FULL COURT

(Sheriff MacLeod, J Smith)

CITY OF EDINBURGH COUNCIL v ADAM LITTLE

(Application RN SLC/41/08 – Order of 28 July 2008)

AGRICULTURAL HOLDINGS – SECTION 2 OF AGRICULTURAL HOLDINGS (SCOTLAND) ACT 2003 AND SECTION 21 OF AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1991 – CLAIM BY TENANT RENOUNCING A 1991 ACT TENANCY TO A 25 YEAR LIMITED DURATION TENANCY UNDER SECTION 2 – WHETHER COMPETENT TO TERMINATE A 1991 ACT TENANCY BY RENUNCIATION AND WITHOUT SERVING NOTICE TO QUIT OR NOTICE OF INTENTION TO QUIT UNDER SECTION 21

The tenant under a 1991 Act tenancy entered into a contractual renunciation of the tenancy purporting not only to renounce the tenancy with immediate effect but also discharge the landlords of any claims he may have against them under the Agricultural Holdings (Scotland) Acts. In exchange for the renunciation the landlords paid a substantial sum of money in satisfaction of all claims arising out of the tenancy or under said Acts. No notice to quit or notice of intention to quit was served in terms of section 21 of the 1991 Act but vacant possession of the holding was given. Notwithstanding the terms of said renunciation, the payment of said sum and the granting of vacant possession, shortly after the renunciation had been granted agents for the tenant called upon the landlords to grant him a 25 year limited duration tenancy, to which, they claimed, the tenant was entitled by virtue of section 2(2) of the 2003 Act. The landlords applied to the Court for declarator that the tenant (1) had no right or title to occupy or possess the holding and (2) no right or title to demand the granting of any lease under section 2 or otherwise. In opposing the application the tenant argued (a) that whatever the law had been prior to the enactment of the 2003 Act, the effect of section 2 of that Act was to make it clear that a 1991 Act tenancy could not be terminated by agreement without carrying out the notice requirements of section 21 of the 1991 Act and that a renunciation of this kind produced the result that the landlord became obliged, in terms of section 2(2), to grant the tenant a limited duration tenancy of at least 25 years, and (2) esto the landlord was not obliged to grant such a tenancy, a purported renunciation of this kind was not valid with the result that the 1991 Act tenancy continued in existence.

The Court held that the agreement between the parties was patently not an agreement for the conversion of a 1991 Act tenancy to a limited duration tenancy, which was what section 2 of the 2003 Act was concerned with; that any attempt to make what had happened in this case fit the scheme of section 2 was wholly artificial; that section 2 did not, therefore, apply and that the landlords were not obliged to grant a limited duration tenancy under subsection (2); that, whatever the case might be where an agreement for the renunciation of a 1991 Act tenancy had not been acted upon, here there had been actings on the strength of the agreement and the agreement was therefore enforceable and that, although there were legitimate questions to be asked regarding the purpose and scope of section 2 of the 2003 Act, it did not have the effect of rendering such agreements invalid and unenforceable; and the declarators sought by the landlords granted.

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

[1] The applicants are heritable proprietors of subjects known as Cammo Lodge Home Farm, Cammo Road, Edinburgh. As at 8 February 2007 the respondent was tenant of that farm under an unwritten lease to which the Agricultural Holdings (Scotland) Act 1991 (“the 1991 Act”) applied, he having succeeded his father as tenant under said lease in or around 1990. The original duration of this lease is unspecified in the pleadings and matters before us proceeded on the basis that it was a lease from year to year.

[2] On 8 February 2007 parties entered into missives whereby, in short, the respondent purported to renounce his right, title and interest in the tenancy for a consideration of £130,000 together with a contribution of £10,000 plus value added tax to the costs and expenses incurred by him in connection with the preparation of said missives, the negotiations which had proceeded them and the formal renunciation which followed thereon. Said renunciation, by virtue of which the respondent also renounced “generally all claims, interest and advantage which he may have or might claim to have to or against the landlord in or under respectively the Lease, the Agricultural Holdings Acts or otherwise and without prejudice to that generality any claim competent to the Tenant under the Lease, the Agricultural Holdings Acts or at common law” and which took the form of a consensual document (production 3) was executed by the parties on the same date as the missives and bore to take effect on the following day, 9 February 2007. This application has to do with the legal effect of this purported renunciation.

[3] For the background to this agreement we take the following facts from the respondent’s pleadings which we are entitled, indeed obliged, for present purposes to take pro veritate. We do not in any event understand them to be disputed to any material extent.

[4] In or around March 2003 the respondent, who is an elderly gentleman, left his home in Cammo to live in a Nursing Home. He has lived there since.

[5] Some time subsequently, we understand around 2005, the applicants approached the respondent with a view to terminating the tenancy. Negotiations followed but they suffered long delay, it is said as a result of the fault of the applicants, and by January 2007 the respondent had become so impatient for completion of the renunciation that on 29 January 2007 his agents wrote to the applicants (production 6) imposing a deadline of 9 February 2007 on negotiations and giving notice that if matters between them had not been completed by that date it was his intention to assign his interest in the tenancy to his brother. That ultimatum had the desired effect and the foregoing renunciation was the result.

[6] Following the respondent’s move to a Nursing Home some relatives of his continued to live on the holding but vacant possession was given to the applicants on 9 February 2007, the date stipulated in the renunciation agreement when the sum to which the respondent was entitled in terms thereof was paid.

[7] Against that background it must have been with some astonishment that the applicants received, on 12 April 2007, a fax from the respondent’s agents (production 4) referring to the termination of their client’s tenancy and asking to be advised as to how the applicants intended to implement their obligations to the respondent in terms of section 2 of the Agricultural Holdings (Scotland) Act 2003 (“the 2003 Act”). The obligation being referred to was the entering into with the respondent of a limited duration tenancy for a term of not less than 25 years in terms of subsection (2) of section 2 of the 2003 Act.

[8] The applicants’ position being that they are under no such obligation, they have now brought the present application in which they seek (1) declarator that the respondent has no right or title to occupy or possess the holding, (2) declarator that the respondent has no right or title to demand the grant of another lease in terms of section 2 of the 2003 Act or otherwise, and (3) expenses.

[9] We heard debate on the parties’ preliminary pleas (plea-in-law 4 for the applicants and the sole plea-in-law for the respondent, both being pleas to the relevancy) on 17 June 2008 when the applicants were represented by Sir Crispin Agnew of Lochnaw QC, and the respondent by Miss Heather Walker, solicitor.

Statutes

Agricultural Holdings Act 1948, sec 23(1)
Agricultural Holdings (Scotland) Act 1949, sec 24(1)
Agricultural Holdings (Scotland) Act 1991, sec 21(1):-

21. –(1) Subject to section 20 of this Act and to subsections (6) and (7) below and to sections 2 and 73 of the Agricultural Holdings (Scotland) Act 2003 a tenancy of an agricultural holding shall not come to an end except by operation of a notice which complies with this subsection notwithstanding any agreement or any provision in the lease to the contrary.”

Agricultural Holdings (Scotland) Act 2003, secs 2, 55. Section 2, so far as relevant is as follows:-

2 Conversion from 1991 Act tenancy to limited duration tenancy

(1) The landlord and tenant under a 1991 Act tenancy may terminate the tenancy by agreement provided that-

(a) the agreement is-

(i) in writing and specifies the date on which the termination is to have effect and

(ii) made not less than 30 days before that date; and

(b) subsection (2) is complied with.

(2) This subsection is complied with if the landlord and tenant enter into a lease constituting a limited duration tenancy for a term of not less than 25 years which –

(a) comprises or includes the same land as at that comprised in the tenancy being terminated under subsection (1); and

(b) has effect from the date on which the termination under that subsection has effect.

(5) Where a 1991 Act tenancy is terminated under subsection (1), section 21 (notice to quit and notice of intention to quit) of the 1991 Act does not apply in respect of the tenancy.”

Cases cited by parties or otherwise referred to in the judgement

Buckie Magistrates v The Dowager Countess of Seafield’s
Trustees 1928 S.C. 525
Elsden and Another v Pick [1980] 1 W.L.R. 898
Hill v Orkney Islands Council 1983 S.L.T. (Lands Tr) 2
Johnson v Moreton [1980] A.C. 37
Kildrummy (Jersey) Limited v Calder 1994 S.L.T. 888
Knapdale (Nominees) Limited v Donald 2001 S.L.T 617
Morrison’s Executors v Rendall 1986 S.L.T. 227
Sheriff v Christie (1953) 69 Sh. Ct. Rep. 88
Walker’s Trustees v Manson’s Trustees (1886) 13 R, 1198
Waydale Limited v DHL Holdings (UK) Limited (No 2) 2001 S.L.T. 224

Textbooks

Craies Statute Law 7th ed.
The Hon. Lord Gill, The Law of Agricultural Holdings in Scotland, 3rd ed.
McBryde The Law of Contract in Scotland3rd ed.
Stair Memorial Encyclopaedia Volume 12

Submissions for applicants

[10] Sir Crispin’s motion was that we should repel the Answers and grant decree de plano or, if we were against him on that, fix a proof before answer.

[11] Section 2 of the 2003 Act was directed to the situation where the landlord and tenant wanted to convert a 1991 tenancy to a limited duration tenancy. It provided a mechanism for doing so and a “cooling off period” during which the agreement could be revoked. The provision had probably been passed in order to deal with the practice of landlords persuading tenants to give up 1991 tenancies in exchange for arrangements involving limited partnerships. The purpose of the section was clear from its heading “Conversion from 1991 Act tenancy to limited duration tenancy”. Where there is a question of doubtful construction it was not only legitimate but necessary to refer to the relevant heading as an aid to construction (Stair Memorial Encyclopaedia, Volume 12, paragraph 1138 and the cases of Buckie Magistrates v The Countess of Seafield’s Trustees and Hill v Orkney Islands Council referred to there.) Section 2 was not concerned with the situation where a tenant wanted to surrender or renounce his tenancy.

[12] Sir Crispin then took us through the requirements of section 2. They fell into two parts. Firstly, in terms of subsection (1) there had to be an agreement in writing specifying the date on which termination was to have effect and that agreement had to be made not less than 30 days before the intended date of its effect. It was also a requirement of subsection (1) that subsection (2) be complied with and that involved the entering into of a lease constituting a limited duration tenancy for a term of not less than 25 years covering the same land as comprised in the 1991 Act tenancy being terminated and taking effect from the date of termination of that tenancy. The new lease therefore had to be ready to be in place on the date on which the old lease terminated and far from there being a “necessary hiatus during which the tenant [did] not have a tenancy”, as the respondent averred (at Answer 3), but there could not be any such hiatus in terms of subsection (2).

[13] Section 55 of the 2003 Act dealt with the situation in which a landlord wanted to sell the holding with vacant possession. Like section 2, it was not concerned with the situation where the tenant wished to renounce or surrender the tenancy. Accordingly neither of these sections was applicable to this case.

[14] In any event the facts of the present case did not conform to the requirements of subsection 2(1) in that the agreement for termination had been made less than 30 days before the date upon which termination was to have effect. Further it was clear from the respondent’s pleadings, where it was said that he had threatened to assign the 1991 tenancy to his brother unless the applicants made a proposal to him for the termination of the tenancy, that the respondent had not wanted a new lease.

[15] It was clear, therefore, that parties had not intended the renunciation to be part of a section 2 agreement to terminate the 1991 Act lease and replace it with a 25 year limited duration tenancy. Therefore the respondent could not now claim a 25 year limited duration tenancy of the subjects. He could not both hold on to the present agreement and seek the benefit of section 2(2), which was never part of the present agreement.

[16] In construing the terms of the renunciation the Court was entitled to have regard to the surrounding circumstances, or factual matrix, in which the contract had been concluded (Waydale Ltd v DHL Holdings (UK) Ltd, No. 2). Part of the factual matrix here was (on the respondent’s pleadings at Answer 6) that the respondent had been in a care home for some four years prior to the renunciation being signed and that it had been signed by his attorney acting under the Adults with Incapacity Act 2000. Accordingly it seemed unlikely that the respondent wanted to farm the land personally. The fact (Answer 2) that he had entered into the renunciation rather than assign his tenancy was not consistent with him wanting a new tenancy, nor with wanting his nephew (said, in Answer 6, to be interested in farming) to farm the land.

[17] With reference to its terms, it was clear that the renunciation was a renunciation of both (1) the tenancy, and (2) all claims under the lease and both 1991 and 2003 Acts. So it was not just a renunciation of the lease alone. It was clear that what the parties had intended was that the applicants would make a payment of £130,000 together with a contribution towards the respondent’s expenses and that in return for that the respondent would surrender vacant possession of the holding. It was clear that parties had not intended a section 2 agreement involving conversion of the 1991 Act tenancy to a limited duration tenancy.

[18] Vacating the subjects of let as at 9 February 2007 was also not consistent with a new lease starting on that date in terms of section 2(2)(b). Had that provision applied the respondent would not have had to vacate the subjects.

[19] Having surrendered, in terms of Clause (One) of the renunciation, “(a) all right, title and interest in and to the subjects of let” he had renounced, as part of that interest, any interest in obtaining a new lease under section 2(2) and having renounced, in terms of Clause (One)(b), “all claims, interest and advantage which he may have …. in or under respectively the Lease, the Agricultural Holdings Acts or otherwise”, it was clear that he was renouncing all rights under both Agricultural Holdings (Scotland) Acts and that would include any claim under section 2(2) to a new lease. Again that made clear that the renunciation was not part of a section 2 agreement.

[20] In terms of Clause (Two) of the renunciation the landlord had paid £130,000 “for the renunciation”, making it clear that the payment reflected all that was being renounced, including all claims under both the tenancy and the 1991 and 2003 Acts. It was not a payment for termination of the tenancy alone.

[21] In terms of Clause (Three) of the renunciation, the landlord, in exchange for the tenant vacating the subjects, was discharging the tenant from all obligations in respect of the subjects and all claims that the landlord might have against the tenant. In terms of Clause (Four) the tenant had undertaken to “flit and remove from the Subjects of Let as at the Termination Date”.

[22] For all of these reasons it was clear that we were not, here, dealing with a section 2 agreement.

[23] That being the case, the terms of Messrs Turcan Connell’s fax of 12 April 2007 asking the applicants to advise as to how they intended to implement their obligations to the respondent in terms of section 2 were misconceived: there were no such obligations, any claims under the 2003 Act having been expressly renounced.

[24] Thus, while there might have been an issue as to the enforceability of the renunciation at the time, there was not now any right in the respondent to demand a new tenancy under section 2(2) of the 2003 Act.

[25] In any event it was not open to the respondent, withstanding the terms of the renunciation, to keep the money he had been paid and to persist in his claim for a limited duration tenancy. If his position was that the renunciation was void or illegal he should be returning what sums he had been paid, he having no right to keep sums paid under a void agreement. Yet there had been no offer to do so.

[26] Sir Crispin then turned to an argument on personal bar. The agreement had been acted upon, as was a matter of concession in terms of Messrs Turcan Connell’s said fax. It was now binding and the respondent had no further rights. Prior to the enactment of the 2003 Act the law had been that if parties contracted out of the 1991 Act and their agreement to do so had been acted upon then that agreement became binding and could not be revoked. The enactment of sections 2 and 55 of the 2003 Act had done nothing to change that position.

[27] Developing that argument, sections 21 of the 1991 Act and 2 of the 2003 Act did not render contracting out agreements invalid or unlawful, merely unenforceable. (Morrison v Rendall per Lord Justice Clerk Ross at pages 73 and 74; Elsden v Pick per Shaw LJ at 905F; Kildrummy (Jersey) Ltd v Calder at page 892F; and Knapdale (NAominees) Ltd v Donald at paragraphs [40] and [41] of the Lord Ordinary’s Opinion). Johnson v Moreton was the leading English case on contracting out of the Agricultural Holdings Acts. Dicta of Lord Salmon at pages 50A and 51A-B and Lord Hailsham of St Marylebone at page 61B made clear that agreements contrary to the terms of these Acts were unenforceable rather than being void or illegal. These cases also made clear that, although otherwise unenforceable, where such an agreement was acted upon it became binding. It was indeed possible to go beyond that and argue that agreements for the present, or immediate, surrender of the tenancy of an agricultural holding were not at variance with section 21 of the 1991 Act; Lord Kingarth in Knapdale (Nominees) Ltd v Donald at paragraph [40]. However, in the present case, since there had been actings following upon parties’ agreement, it was not necessary for us to decide that point.

[28] All section 2 of the 2003 Act was doing, in terms of changing the law in this general area, was confined to the law relating to implied renunciation where a new lease was taken on. It was saying that if a lease was to be renounced by the taking on of a new lease that had to be a new lease for a period of 25 years and there had to be a “cooling off” period during which parties could change their minds.

[29] In summary we should hold that it was competent to renounce the tenancy of an agricultural holding under the 1991 Act and that such an arrangement was binding whether acted upon or not but that in any event if there was an issue about the enforceability of such an agreement, once such an agreement had been acted upon it was too late to go back and the agreement became binding.

[30] Sir Crispin closed by moving us to certify the application as suitable for the employment of senior counsel, involving, as it did in his submission, novel questions under the 2003 Act and difficult legal issues following therefrom. The case was also of significant importance to the applicants as this was land which they wished to have back in hand for the enhancement of Cammo Park. Otherwise expenses should be reserved for written submissions.

Submissions for respondent

[31] Miss Walker moved the Court to find the applicants’ averments irrelevant and to grant an order for a limited duration tenancy in terms of section 2(2).

[32] The terms of section 2 were mandatory. Section 21 of the 1991 Act contained the only exceptions to the requirement that a lease to which that Act applied could only be brought to an end by notice to quit or notice of intention to quit which satisfied the terms of that section. The language of the section showed that parties could not contract out of it. Subsection 2(5) of the 2003 Act provided that where a 1991 Act tenancy was terminated under subsection 2(1), section 21 of the 1991 Act did not apply. It was a necessary inference from that that section 21 would otherwise apply.

[33] Section 2 was the only way by which a 1991 Act tenancy could be terminated by agreement. It excused compliance with the notice requirements of section 21 of the 1991 Act but otherwise these requirements applied. No notice to quit had been served in the present case so if the lease had been terminated at all it must have been under section 2(1) of the 2003 Act.

[34] So far as the dicta from the cases of Morrison’s Executor and Knapdale Nominees relied upon by Sir Crispin were concerned, if these stated the pre 2003 Act law correctly that law had been changed by section 2 of that Act. So far as Elsden v Pick was concerned that was a case involving service of an inadequate notice by the tenant. In Scotland that would probably have been regarded as ineffective to validly terminate the lease (Gill para. 16.25). But in any event it was clear in Elsden v Pick that the tenant was not consenting to tacit relocation.

[35] By way of explanation of how things had come about, Miss Walker explained that the respondent’s agents had, at the time of the negotiations which had preceded said renunciation, been expecting the applicants to proceed under section 55 of the 2003 Act. The terms of the missive from the applicants dated 8 February 2007 had therefore come as a surprise. But the applicants had chosen that route and the consequence was that the respondent became entitled to a limited duration tenancy in terms of section 2(2).

[36] Returning to the terms of section 2(1), the fact that these stipulated that the landlord and tenant under a 1991 Act tenancy may terminate the tenancy provided that certain requirements were satisfied must mean that if these requirements were not satisfied the tenancy could not be terminated.

[37] So far as the satisfaction of these requirements in the present case was concerned, the applicants could not rely on their own delay in order to avoid their obligation in terms of subsection (2). In other words the fact that the applicants had not granted a limited duration tenancy to follow on immediately from termination of the 1991 Act tenancy did not mean that section 2 could not apply. Under reference to McBryde at paragraphs 5.36 and 5.37, subsection (2) could be seen as a suspensive condition which had to be complied with for the whole of section 2 to take effect.

[38] The sum paid to the respondent by the applicants was to be seen as a payment of compensation under section 2(4) of the 2003 Act.

[39] If one could avoid section 2 and simply terminate a 1991 tenancy by agreement, there would be no point in having it. Sir Crispin’s approach rendered it meaningless. The wording of the section was unambiguous and accordingly it was easy to deduce the intention of Parliament (Stair Encyclopaedia Volume 12, paragraph 1102). Where the language of a statute was clear and unambiguous effect had to be given to it (Craies pp 64-65). Whatever the previous law on the point had been, the clear language of section 2 now excluded termination of a 1991 Act tenancy by agreement. The uncertainty reflected in the dicta in Morrison’s Executors and Knapdale (Nominees) Limited had been removed.

[40] The result was that either the 1991 Act tenancy continued in being or the respondent was entitled to a limited duration tenancy.

[41] The terms of the renunciation did not preclude the respondent from claiming a limited duration tenancy: a tenant could not lose his right to a limited duration tenancy in terms of section 2(2) by signing a renunciation such as this. Johnson v Moreton was authority for the proposition that a tenant could not deprive himself of his rights by signing such a renunciation.

[42] Although a tenant could abandon a tenancy that was not what we had here. What we had here was not the unilateral act of the tenant but an agreement between the parties and the only way in which a 1991 Act tenancy could terminate by agreement was through the operation of section 2. The respondent was therefore entitled to a limited duration tenancy of 25 years.

Rejoinder

[43] Sir Crispin submitted that section 21 of the 1991 Act and section 2 of the 2003 Act were separate.

[44] What was being said on behalf of the respondent here was that however one attempted to contract out of section 21 of the 1991 Act the result was that the landlord had to grant a limited duration tenancy. That submission was flawed. If one attempted to contract out of section 21 – and the renunciation in this case could be seen as such an attempt – the question was whether the agreement could be enforced or not; it had nothing to do with section 2 of the 2003 Act. What section 2 was doing was addressing the mischief of landlords trying to convert a 1991 Act tenancy to something less secure.

[45] In so far as setting aside previous case law was concerned, what section 2 set aside was the case law on implied renunciation of a tenancy by the granting of a new tenancy.

[46] As section 2 was restricting parties’ freedom of contract it should be construed narrowly and construed in that way it made sense. If one did something different from what the section required – such as agreeing to replace a 1991 Act tenancy with a five year tenancy rather than one for 25 years – such an agreement was probably void and the 1991 tenancy carried on. But there was no link between an attempt to contract out of section 21 and the requirement to grant a limited duration tenancy.

[47] The proper question for the Court was what was the effect of the renunciation in this case standing section 21: was it enforceable or not or was it was void because it was unlawful? The case law previously cited made clear that attempts to contract out of section 21 were not void or illegal but unenforceable unless they had been acted upon.

[48] For section 2 to apply there had to be agreement on both parts; the renunciation of the 1991 Act tenancy and its replacement with a limited duration tenancy. The terms of the new tenancy would have to be agreed. What if the applicants were to say “We offer you a 25 year limited duration tenancy at a rent of £2m”? That would be a perfectly lawful offer; there was nothing in the 2003 Act to say what the rent was to be. Section 9 dealt only with the situation where there was no provision in a lease constituting a limited duration tenancy for review of rent. There was no provision anywhere as to what the opening rent had to be.

[49] The reality was that both parts of section 2 had to be agreed not less than 30 days in advance.

[50] Returning to the case law, Parliament would have known of the dicta in Morrison’s Executors and the other cases and if it had wanted to over-rule them it could quite easily have done so by suitable amendment of section 21. But, beyond inserting reference to sections 2 and 73 of the 2003 Act, section 2 had not been amended at all. The other wording of section 21 had not been changed and therefore the case law must continue to apply. In enacting section 2 of the 2003 Act Parliament had not changed the law on contracting out of section 21 of the 1991 Act.

[51] Elsden v Pick could not be distinguished on the basis that it involved service of a notice rather than renunciation by the tenant (Shaw L.J. at page 905G-H; Brightman L.J. at page 908).

[52] The approach contended for on behalf of the respondent in this case could lead to absurd results on the facts of the case. It was understood that if he were successful in obtaining a 25 year limited duration tenancy the respondent’s intention was to assign it in favour of a nephew. But what if the applicants objected successfully to the assignation? Was the respondent, living in a Nursing Home, going to be obliged to carry on farming for 25 years?

[53] Finally, if we were to find that the 1991 Act tenancy was still in existence the whole sum paid by the applicants to the respondent would be repayable. The only way in which the Court could hold that the 1991 Act tenancy was still in existence would be on the basis that the renunciation agreement was void and money paid under a void agreement had to be repaid.

Discussion and Decision

[54] This application raises potentially interesting and difficult questions about the meaning and effect of section 2 of the 2003 Act although the respondent’s possible entitlement to a 25 year limited duration tenancy is not one of them.

[55] The section is relied upon by the respondent in respect of both his principal and esto cases and in two senses, one direct and one indirect. The first, and direct, sense is as applying to the facts of this case and producing the result that the respondent is entitled to a limited duration tenancy of at least 25 years duration. That is the respondent’s principal case. The second, and indirect, sense is that, by inference from its terms, it renders any consensual termination of a 1991 Act tenancy without going through the notice procedure of section 21 of the 1991 Act invalid with the result that the tenancy continues in existence. That is his esto case.

[56] We have found it easy to deal with the first of these. We consider that any attempt to fit what the parties were doing when they entered into the renunciation agreement into the scheme of section 2 of the 2003 Act is wholly artificial. The terms of the renunciation are wholly at odds with the section being applicable. If it is necessary to look at the factual matrix of the contract it confirms that there was no intention that section 2 should come into play: nothing was further from parties’ minds and wishes than another tenancy of any kind. From the terms of the agreement into which parties entered and from the factual context in which they entered it is as clear as it could possibly be that it was not an agreement for the conversion of a 1991 Act tenancy into a limited duration tenancy under section 2.

[57] So the parties did not enter a section 2 agreement intentionally. The respondent, however, argues that the applicants having chosen to proceed by way of renunciation rather than notice to quit under the 1991 Act the automatic, if unintended, result is that the respondent became entitled to a limited duration tenancy by virtue of section 2(2) of the 2003 Act.

[58] We reject that submission because section 2 sets out the criteria for its application and these are not met here. Subsection 2(1) provides that the landlord and tenant under a 1991 Act tenancy may terminate the tenancy if three conditions are satisfied: (i) that their agreement is in writing and specifies the date on which termination is to have effect; (ii) that the agreement is made not less than 30 days before that date; and (iii) that subsection (2) is complied with. Subsection (2) is complied with if the landlord and tenant enter into a lease constituting a limited duration tenancy for a term of not less than 25 years which comprises the same land as that comprised in the tenancy being terminated and has effect from the date on which the termination under that subsection has effect. In the present case two of these requirements have not been met: the agreement to terminate the 1991 Act tenancy was made less than 30 days prior to the date of termination and a limited duration tenancy of the requisite duration and taking effect from the date of termination of the 1991 Act tenancy has not been entered into. The respondent says it is not too late to cure the second of these but it is certainly too late to cure the first.

[59] An arrangement under section 2 is not, therefore, the sort of thing that parties can fall into unwittingly and we are satisfied that they have not done so here. In our view section 2 of the 2003 does not have the direct effect that the respondent relies on in support of his principal case and he is not, therefore, entitled to a limited duration tenancy in terms of subsection 2(2).

[60] So far as the respondent’s esto case is concerned, it is largely constructed from inferences said to arise from section 2 and particularly from subsections (1) and (5).

[61] We think, however, that the appropriate starting point for this discussion is section 21(1) of the 1991 Act since it is that section, rather than section 2 of the 2003 Act, which bears more directly on the means by which a 1991 Act tenancy can be brought to an end, section 2 dealing with only one of those means, albeit that Miss Walker argues that, by necessary inference, it says something about how a 1991 tenancy may not be brought to an end.

[62] Section 21(1) reads:-

“Subject to section 20 of the Act and to subsections (6) and (7) below and to sections 2 and 73 of the Agricultural Holdings (Scotland) Act 2003a tenancy of an agricultural holding shall not come to an end except by operation of a notice which complies with this subsection notwithstanding any agreement or any provision in the lease to the contrary.”

[63] In Morrison’s Executors v Rendall the Inner House resolved the doubt as to whether the phrase “any agreement or any provision in the lease to the contrary” in section 24(1) of the Agricultural Holdings (Scotland) Act 1949, the forerunner of section 21(1) of the 1991 Act, to the effect that both provisions in the lease and agreements apart from the lease were struck down (see the opinion of the Lord Justice-Clerk at page 230 and that of Lord Robertson at page 233) and we are of the opinion that the plain meaning of the wording in section 21(1) is to the same effect.

[64] Having disposed of that possible difficulty, the task of construing subsection 21(1) ought to be a straightforward one. It ought to be a simple matter of working one’s way through the stated exceptions to the requirement for notice and, if the facts of the case do not come within any of them, holding that the lease has not come to an end.

[65] But it is not that simple. That is because the list of ways of terminating a lease mentioned in section 21(1) is not exhaustive. There are other ways by which a 1991 Act tenancy can come to an end which are not mentioned there and which do not require the notice procedure and that means, as counsel for the pursuers in Knapdale (Nominees) Ltd, put it “that the effect of s. 21 [is] necessarily more restricted than the language might suggest” (page 629J). Death is a somewhat obvious example but, so far as inter vivos termination is concerned, Gill (at paragraph 14.02) cites implied termination by the tenant abandoning possession of the holding; the tenancy ceasing to be one of an agricultural holding because of the tenant wholly or substantially abandoning agricultural activity on the holding, regardless of the landlord’s consent; implied renunciation by the entering into of a new tenancy; and modification or variation of terms of the lease of so material a nature as to constitute a new lease, before going on (at paragraph 14.03) to say the following:-

“Notwithstanding section 21(1) of the 1991 Act … the tenancy may be effectively terminated if the tenant unilaterally renounces the lease. An oral renunciation will not be effective unless it is accompanied by the modern statutory equivalent of rei interventus.”

The authorities cited for these last mentioned propositions on unilateral renunciation are Morrison’s Executors v Rendall and Walker’s Trustees v Manson’s Trustees.

[66] It seems, therefore, that a tenant can renounce the lease of an agricultural holding unilaterally and that difficulty only arises where there is an agreement between landlord and tenant to terminate the lease independently of the notice to quit provisions of section 21. The rationale behind this distinction may be that section 21 is there primarily for the protection of the tenant and that there is no objection to the tenant doing something entirely of his own volition whereas if he does something in agreement with his landlord there may be the risk of undue influence on the part of the landlord.

[67] As we have seen, Morrison’s Executors v Rendall dealt with section 24(1) of the 1949 Act, the forerunner of section 21(1) of the 1991. The new subsection is differently expressed but both subsections purport to prohibit (with stated exceptions in the case of subsection 21(1)) termination of a lease of an agricultural holding except by notice procedure satisfying certain requirements and they both state that they are to have effect “notwithstanding any agreement or any provision in the lease to the contrary”.

[68] In Morrison’s Executors the landlords sought to rely on a verbal agreement to vacate the land at the next ish. The case was decided on the basis that the landlords’ averments were insufficient to instruct an agreement to terminate the lease and the case was dismissed. Everything else is, therefore, obiter although highly persuasive so far as this Court is concerned.

[69] What their Lordships went on to hold obiter was (i) that a verbal renunciation of a lease was not effective without rei interventus; (ii) that in any event an agreement of that kind did not have the result of eliding the notice requirements of section 24(1); and (iii) that a party relying on waiver had to aver that he had conducted his affairs on the basis of the waiver. For the purposes of the present case we are concerned only with (ii) and their Lordships’ treatment of that matter is set out per the Lord Justice-Clerk at page 230; Lord Hunter at pages 231-232; and Lord Robertson at pages 233-234.

[70] Their Lordships however acknowledge the reality that tenancies are renounced independently of the statutory notice provisions. At page 230 the Lord Justice-Clerk says;-

“Of course, parties may circumvent these provisions by one of them renouncing the lease, or by their agreeing to a new lease in substitution of the old lease. That apart, I am of opinion that the provisions of s. 24(1) clearly apply to all leases, and that it is not therefore open to parties to terminate a lease in the manner suggested by the pursuers, that is, by an agreement.”

Later, in a passage dealing with the Sheriff Court case of Sheriff v Christie, which was, possibly, to the contrary effect, his Lordship says in similar vein but broader terms:-

“I appreciate that in practice parties may agree to terminate the tenancy without notice to quit having been given in terms of the subsection, and if they both act upon such agreement it will no doubt be effective. Likewise if such an agreement is made and one party acts on it, the other party may be personally barred from founding on the provisions of the subsection. Apart from that, I am of opinion that an agreement made in contravention of the plain provisions of the final sentence of subs. (1) of s. 24 would not be enforceable.”

[71] At page 232 Lord Hunter refers to a “received opinion” having been formed on the basis of Sheriff v Christie to the effect that separate agreements were not covered by subsection 24(1) and discredits such an opinion as (a) not necessarily being supported by the Sheriff’s Note in Sheriff v Christie and (b) being in any event at odds with the literal and natural construction of the subsection.

[72] Lord Robertson at pages 233-234 says this:-

“I do not find any convincing authority to justify the contention that parties to a lease may contract out of the provisions of s. 24(1) of the Act whether by provisions in the lease or by a provision in a separate agreement. This is not to say that a tenant may not give up a lease during its currency and remove from the subjects, or that both parties may not terminate a tenancy by agreeing to do so and acting upon such an agreement – say by entering into a new lease. But in the absence of a formal notice to quit under s. 24(1) of the Act I am of the opinion that a tenant cannot be forced to quit the subjects against his will by reason of a verbal statement accepted by the landlord, that he will vacate the subjects.”

[73] In the final sentence of that quotation Lord Robertson, if we may respectfully say so, surely identifies correctly the point of this provision: it is to protect not the tenant per se but the tenant who does not want to quit the holding. To the tenant who does want to quit, insistence upon the notice procedure is not a protection but a gross inconvenience, leading to the absurdity referred to by Shaw L.J. in Elsden v Pick in the passage set out below. On the other hand all that the tenant who does not want to quit is required to do is resist entering an agreement with his landlord and he will continue to enjoy his statutory protection. It would be taking a very paternalistic approach to say that all renunciation agreements must be prohibited in order to avoid the risk of some tenants coming under undue influence of their landlords.

[74] Elsden v Pick was decided in 1980, six years before Morrison’s Executors but was not cited to the court in the latter case. It involved the tenant of an agricultural holding giving notice to quit of less than a year and hence failing to satisfy the requirements of section23(1) of the Agricultural Holdings Act 1948. At page 905F-H Shaw L.J. says this:-

“I therefore turn back to the section itself in order to examine its language and to deduce its true tenor. It is clear that it is designed principally to protect the tenant farmer from peremptory or unduly prejudicial ejectment on the part of the landlord. Nonetheless it serves also to protect a landlord from the abandonment of a tenancy in circumstances which may cause a discontinuity in cultivation or a lapse from proper standards of husbandry. Thus the time for the ending of a tenancy is a matter of common interest both to a landlord and to his tenant. It may suit them both to determine a tenancy without waiting for what may be as long as nearly two years to bring it to an end. No statute could have so absurd an intention as to constrain a landlord and a tenant of an agricultural holding to remain bound in that relationship at a time when neither desires that it should endure. It they are in accord, can it matter whether they demonstrate that accord by an agreement to surrender or and agreement to accept short notice.”

The court held that the section 23(1) of the 1948 did not preclude the parties from agreeing that the notice should take effect as a valid notice.

[75] Kildrummy (Jersey) Limited v Calder involved section 22(1) of the 1991 Act rather than section 21(1). A notice to quit and counter-notice had been served, bringing section 22(1) into play and requiring the landlords to obtain the consent of this Court to the operation of the notice to quit. In the course of proceedings before this Court an agreement was reached which was intended to compromise the case without the Court having determined the matter of consent. The tenant subsequently resisted an action for removal on the ground that the agreement entered into in settlement of the Land Court proceedings was unenforceable as being contrary to section 22(1).

[76] In holding that although the only interpretation of section 22(1) was that where a counter notice had been served the consent of the Land Court to its operation was required there was no consideration of public interest which precluded a waiver by the tenant of strict compliance with the statutory provisions, Lord Marnoch considered both Morrison’s Executors and Elsden v Pick and said (at page 892G-H):-

“I find it instructive that the court [in Elsden v Pick] was prepared to invoke the principle of waiver in what might be described as a closely allied field of legislation. I also observe, in passing, that in the reasoning of the court there appears to have been an underlying assumption that an agreement to surrender the tenancy would have been perfectly valid notwithstanding the provisions of s 3 of the 1948 Act which was then the approximate equivalent of s 24(1) of the Agricultural Holdings (Scotland) Act 1949. To that extent it is perhaps unfortunate that this case was not before the court in Morrison v Rendall.”

[77] Knapdale (Nominees) Limited v Donald had to do with averred renunciation of his interest in a lease by a tenant by his being involved in the taking of a new lease by a partnership. One of the arguments in the case (see the opinion of the Lord Ordinary at paragraph [38]) was that any agreement to renounce a lease was an agreement to bring it to an end and that such an agreement was struck at by section 21 of the 1991 Act. Although not necessary to his decision, Lord Kingarth, at paragraph [40], rejected that argument, although with some hesitation arising from “the peremptory nature of the language of s 21”, partly because to do so “would avoid the apparent absurdity that even if the parties agreed to renounce and implemented that agreement, one party could at some future date seek to set it aside as invalid”. At the conclusion of that paragraph he comments that this position appears to be consistent with the observations of the court in Morrison v Rendall

[78] His Lordship then goes on, at paragraph [41];-

“I would wish to add however that it seems to me to be clearly arguable in any event (in the light of the general approach of the court in Elsden v Pick) that a present agreement between parties to waive such rights to notice etc as might be given by the lease, such as by agreeing to renounce the lease with immediate effect, would not fall foul of s 21. …. [The] reasoning of Brightman and Buckley LJJ in the case of Elsden appears to be securely based on the distinction between creation of a tenancy agreement shorn of some aspect of security of tenure (which is prohibited) on the one hand and, on the other, enforcement of a subsequent decision by a party who is fully protected to forego some aspect of the protections as part of a contract. I consider that counsel for the pursuers was right to observe that the observations in Morrison v Rendall to the effect that in general the terms of s 24 of the 1949 Act prevented parties from contracting out of its provisions at any time (and not simply ab ante) might well have been different if the case of Elsden had been before the court. Further it is not at all clear that the language is s 21 could properly be said to apply to an agreement to renounce with immediate effect. The section directs that a tenancy ‘shall not come to an end’ except by operation of a notice, etc. It does not, as the parties were agreed, purport to relate to all ways by which a lease may be terminated (such, for example, as death). The language of the previous equivalent provision in s 24 of the 1949 Act began: ‘Notwithstanding the termination of the stipulated endurance of any lease of an agricultural holding, the tenancy shall not come to an end unless’. It thus seems clearly arguable that the provision is concerned with the ending of a lease at its agreed term (or the term provided for by operation of tacit relocation), and that it does not refer to termination by immediate renunciation. Although in Elsden v Pick the language of the clause in question was different, it is not without significance to observe that both parties and the court proceeded on the basis that an agreement for immediate surrender would have been entirely valid.”

[79] The exceptions acknowledged by their Lordships in Morrison’s Executors v Rendall taken with the subsequent discussion of these matters in the light of Elsden v Pick by Lord Marnoch in Kildrummy and, more especially, Lord Kingarth in Knapdale (Nominees) Ltd seem to us to provide a reasonable basis for holding that an immediate surrender of a lease is valid and it is certainly the construction we ourselves would favour from the point of view of principle and outcome. In principle, why should a unilateral renunciation, accepted by the landlord, be valid but a contractually agreed one not? Again in terms of principle, this approach does no violence to the public interest in security of tenure identified in Johnson v Moreton: the tenant who does not want to quit remains protected. Also it is consistent with the principle of freedom of contract. In terms of outcome, it avoids the absurdity of parties having to remain in a contractual relationship which suits neither of them for a period of up to two years and the even greater absurdity of one of the parties being able to hold the other to the lease years after the event.

[80] But, although we have canvassed it at length, the question whether contractual renunciations of tenancies of agricultural holdings are of themselves valid and enforceable is not one we have to decide in this case since it is clearly acknowledged in Morrison’s Executors (per the Lord Justice-Clerk at page 230 and Lord Robertson at page 233) that if parties agree to terminate the tenancy without notice to quit and both act upon the agreement it will be effective. In this case the parties have certainly acted upon the renunciation: the applicants by paying a very substantial sum of money and the respondent by accepting it and giving up any kind of agricultural activity on or any kind of occupancy of the holding. Accordingly on the basis of the pre 2003 Act law as we understand it we would hold that the renunciation agreement in this case is enforceable.

[81] Has section 2 of the 2003 Act changed that? Miss Walker argued that it has, for two reasons. The first involved inferences from the wording of subsections (1) and (5) of section 2. Because subsection 2(1) says “The landlord and tenant under a 1991 Act may terminate the tenancy by agreement provided that….” [emphasis added] it is a necessary inference from that that they may not do so otherwise and because subsection 2(5) provides that where a 1991 Act tenancy is terminated under subsection (1) section 21 of the 1991 Act does not apply, the necessary inference is that section 21 does apply where section 2 is not being relied upon.

[82] The second reason was that interpreting section 2 as consistent with a right to give up a 1991 Act tenancy consensually robbed it of all purpose and meaning. Why was it necessary to provide such a mechanism in the 2003 Act if parties were already free to give up a 1991 Act tenancy at any time? If they were free to do that they could also agree to replace that tenancy with a limited duration tenancy and not necessarily one for 25 years.

[83] So far as the argument based on subsections (1) and (5) of section 2 is concerned, what section 2 is dealing with is the conversion of a 1991 Act tenancy to a limited duration tenancy. The heading tells us that and where there is anything which fairly raises a question of doubtful construction the provisions of a statute have to be read in their context: Lord President Clyde in Buckie Magistrates v Dowager Countess of Seafield’s Trustees at 528-529. There is certainly something of doubtful construction before us here and accordinglywe are entitled to consider the heading. The provisions of the section, therefore, have to be read as referring to, and only to, the conversion of a 1991 Act tenancy to a limited duration tenancy.

[84] Read in that way, what subsection 1 is saying is that “For the purposes of conversion to a limited duration tenancy the landlord and tenant under a 1991 Act tenancy may terminate the tenancy by agreement provided that……….” And what subsection (5) is saying is “Where a 1991 Act tenancy is terminated for the purposes of conversion to a limited duration tenancy under subsection (1), section 21…does not apply in respect of the tenancy”. We agree, of course, that that rendering still carries with it an implication that in other cases the notice requirements apply but we have already seen that the law recognises many situations in which, despite the much more mandatory terms of section 21(1) of the 1991 Act, a tenancy can be terminated without the need to satisfy the notice requirements of that section. What subsection (5) is doing, in our view, is simply making clear that this is one of these situations in which notice is not required.

[85] Miss Walker’s second argument is, we think, stronger. Sir Crispin’s answer to it was that the purpose of section 2 was to deal with the situation in which landlords pressurised tenants into accepting other arrangements in lieu of 1991 Act tenancies. That may explain the insistence on a duration of 25 years: a lengthy duration, if not security of tenure, is being preserved. But section 2 only works as a protection if landlords cannot circumvent it by agreeing something completely different with their tenants, which plainly they can if contractual renunciation of a 1991 Act tenancy is competent. It may be, therefore, that the section has to be read as saying “this is the only way by which a 1991 Act tenancy can be converted into a limited duration tenancy”, so that an agreement to renounce a 1991 Act tenancy and replace it with anything less than a limited duration tenancy would be struck down.

[86] Or it may be that section 2 is there as a formalised, structured, secure “bridge” by which parties (and one thinks particularly of the anxieties of a tenant in a situation like this) can get from one arrangement to the other without such risks as may be entailed in making their own contractual arrangements. Parties setting out to operate section 2 know exactly where they are going and what they are going to end up with, subject, of course, to agreeing the terms and conditions of the new tenancy other than those prescribed in the 2003 Act, most obviously rent. On that view section 2 would simply be an option available to parties and has no implications for their freedom to come to produce other results by other means.

[87] The question for us, is, however, the more restricted one as to whether section 2 changed the existing law on contractual or consensual renunciation of 1991 Act tenancies. We have already held the pre 2003 Act law to be that such agreements were enforceable, at all events where they had been acted upon. If that is a correct view of the law Parliament must be taken to have been aware of it. In that situation, had it been Parliament’s intention to change the law, it could have done so easily and clearly. It has not done that and we are not prepared to hold that the law on such an important matter has been changed by inferences to be taken from either the wording of section 2 or conjecture as to its purpose. These inferences, although not without force, are insufficiently compelling to produce such a result. The consequences of holding that contractual renunciations, by way of what Lord Kingarth in Knapdale (Nominees) Ltd calls “present agreement”, are unenforceable are in our view too serious (or absurd to use a word which has featured in the cases) for us to be driven to that conclusion by anything short of unequivocal legislative reform. Whatever else section 2 was intended to achieve it is not apparent to us that it was intended to achieve that.

[88] We have accordingly sustained the fourth plea-in-law for the applicants and granted decree de plano.

Postscript

[89] Finally, whilst we normally content ourselves with deciding the issues in a case and not commenting more generally on the merits or demerits of parties’ positions, we would say before leaving this case that there are aspects of it which we find perplexing. The respondent and his agents allowed the applicants to pay over a very substantial sum of public money when no one could have been in the slightest doubt that it was being paid only in exchange for what the applicants considered to be a valid and enforceable discharge of all rights arising from, among other sources, the 1991 and 2003 Acts and without any intention of entering into any new lease with the respondent. It may be, of course, that at that time the respondent and his agents were themselves unaware of what they were later to come to regard as the “true” legal effect of what had been done. What remains perplexing, though, is that once it came to be asserted (on the respondent’s esto case in the present application) that the renunciation agreement was void, there was no offer to repay this money and indeed it was said to us by Mr Kermack (who appeared with Miss Walker) at the end of the hearing that repayment might not now be possible. In that situation it is possibly fortunate for the respondent that we have taken such a view of the case that the question of repayment does not arise.

Expenses

[90] Following our usual practice we have reserved the question of expenses including Sir Crispin’s motion for certification of the cause as suitable for the employment of senior counsel.

For applicants: Sir Crispin Agnew of Lochnaw, QC; Mrs B Petherick-Kerr, Solicitor, Edinburgh

For respondent: Miss H Walker, Solicitor, Edinburgh