNERSHIP

(Application SLC 1/13 – Order of 12 February 2014)

AGRICULTURAL HOLDINGS – SHORT LIMITED DURATION TENANCY – IRRITANCY – NON-PAYMENT OF RENT – FAILURE TO GIVE FULL POSSESSION – MUTUALITY - CONTRACTUAL EXCLUSION OF MUTUALITY ­ - SUBJECTS RESERVED FROM LEASE – DIVIDED OWNERSHIP – TWO LANDLORDS – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 2003 SEC 1, SEC 18, SEC 19 – REQUIREMENTS OF WRITING (SCOTLAND) ACT 1995.

Landlords of a farm sought to exercise a contractual right of irritancy based on the tenants’ failure to make timeous payment of the rent. The tenants contended that the purported written lease was invalid and that they had to be treated as holding under a 1991 Act tenancy. They contended that they had not had full possession of the subjects leased because the farmyard had been used by another tenant for business purposes; that tenant had occupied some of the buildings; a shooting tenant had made use of the lands; and they had been put out of a wooded area which had been conveyed to a new owner. They also contended that the failure to pay rent was because the capacity of the working partner had been impaired by health difficulties he had due to his problems with the neighbouring tenant and the landlord’s actings in relation to that tenant. Following a debate on the relevancy of the answers, the Court allowed further submissions to be lodged on certain aspects and dealt with certain factual issues as to the status of the wooded area by ordering a Report from a member.

HELD that the lease was valid and that the notice of irritancy had been properly served. The express provisions of the lease prevented the tenant relying on any breach by the landlord as a justification for non-payment of rent. In any event the breaches complained of were either unfounded or not of sufficient materiality to allow retention of rent on the principle of mutuality. The landlords were not responsible for the conduct of their other tenant. A landlord was not acting oppressively in not making allowances for the effects of a tenant’s illness. Although the implications of having two landlords were far from clear cut in relation to questions of notice or enforcement of remedies for non-payment of rent, these problems did not arise in the present case because the lease expressly reserved the woods to the landlords. This had the effect of excluding the woodland in question from the subjects leased to the tenants. There was, accordingly, no division of ownership of the tenanted subjects.

The Note appended to the Court’s Order is as follows:

[1] In this case the applicants seek to enforce an irritancy based on the tenants’ failure to pay rent timeously. We refer to our Note of 20 August dealing with the debate heard at Edinburgh on 1 August 2013. At debate Mr Lewis Kermack, solicitor, for the landlords, contended that the tenants’ Answers disclosed no relevant defence. Mr Hogg appeared for the respondents. We dealt in the Note with the main issue of the validity of the Short Limited Duration Tenancy (SLDT) and were satisfied that the appropriate formal steps had been taken to enforce the irritancy provision which appeared to arise on the tenants’ admitted failure to pay due rent.

[2] However, although not disclosed by the respondents’ pleadings, two matters arose in course of the discussion which we thought might possibly provide a relevant defence to the irritancy. Irritancy is well described as a Draconian remedy. It is one the landlords are entitled to use but, as we explained in the Note, we felt it appropriate to give further consideration to both matters. The first was the possibility that the tenants had a right to withhold rent on the principle of mutuality so that rent was not properly “due”. The possibility of such argument was based on the assertion that the landlords had failed to give full vacant possession of the subjects because of a previous conflicting lease to Mr Buchanan, the domestic tenant. This might have pointed to a relevant breach of contract by the landlords.

[3] The second matter arose from the emergence of the fact that part of the farm had been sold or disposed of to a third party after the date of the SLDT and before the attempt to enforce the irritancy. This had been drawn to the attention of the applicants and the Court in an email from Mr Hogg of 5 July 2013 but the details were not clarified at the debate. It appeared that there was some division of ownership. The legal consequences of this are not free from difficulty but, unsurprisingly, Mr Hogg did not attempt to make any submissions on the point simply complaining that the applicants were trying to evict him from land they did not own.

[4] As we thought it possible that Mr Kermack’s submissions had been unduly restricted because of concern about Mr Hogg’s anxiety state, we invited further submissions to deal with both matters. Both parties provided detailed written submissions. Mr Hogg’s submissions came in a series of emails and went well beyond the two matters identified in the Note. We shall attempt to comment on some of the new issues he has raised but our main concern is with the matters arising from the debate.

[5] We are satisfied that much of the material relied upon by Mr Hogg is simply irrelevant. For example, Mr Hogg has referred to observations made by various persons in relation to other disputes. This Court would respect the views of a Sheriff in a written judgment but reports of observations which may have been made in the course of proceedings in other cases – however supposedly similar the circumstances – do not provide secure guidance. The views of other lawyers and accounts of concessions made in other contexts are of no assistance. It is well established that questions of law are for the court to determine. A court has to make that determination on the basis of any relevant statutory material, any principles laid down in authoritative books or in authoritative previous decisions. Courts do not rely on the views of witnesses as to what they think the law is. The respondents’ requests to be allowed to lead evidence on issues of law are simply misconceived.

[6] It is unnecessary for us to deal with the detail of Mr Hogg’s criticisms of the personal conduct of the professionals acting on behalf of the applicants. We think they are without substance but they are in any event irrelevant to the substantive issues. He does not dispute that Mr Pintus is a trustee but contends that there is some invalidity arising from the failure of Mr Pintus to designate himself as a solicitor. He refers to some English and European rules supposedly bearing on this issue. However, the formal requirements of this Court do not require any such separate designation. He suggests that various inducements were offered to persuade him to enter a new agreement. This type of negotiation is at the heart of all commercial transactions and to attempt to characterise it as bribery is also misconceived.

[7] It is also important to stress that following the debate we reached a concluded view that the lease signed on behalf of the partnership was a probative writ and that the parties were bound by its terms: see Note at [12]. It was not our intention to open that to further debate. But in any event, nothing in the material now advanced on behalf of the respondents creates any doubt on this matter. The respondents do not appear to dispute that they have a lease. They argue that, despite its label, it is not a short limited duration tenancy (SLDT). They say that it is a 1991 Act tenancy. However, it is clear that such an argument is excluded by the provisions of section 1(2)(b) of the 2003 Act. That section provides that the 1991 Act will not apply to a lease entered after 2003 unless the lease says expressly that the 1991 Act is to apply. The agreement in this case said nothing of that sort. Mr Hogg has contended that this provision is incompatible with the European Convention on Human Rights and the Equality Act 2010. But he has provided no tenable arguments in support of this contention and we can see none.

[8] In the respondents’ pleadings the main contention was that there never was a valid lease. It was said that the supposed SLDT was null and void. Several of the submissions can be seen to turn on this challenge to the lease. We did not accept it. It may be added that we do accept that it is necessary, for the purpose of determining the character of a legal agreement, to look at the substance of what is agreed rather than the label. We are satisfied that the probative agreement entered between the parties dated 30 April and 10 and 17 May 2010 had effect as a short limited duration tenancy within the meaning of section 4 of the 2003 Act. It was a let of agricultural land for a period of not more than five years; it was not a 1991 Act tenancy; and it was not a lease for grazing or mowing.

[9] In terms of section 18(1) it was open to the landlord and tenant to provide in the lease what grounds there were to be for irritating the tenancy. The Act expressly provides that the provisions of the Act as to termination of an SLDT do not affect the right of a landlord to remove a tenant who, for any reason, has incurred and irritancy: section 19. The only statutory restriction relevant to the present circumstances was the requirement of two months’ notice under section 18 (7). We are satisfied that such notice was given. We are also satisfied that assertions of failure to comply with the provisions of Form H are irrelevant. We are satisfied that this form is not required in relation to a notice of irritancy.

[10] The respondents advanced various arguments in their written pleadings based on discussions about some proposed agreement revising the lease. We note that the applicants also make reference to these discussions. However, we are not persuaded that any concluded agreement was reached. The respondents’ assertions in relation to these discussions are irrelevant to the issues before us.

[11] We turn to the matters raised in our Note. We looked at the possibility of there being a defence to the irritancy under two possible broad heads: the question of whether the tenants might have been entitled to withhold rent so that no rent could properly be said to have been due at the date of irritancy; and the question of whether there might be two landlords. The first head depended upon the principle of mutuality. For reference, it may be said that this topic is explained and discussed in McBryde on Contract paras 20-44 to 20-61. For present purposes it is enough to say that the principle may apply where the party entitled to receive rent has been involved in such breach of their own obligations under the contract, that the tenant is entitled to withhold performance of the obligation to pay rent. If so, it will not be possible to say that rent is “due”. We are now satisfied, for two separate reasons, that this principle does not assist the respondents in the circumstances of the present case.

[12] The main reason is that we are bound by the decision in Skene v Cameron 1942 SC 393 to accept that operation of the principle of mutuality in relation to payment of rent can be excluded by express contractual provision. We accept the applicants’ submission that the terms of clauses 12 and 16 have the effect of precluding reliance on mutuality in that regard. In other words there is no doubt that the rent was indeed due to be paid on 1 November 2012 even if the tenants might not have had full possession of all the land to which they were entitled in terms of their lease.

[13] In these circumstances it is unnecessary to consider the detail of any possible breach by the landlords. However, even if there had been no contractual provisions covering the point, it is well established that a breach must be of some materiality to justify operation of the principle of mutuality. A breach requires to be “material” before it can justify operation of the principle of mutuality: Alexander v Royal Hotel (Caithness) Ltd 2003 SLT 13 at para [18]. What is to be regarded as a “material” breach will depend on the nature of the tenant’s obligation; in this case an obligation to pay rent.

[14] Our second reason for concluding that the tenants cannot rely on the principle of mutuality is that we are satisfied that the tenants’ contentions do not provide any basis for a finding that there had been any breach by the landlords of sufficient materiality to justify withholding rent. The defence turns on an assertion that the landlords failed to give the tenants full possession of the farm. At debate Mr Hogg’s complaint was expressed in terms of the use of the yard by Mr Buchanan for his bus business. However, the point has been amplified to cover four separate contentions relating to: the vehicular use by the domestic tenant; the use for sporting purposes; the lease of some sheds; and the exclusion from the “D” shaped area. (We discuss this last more fully below). We look at these in turn in the context of the alternative issue of materiality. But to avoid misunderstanding, we repeat our conclusion that consideration of these matters is unnecessary having regard to the terms of the contract.

[15] We are satisfied, from the terms of the domestic lease now lodged by the landlords, that the landlords did not grant competing rights to use the farmyard. They are not responsible for Mr Buchanan’s use of the yard for business purposes. The implications of this were discussed in a previous action between the parties (SLC-130-11) and reference may be made to the Note of 1 December 2011 in that case. Mr Hogg’s main complaint related to the business use but it appears that there had been some discussion in that case of the problem of parking for private cars. We have now seen the domestic lease. There are no express provisions about vehicles but it may well be implicit in the domestic lease that Mr Buchanan had a right of access over the roads and a right to park private cars near his house. We recognise that there is a dispute between parties as to whether such parking necessarily involved use of ground covered by the respondents’ lease. However even if it did, any breach which might be spelled out from such a grant would be insignificant.

[16] We accept the landlords’ contention that assertions of a conflict with use for sporting purposes are misconceived. Reservation of shooting rights is common in an agricultural lease. There has been no suggestion of any actings in relation to shootings which would be outwith the scope of the Reservation at (F) in the respondents’ lease. But, in any event, unless the landlords had expressly granted excessive rights to a shooting tenant any inappropriate conduct by the shooting tenant would be the fault of that tenant rather than the responsibility of the landlords.

[17] Mr Hogg laid some stress on the contention that the landlords had given permission to Mr Buchanan to use the sheds and outbuildings which were covered by his lease. The written pleadings on which Mr Hogg went to debate did not make any such assertion and it is denied by the applicants. However, a failure by landlords to provide vacant possession of farm buildings could well be a material breach and, with some hesitation, we accept that it would have been appropriate to allow further exploration of this issue had it not been for the provisions of clauses 12 and 18. Our hesitation arises from the thought that, faced with the present explicit denial of such agreement, it is not to be expected that formal procedures for recovery of a written document would be likely to produce hard evidence. The respondents assert that Mr Buchanan told them he had an agreement with the landlords but having regard to the nature of his overall complaints against Mr Buchanan, it is clear that something more would be required. However, as we have indicated above, we are now satisfied that the provisions of the contract preclude this line of argument.

[18] We are also of the view that any failure to provide possession of the “D” shaped area now owned by Woodbourne Nominees Ltd would not have been a breach of such materiality as to be capable of giving rise to a right to withhold payment of rent. We return below to the quite separate issue of divided ownership but even if it is assumed that the respondents were entitled to possession of this area under their lease, we are satisfied that, having regard to the overall extent of the farm and the nature of the land in question, any such breach could not be thought to be of sufficient materiality to justify the tenant in withholding performance of the obligation to pay rent.

[19] In relation to these four different heads of assertion, we recognise that we are considering matters at debate and there has been no express agreement between parties on various matters of fact. However, we are satisfied that our approach has been to the benefit of the tenants. Had we taken a formal approach we would have been limited to consideration of the issues raised in their pleadings. The tenants’ did not purport to justify non-payment of rent on the basis of retention due to a material breach by the landlord. We have explored these matters because we recognise that irritancy is a heavy weapon particularly against a party litigant. However, we are satisfied that there was a probative lease and, in terms of it, the landlords had a right to irritate on the tenants’ failure to pay the rent due on 1 November 2012.

[20] Divided ownership

[21] Although satisfied that the “landlords” had a right to irritate, a separate question arises in relation to whether the present applicants are indeed the landlords. The issues which arise in relation to the contention that the applicants are not landlords of the whole land leased to the respondents are quite distinct from the issues which we have looked at above in relation to the question of whether the landlords had a right to irritate. If the subjects of lease had come to be owned by two landlords, questions would arise as to the need for the various owners to act together. However, for reasons discussed below, we are satisfied that there was no relevant division of ownership in this case.

[22] In the pleadings, the only doubt about the ownership was an assertion that “Hugh Lowther visited the farm in May 2011 and stated that he was the landlord”. This was followed by a reference to a letter from Baird and Lumsden “stating that he was now the landlord”. For present purposes it may be assumed that this was intended to be an assertion that the letter was one sent to the respondents and that the “he” was a reference to Mr Lowther. However, Mr Hogg did not attempt to rely on this at debate and seemed to accept that the applicants were still landlords except for the piece of land which has been labelled the “D” shaped area. (It may be observed that our Note discussed this in terms of a “triangular” area but this seems to have been a misunderstanding. The “D” shaped area does lie within a small triangular area. It is not a perfect “D”. Further detail can be found in the Report discussed below).

[23] We are now satisfied by the applicants’ explanation that Mr Lowther was a potential beneficiary. He had expected the trustees to denude in his favour. However, that had not happened. Title remains with the applicants. For present purposes, it is clear that the applicants are entitled to be regarded as landlords and that the interests of a potential beneficiary – even one who may ultimately come to be entitled to possession of the whole subjects – does not alter that: Fforde v McKinnon 1998 SC 110. It is unnecessary to say more about the role of Mr Lowther.

[24] It does seem clear, however, that what has been described as the “D” shaped area had been conveyed to Woodbourne Nominees Ltd before the irritancy. If that land was included in the lease, the consequence of this conveyance would have been that, at the time of the purported irritancy and the date of initiation of the present proceedings, the lease would have had two landlords. This would have cast doubt on the validity of the actings of one only.

[25] The applicants contended that the “D” shaped area was not part of the subjects let. Although it clearly lay within the boundary shown on the plan attached to the lease, they contended that it was excluded by the reservations within the lease. The relevant part of the reservation clause provides as follows:

“There are reserved to the Landlords:-

(D) all woods, trees, brushwood and plantations (with grass therein) and the ground occupied by them on the Farm …. it being understood that all pasturage or woodlands occupied by the Tenant will be so occupied by mere tolerance and may be withdrawn at the Landlords’ option”.

[26] In relation to the lease under discussion in Thomson v Murray 1990 SLT (Land Ct) 45, the Court drew a distinction between exclusions and reservations. Such a distinction could well be a helpful guide to construction; particularly in the context of a lease which bore to identify two different categories. However, we do not regard the labels as definitive. The important issue is to determine the intention of the parties from the language used by the lease as a whole. In the present case all matters which might have been dealt with by way of exclusion from an agricultural lease are expressed as reservations. For example the mineral and sporting rights are reserved and the intention is plainly that these rights are excluded from the subjects let to the agricultural tenants. We consider that, properly understood, the intention was that the woodlands were excluded from the lease. Any possible ambiguity which might have limited this to exclusion of growing timber is covered by the express reference to the “ground”.

[27] The applicants drew attention to the doubt expressed by the Court in Thomson v Murray in relation to the provision that woodlands might be occupied by mere tolerance. It was suggested that this might be inconsistent with the provisions of the 1949 Act and was also a matter which might affect renting. However, we do not share these doubts. If a particular area is excluded from an agricultural lease, it will not be subject to the provisions affecting such leases. Rent for the subjects of lease will not include land which is not let. We can see circumstances in which such considerations might have a bearing on the question of whether particular land was indeed excluded from the lease. It may be noted that we put the matter in that way because we can proceed, for purposes of this case, on the view that where land appears on plan to be within a farm boundary, the onus is on the landlords to show that it is not part of the leased subjects. However, in the present case, the effect of the reservation seems clear.

[28] The landlords accepted that the status of the “D” shaped area was an issue which might require proof. However, we considered it likely that the relevant facts could properly ascertained by way of report. We were satisfied that Mr Smith was specially qualified by his experience in agricultural matters and experience as a member of the Court to make a determination as to whether the relevant area was currently occupied as woodland and if so whether it had been so occupied in 2010. We refer to his Report. The Report was submitted to parties for comment. Neither challenged the findings in the Report.

[29] When the Order appointing a Report to be made was intimated, Mr Hogg responded to say in terms that the land was “woodland” adjoining a rough grazing. He contended that he made use of it as a natural shelter and hard standing. He calculated that use of the wood was worth £3000 per annum. We do not doubt that any stock in the field would make use of the woodland for shelter and that this would be of value. We need express no view as to the likely monetary value. It may be added that we think it unnecessary to make any findings as to whether the respondents were ever dispossessed by actings of the owners of the land. There is nothing to prevent stock moving on to the “D” shaped area. Actings by third parties, such as the Scottish Government Rural Payments Agency are not necessarily attributable to the owners.

[30] We are satisfied that the “D” shaped area does not fall to be regarded as part of the land leased to the respondents. The Report states that the physical features mark out this area quite clearly. It is now part of a wood. The Report also states that the present position would not be significantly different from the state of affairs in April 2010. In other words, the extent of the ground occupied by the wood at the time of the lease is not in doubt. “Woods” and “the ground occupied by them” are expressly reserved. We are satisfied that the intention of the parties, as expressed by the lease, must, on a fair construction, be taken to have been to exclude this area. The parties can be taken to have recognised that as the area was not securely fenced, stock might use it for shelter, if not for grazing, but the clause expressly deals with that. Such occupation as the tenant made of the wood was to be by licence. Although the term “licence” does not have such a clear meaning in Scots law as it may have in England, the intention of the parties in this case was clear. Licence implies permission rather than any grant of right. The landlords permitted the use. But the respondents were not given a right which they could assert against the landlords if the permission was withdrawn. Use by licence in this context is plainly to be contrasted with use by right of lease. This is a practical provision which avoids any issues of responsibility for fencing or for straying cattle.

[31] As we accept that the “D” shaped area was not part of the subjects leased to the partnership, the implications of “divided ownership” do not arise for decision in the present case. We heard no submissions on the issue and it is sufficient to indicate briefly that we are not yet persuaded that the absence of any active involvement by Woodbourne Nominees Ltd in respect of the irritancy would have prevented the applicants from enforcing it.

[32] At the debate the respondents’ arguments in relation to the “D” shaped area were confined to an assertion that they had been dispossessed of this land and that this was a breach by the landlords. Their more recent assertions about identification of landlords seemed to be based on their experience of a previous litigation against them case where the wrong person had raised the proceedings. Fforde v McKinnon is an example of such a situation. But the questions which arise in relation to divided ownership are not the same as the question of error in identifying the proper landlord. On all the material before us it is tolerably clear that the applicants will establish that they are the persons to whom rent should have been paid. They seek a contractual remedy in respect of non-payment. On any view of the matter they are owners of virtually the whole farm. The question which would have arisen had the “D” shaped area been part of the leased subjects is whether in such circumstances they could not exercise any remedy for non-payment unless the other owner took an active part in the proceedings.

[33] It is clear that there may be situations where it is necessary for all the owners of land affected by an agricultural lease to act together: the material discussed by Lord Gill at paragraph 3.05 is to that effect. However, Morag Wise QC, as she then was, sitting as Temporary Judge, had occasion to explore the common law aspects of divided ownership in Crewpace Ltd v French, 2012 SLT 126. She concluded that there was no concept of a joint landlords’ interest where the title to land was divided. A conveyance of part of leased subjects would give the disponee no rights in the remainder of the farm: p137 H-K. It was recognised that there might be circumstances where the protection given to a tenant by legislation required both landlords to act as one but the Temporary Judge was satisfied that Lord Gill’s observations could properly be seen as limited to that context: p138 C-D.

[34] A requirement that the landlords must act together can present real difficulties and it is not clear that the legitimate interests of the tenant require such an approach in every situation. For present purposes it is enough to say that we find some attraction in the view that the need for joint action should be limited to cases where that is clearly justified by the requirements of statute or the protection of an identified interest. The English case of Bebington v Wildman [1921] 1 Ch 559 is a good example of the latter. Each landlord independently purported to give notice to quit the subjects he owned. Each notice was accordingly an attempt to give notice to quit part of the holding. It was not disputed that such a notice was ineffective. A tenant cannot be compelled to leave part of the land and remain bound as tenant in relation to the remainder. The case turned on the unsuccessful contention that the two notices could be taken together.

[35] We are satisfied that now that the two matters referred to above have been properly explored, it can be seen they do not provide a defence to the irritancy. The doubts we had as to the possibility of a right of retention under the principle of mutuality and the possibility of technical difficulty arising from the disposal of the “D” shaped area have been resolved. We have considered the range of other issues mentioned in correspondence by Mr Hogg. As discussed above we find no relevant merit in them. It may be appropriate to add, for completeness, that we did initially have a concern as to the use of irritancy against a person whose failure to pay might have been attributable to illness. This was referred to in the formal Answers and dealt with briefly by the applicants at debate under reference to HMV Fields Properties Ltd v Skirt and Slack Centre of London Ltd 1982 SLT 477. We heard no submissions from Mr Hogg in response. It is sufficient now to say that on the basis of his assertions in court and his averments, Mr Hogg’s main contention is that his more recent mental health problems might be attributed to the conduct of Mr Buchanan. For present purposes it can be accepted that the stress of constant dispute with neighbours might give rise to mental health problems. The problems of dealing with Mr Buchanan were explored in some detail in the previous proceedings between the parties. We are satisfied that the applicants are not, as landlords, responsible for all the conduct of Mr Buchanan. Mr Hogg has not provided any relevant basis upon which Mr Buchanan’s conduct could be attributed to the applicants.

[36] We are aware that we are considering matters at debate and that very considerable latitude is required. If there was material in Mr Hogg’s various assertions which could be the basis of a realistic expectation that he could establish that his inability to pay rent timeously was due to oppressive conduct by the landlords, we would allow him the opportunity to attempt to do so. We have no doubt that irritancy is potentially a Draconian remedy and that a court does have a residual control over its use. However, we are aware of dicta in the HMV Fields case and the cases there referred to. We cannot refuse the landlords a remedy simply because of sympathy for the debtor. We have concluded that despite his various criticisms of the landlords and their professional agents there is nothing which could properly be a basis for a claim of oppressive conduct by the landlords in relation to the irritancy. A landlord is entitled to exercise his contractual rights. The Court cannot suspend these simply because they might appear to work harshly. Any loss arising from an illness must normally be regarded as part of the harmful effects of the illness. It is not oppressive for a landlord to be unwilling to make allowances for the illness of his tenant.

Decision

[37] For the reasons set out in our note of 11 March 2013 we are satisfied that the landlords properly served the notice of irritancy as they were entitled to do on failure to pay rent on a due date. For the reasons discussed above, we are satisfied that the respondents have not set out any relevant grounds for refusal of the application.

[38] However, it is clear that the date of termination proposed by the landlords, namely 11 February 2013, is no longer appropriate. We recognise the right of the landlords to bring the lease to an end but any formal order of the Court must have some regard to practicalities. We invite parties to lodge submissions as to an appropriate date of termination.