THE COURT

(Lord McGhie, Mr J A Smith)

ALISTAIR DONALDSON ALSTON & ANOTHER v THE TRUSTEES OF THE EARL OF MANSFIELD’S 1992 TRUST FOR THE MASTER OF STORMONT

(Application SLC-87-12 – Order of 17 April 2013)

AGRICULTURAL HOLDINGS – FIXED EQUIPMENT WORN OUT BY NATURAL DECAY OR FAIR WEAR AND TEAR – REPLACEMENT OR RENEWAL – SCOPE OF OPTION – WHETHER THE OPTION RESTED WITH LANDLORD OR TENANT – REDUNDANT EQUIPMENT – REPLACEMENT OF FIXED EQUIPMENT – WHETHER EQUIPMENT FELL OUT OF THE TENANCY – AGRICULTURAL HOLDINGS (SCOTLAND) ACT 1991 SECTIONS 4, 5, 6, 10, 13, 14, 15.

The tenants of a farm sought an order requiring the landlords to replace or renew the roof of part of the steading. Debate turned on proper construction of the word “replacement” as used in sec 5 of the Agricultural Holdings (Scotland) Act 1991. The steading was subject to listed building control. Having received appropriate permission, the landlords proposed to remove the roof, make safe the walls and replace the whole relevant building with another. They contended that they could not be compelled to replace the roof or restore the existing building as they had an option of replacing the roof or providing a replacement building. The tenant argued that it was the tenant who had the option to choose “replacement” or “renewal”. They pointed to the absence of any statutory provision regulating the position in relation to tenant’s improvements within the building in support of the contention that the landlords were required to replace the existing building in situ and with like for like materials. The landlords further contended that as they had erected an additional building in 1976 that could be treated as the required replacement for the subject building which was now redundant.

HELD In sec 5 “replacement” included the sense of “substituting”. The landlord had an option of providing a substitute building; the absence of any express provision covering any loss in value of tenant’s improvements or regulating the detail of the replacement could be treated as a lacuna in the Act. This might possibly be covered in part by assuming that parties required to act reasonably towards each other but the scope of such an assumption was not agreed and it was unnecessary to express a view at this stage. While there might possibly be circumstances where an obligation to replace might be met by reference to an additional building provided before the obligation to replace arose, that would need special circumstances and such argument was not open to the landlords in the present case.

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

[1] In this application the tenants of Dalcrue Farm, near Methven, by Perth, seek an order requiring the landlords to replace or renew the roof of part of their steading. The landlords propose instead to remove the roof, make safe the walls and replace the whole relevant building (the “subject building”) with another. Various peripheral issues arise. We heard a debate on the respondents’ plea to relevancy. The thrust of the plea was that the applicants were not entitled to compel replacement of a roof when the landlords had an option of replacing the roof or providing a replacement building. This plea was supported by an alternative plea that, in any event, the Court should not order the landlords to replace the roof but should leave them to determine whether to do so or to replace the building. We also heard submissions relating to the landlords’ fourth plea to the effect that as they had erected an additional building in 1976 that could be treated as the replacement for the subject building which was redundant. We note for completeness that there was no discussion of the landlords’ third plea relating to prescription. At the hearing on 6 March 2013, the tenants were represented by Mr Lewis Kermack, solicitor, and the landlords by Sir Crispin Agnew, QC.

Authorities referred to

Brew Brothers Ltd. v Snax (Ross) Ltd and Another [1970] 1 Q.B. 612
Christie v Wilson 1915 SC 645
Davidson v Macpherson (1889) 30 SLR 2
Haggart and Brown 1983 SLCR 13
Hamilton v Duke of Montrose (1906) 8 F 1026
Hill v Wildfowl Trust Holdings Ltd 1998 SLT (Sh Ct) 89
Inland Revenue Commissioners v Spencer-Nairn 1991 SLT 594 (First Division)
MacNab of MacNab v Willison 1960 SLT (Notes) 25
Mora Shipping Inc v Axa Corporate Solutions [2005] 2 Lloyd’s Rep 769
Spencer Nairn v Inland Revenue Commissioners 1985 SLT (Lands Tr) 46
Telfer’s Executors v Buccleuch Estates Ltd SLC-101-07 (First Division Unreported 18 March 2009)
Telfer v Buccleuch Estates SLC-225-07 (Order of 6 May 2009)
Telfer v Buccleuch Estates Ltd 2005 SLCR 51
Buccleuch Estates Ltd v Telfer SLC-101-07

Statutory material

The Agricultural Holdings (Scotland) Act 1991
Agriculture (Scotland) Act 1948, Schedule 5

Textbooks

The Hon Lord Gill The Law of Agricultural Holdings in Scotland 3rd Ed.
Muir Watt & Moss Agricultural Holdings 14th Ed. paras 10.19–10.22.
Shorter Oxford English Dictionary
Collins English Dictionary 10th Ed

Background facts

[2] The facts are somewhat complicated. The dispute arises out of the state of the roof of a building listed Category B. It was not disputed that the roof was now beyond repair. It may be noted that it was asserted by the landlords that the walls now had a limited lifespan of about fifteen years but nothing appeared to turn on this in course of the debate. The landlords had received permission from Historic Scotland to remove the roof and make safe the walls. They contended that it was open to them to replace the subject building with a separate building. The tenants had some grain handling equipment in the subject building. The value of this was a matter in dispute. They had also installed electrical equipment. This was said to have been damaged beyond repair by the consequences of long-standing defects in the roof. The tenants’ claim initially included a crave that the landlords should replace the electrical wiring, but, before debate, they accepted that the claim in respect of that equipment would be more appropriately focused as a claim for damages. That claim was to be removed from the present action. There was a history of alterations to the building and of proposals for repair or replacement of the roof.

[3] However, the legal issues came to be tested assuming a situation where a tenant had installed substantial improvements, such as an electrical system, in a landlord’s building which came to need replacement or renewal. The dispute was whether a landlord was entitled to replace an existing building with a separate new one or required to replace the existing one in situ and with an identical building. If the latter, then it was probable that the landlords in the present case would simply replace the roof but the issue of principle could be addressed by considering the building as a whole.

[4] There was a further related issue. The landlords contended that they had provided an additional building in 1976 which went beyond their obligations at that time and such a building could properly be treated as a replacement for the subject building. It would follow that, if the latter was taken out of use and made safe, there would be no need to erect a new building.

Submissions for landlords

[5] The landlords provided a short written submission amplified at the hearing. The main argument was that sec 5(2)(a) gave a landlord a discretion whether or not to replace or renew the fixed equipment including a building. The application was accordingly irrelevant because it sought in effect to compel the landlords to replace or renew only the roof of the building. A landlord had a choice as to whether to replace or to renew worn out equipment, a building or a part of the building. If the roof of an old building was “done”, the landlord had the option of replacing or renewing the roof, replacing the whole building with an equivalent modern building either on the same site or on a different site. The tenant had no right to dictate how the landlord should fulfil his obligation. Counsel cited Christie v Wilson at pp 651 and 654. He also referred to Buccleuch v Telfer [39] and Haggart and Brown at pp17 and 18

[6] It was contended that the tenant’s only interest in the outcome was that he should get an equivalent building suitable “to maintain efficient production” in terms of sec 5(2)(a). This was consistent with the tenant’s maintenance obligation in sec 5(2)(b) which applied under (ii) to the fixed equipment “provided, improved, replaced or renewed during the tenancy”.

[7] Sir Crispin acknowledged that the Act did not make express provision to allow the tenant to be compensated for equipment in the subject building which might be rendered useless by the move. However, he suggested that there were ways in which some compensation might be given. Rent might be adjusted in terms of secs 14 and 15. The existing building could be treated as having been resumed giving a tenant a claim for the value. The tenant could exercise rights under secs 18 and 19. There might be a claim under sec 60. But the meaning of a right to “replace” was quite clear. The landlords’ rights were not restricted by the absence of full provisions covering the situation from a tenant’s side. That was to be seen as a lacuna in the Act. It could be covered in part by a power in the Court to decide whether a particular proposal was reasonable weighing the interests of landlord and tenant. But in any event, a tenant was responsible for his own improvements. In principle, the risk of loss should fall on the tenant. He had to decide what improvements were worth making. He could estimate the lifespan of the building and whether he could take his equipment out and make further use of it.

[8] It was contended that landlords always had power to carry out improvements but this was said to be on the basis that they could not increase the rental value by betterment, as such. The condition of new equipment was relevant to rent only in that newer equipment would impose less of a repair burden on the tenant.

[9] Sir Crispin also advanced a related argument based on the view that there was a surplus of buildings in the following circumstances. He pointed to evidence that the buildings and fixed equipment were accepted at the outset of the tenancy as being sufficient fixed equipment for the holding. It was not disputed that the landlord provided an additional building in about 1976. This must have led to such surplus as it must have provided buildings in excess of the statutory requirement. Accordingly, when a building that was no longer suitable for modern agricultural conditions was worn out, the landlord was not required to replace it, because the tenant continued to have sufficient buildings for the holding complying with the original obligation. The landlord had in effect provided a replacement in advance.

[10] It was accepted that there would have to be a proof on this issue because the tenants contended that the 1976 building was a replacement for a different building. There would also be a question as to whether the 1976 building provided similar or greater capacity than was provided by the subject building.

[11] There was also a dispute as to a substantial number of averments dealing with the history of Dalcrue and a related holding of Lynedoch Grazings. The landlords contended that these were irrelevant to any issue in this case. They had helpfully provided a print of the pleadings marked to show the averments they challenged with comment attached. However, as it was agreed that there should be a period of further adjustment to allow parties to try to clarify such matters, no further comment is necessary at this time.

[12] Counsel agreed that questions of expenses should be reserved to be dealt with by written submissions. He asked that the cause be certified as suitable for the employment of senior counsel. The case raised novel questions on the interpretation of section 5(2) and the landlord’s obligations in respect of the fixed equipment. It was important to the landlord because of the potential costs of replacing the roof in situ as opposed to providing an alternative building.

Submissions for tenants

[13] Mr Kermack started by responding briefly to certain aspects of the landlords’ submissions. He suggested that they raised a novel point and that the tenants’ position was supported by the fact that there had apparently been no litigation over the question. The relevant provisions had been in force for over 64 years. He commented on some of Sir Crispin’s suggestions as to possible statutory remedies for the tenant if a substitute building was allowed.

[14] His substantive submission was based on a helpful written submission, a copy of which is held by the Court. We need only set out the main points of his argument. He started by observing that unless there was some post lease agreement, the obligations of a landlord, which were deemed under section 5(2) to form part of “every lease of an agricultural holding”, fell into two distinct categories: the “undertaking” implied “at the commencement of the tenancy or as soon as is reasonably practicable thereafter”; and the “undertaking” implied “during the tenancy”. The latter was an undertaking to effect such replacement or renewal of the buildings or other fixed equipment as may be rendered necessary by natural decay or fair wear and tear. The two categories were separate and the tests to be applied were separate and different.

[15] In the circumstances of the present case, obligations arising at the beginning of the tenancy were no longer relevant. The “fixed equipment” or “the buildings or other fixed equipment” on a holding became defined at the point when the landlord had fulfilled his obligations under the first category. With limited exceptions, that was “the fixed equipment” for the duration of the tenancy or until it succumbed to natural decay or fair wear and tear.

[16] Where a landlord provided fixed equipment which was “different” fixed equipment from that defined at the completion of the first category undertaking, the 1991 Act made certain specific provisions. In terms of sec 15, where the landlord had carried out works which produced an element of betterment by comparison with the fixed equipment as defined on completion of the category 1 obligations “at the request of or in agreement with the tenant” (or as an alternative to the tenant carrying out an improvement and claiming compensation) then that was treated as a landlord’s improvement and he was entitled to an increase of rent. Mr Kermack contended that except where a tenant had applied to carry out a Part II improvement or where there was a direction by the Secretary of State that it be done, it was difficult to envisage circumstances where a landlord could conduct works of this type on the holding without this being at the request, or by agreement (tacit or otherwise), of the tenant, because normally such behaviour would be seen as interfering with the tenant’s right to be maintained in possession.

[17] Under sec 14, on any determination of any question by the Land Court relating to the liability of landlord and tenant as to the fixed equipment, and it being equitable to do so, there could be a variation of the rent (which might be upwards or downwards). Parliament had thus provided a limited remedy in terms of the rent. There was no scope for a landlord to take a unilateral decision either to provide different fixed equipment (‘equivalent modern building’) or to apply a test of considering whether an ‘equivalent building’ is “suitable to maintain efficient production” in terms of section 5(2)(a) or to decide that the building was obsolete, or redundant or that the tenant otherwise had sufficient fixed equipment without it. Any such considerations might apply in relation to a category 1 undertaking but they were quite irrelevant in relation to the obligation running during the tenancy.

[18] In short, he submitted, neither the landlord nor the tenant could insist upon provision of a modern equivalent without the agreement of the other. Unilateral action in erecting a “modern equivalent” building elsewhere on the holding could have the effect of rendering a tenant’s improvement of no value at all to an incoming tenant. Both under the scheme of the Act and under normal usage, the requirement to “effect such replacement or renewal”, was to be construed as entailing replacement or renewal of like with like. If there was to be any betterment or improvement this would invoke sec 15 or if there was some other change it would invoke sec 14. The clear inference was that replacement had to be a direct substitution of like for like.

[19] He submitted that there was an important reciprocity between landlord and tenant. A tenant could not insist that the landlord provide a modern equivalent to a failed building. It followed, he said, that, under the Act, the landlord could not unilaterally insist that the tenant accept a modern equivalent to the failed building. He referred to a variety of authorities said to support this contention: He referred to Gill paras 7.17 to 7.21; Spencer Nairn v Inland Revenue; Haggart & Brown; Inland Revenue Commissioners v Spencer Nairn; Telfer’s Executors v Buccleuch Estates Ltd (First Division); Telfer v Buccleuch Estates Ltd (Order of 15th February 2008); Telfer v Buccleuch Estates (Order of 6 May 2009); Rankine, at page 251. It may be noted that while these authorities adequately vouch the proposition that the tenant cannot compel the landlord to modernise, they go little further.

[20] Under reference to the last of these Telfer citations Mr Kermack considered the question of whether the landlords had any right to decide that particular parts of the fixed equipment could be treated as redundant. He discussed dicta relating to the difficulties of drawing a distinction between replacement or renewal of the part on the one hand and works of maintenance or repair on the other, also under reference to that case. He made reference to Hill v Wildfowl Trust Holdings Ltd and to Telfer v Buccleuch Estates Ltd as reported at 2005 SLCR 51 at 70. He dealt briefly with a comparable English situation and referred to Muir Watt & Moss paras 10.19 – 10.22. He commented on certain cases relied upon by the landlords. Christie v Wilson predated the requirements of section 5, but was concerned with the nature of obligations at the commencement of a tenancy not the position during the tenancy. It turned on the terms of a specific contract. He discussed cases dealing with options and which party had the choice: Mora Shipping Inc v Axa Corporate Solutions and cases there cited. He contended that economic considerations were irrelevant: Davidson v Macpherson. Equitable principles did not apply.

[21] Mr Kermack moved on to discuss criticism of certain of the tenants’ averments. Many of the averments criticised had been made in response to the landlords’ averments. However, it was agreed that parties should adjust in light of the general tenor of the present Note and any further discussion of the detail of pleadings should await such adjustment. He agreed that question of expenses should be deferred. He did not oppose certification of counsel but contended that the case was not of such importance as to require senior counsel.

[22] In a final submission, he responded to the landlords’ contention that the statutory provisions should be construed in light of the idea that Parliament now envisaged tenancies which might run almost in perpetuity. That had not been the case in 1948 when the relevant provisions were introduced.

Discussion

[23] Before looking more closely at the fundamental issues, it is convenient to deal briefly with certain of Mr Kermack’s contentions. One was that the landlords’ argument raised novel issues and that we should construe the Act in a way consistent with settled practice. However, we are not aware of any settled practice supporting the tenants’ construction. In our experience, replacement of old equipment with a new modern equivalent is commonplace. It is true to say that this will normally be by agreement. But we are not aware of any practice or assumption that a tenant has a right under the Act to prevent such a replacement. Indeed, we are satisfied that the general assumption has been that the landlord can replace old with new. Mr Kermack suggested that the absence of any explicit decision on the issue since 1948 pointed to settled practice. However, a proposal to replace an old building with a modern one is usually an opportunity for both parties to gain something and situations, like the present, where they cannot reach agreement are, fortunately, rare. This particular situation has, of course, been complicated by involvement of listed building restrictions. Most disputes tend to relate to liability for the work rather than disputes as to what is to be done. Practical people recognise that money spent on litigation can usually be better put to mutual benefit on the farm. Further, many tenancies are still regulated by post lease agreements placing the whole responsibility for fixed equipment on the tenant and this significantly limits the scope for dispute about liability for repairs or replacements. In all the circumstances it is not entirely surprising that no clear decision on the point has had to be made.

[24] We are also satisfied that the concept of reciprocity has no relevant bearing on the issues before us. We heard no reference to any principle upon which this argument was based. We are aware of “reciprocity” as a concept in the context of discussion of the principle of mutuality in relation to enforcement of contracts. A party in material breach of his own obligations may not be entitled to enforce performance by the counter-party. However, that principle has no bearing in the present circumstances. We are not aware of any general principle of reciprocity in relation to issues of construction. In any event, we are satisfied that the fact that a person cannot be obliged to do something is in no relevant sense the reciprocal of absence of a power to do it. It was not disputed that a tenant could not compel the landlord to upgrade equipment but that is far from equivalent to a power to prevent such upgrading.

[25] Some other preliminary matters might be kept in mind. Items of fixed equipment are part of the landlords’ heritable assets. The tenant has use of them. Sir Crispin put some emphasis on the assertion that Parliament must have realised that tenancies could endure for very lengthy periods and would not have expected equipment to be frozen in old fashioned style. But the same point can be made having regard to the long term interests of the landlord. An owner of land should not be prevented from improving it without good reason. In other words, it cannot be assumed that Parliament would seek to prevent a landlord doing what he saw fit to improve the value of his assets and the resultant efficiency of the unit. It cannot have been a positive policy of Parliament that a tenant should have a right to insist on having the condition of the farm fixed in time without regard to modern needs and practices. Tenants’ improvements, on the other hand, are a matter for the tenant. He can make a choice as to what improvements to install and where. He is free to decide to install equipment in a building which may be nearing the end of its working life and there is no obvious reason why he should not be taken to have accepted the risk of getting a limited benefit from it. The absence of specific provision to protect such improvement is not necessarily inconsistent with normal commercial risk. A further point is that even if a landlord was constrained to replace like with like, such constraint would not itself prevent him from demolishing a worn out building and replacing it in situ. The tenant might be obliged to remove his equipment to facilitate the reconstruction or the landlord to re-instate the tenant’s equipment. The Act makes no provision dealing with this.

[26] However, consideration of the substantive issues starts with the proper construction of the provisions sec 5, the critical provisions of which are in the following terms:

“5(2) There shall be deemed to be incorporated in every lease of an agricultural holding to which this section applies –

(a) an undertaking by the landlord that, at the commencement of the tenancy or as soon as is reasonably practicable thereafter, he will put the fixed equipment on the holding into a thorough state of repair, and will provide such buildings and other fixed equipment as will enable an occupier reasonably skilled in husbandry to maintain efficient production as respects both –

(i) the kind of produce specified in the lease or (failing such specification) in use to be produced on the holding, and

(ii) the quality and quantity thereof,

and that he will during the tenancy effect such replacement or renewal of the buildings or other fixed equipment as may be rendered necessary by natural decay or by fair wear and tear, and

(b) a provision that the liability of the tenant in relation to the maintenance of fixed equipment shall extend only to a liability to maintain the fixed equipment on the holding in as good a state of repair (natural decay and fair wear and tear excepted) as it was in –

(i) immediately after it was put in repair as aforesaid, or

(ii) in the case of equipment provided, improved, replaced or renewed during the tenancy, immediately after it was so provided, improved, replaced or renewed”.

[27] We accept that the subsection provides two distinct categories of obligation: those arising at the outset and those arising during the continuance of the tenancy. This does not mean that the terms of one have no bearing on construction of the other. The opening provisions of section 5(2)(a) clearly envisage the landlord providing new or additional pieces of fixed equipment where necessary at the commencement of the tenancy. But we do not think that anything turns on this. At that stage, it is for the landlord to decide what to provide and the specification of it as long as he meets his obligations under the sub-section. He is free to provide equipment to as high a standard as he thinks fit. He will have the practical restraint of knowing the rent agreed.

[28] The relevant obligation during the continuance of the tenancy is to “effect such replacement or renewal”. We are entirely satisfied that, in normal use, the word “replace” covers the concept of substitution. One item is said to be replaced by another where the substitute serves the same purpose in terms of function as the one being replaced. This seems to us entirely clear. There may be a dispute as to precise function. It might, in broad terms, be defined in terms of maintenance of efficient production as that is clearly an underlying aim of the legislature, exemplified in relation to what Mr Kermack described as the category 1 obligations. It might need to be defined in more precise terms. For example, on a stock farm, replacement of a dyke with a fence might raise the question of whether shelter is a relevant part of the function as well as containment. But the broad definition in terms of equivalent function plainly covers substitution as well as reinstatement. The justification for a narrower construction essentially turns on the argument that this is necessary to preserve the value of a tenant’s improvements likely to be affected by the work. Substitution of a new piece of equipment alongside the old may involve some loss of land and possibly some loss of convenience but where these elements cannot be disregarded as insignificant they could be reflected in rent.

[29] In considering the obvious context in which sec 5 is to be applied it can be said that the possible adverse consequences which might be avoided by a narrow construction can be contrasted with many examples of the practical value of the wider construction. In the context of an agricultural business we can assume that Parliament had a practical approach in mind. It would serve no practical purpose to compel replacement of an out of date piece of equipment with an identical piece if replacement with more modern equipment could better serve the same function. Many examples can be found. The main categories of fixed equipment may be described in broad terms as buildings, fences and drains. Replacement by demolition and reconstruction of any building might create a disruption of the tenant’s activity – perhaps the most acute example being replacement of a farm house or worker’s cottage. A fence or dyke might be worn beyond repair but expensive to remove or rebuild. In practical terms an option to replace such items with a new fence – provided that no material loss of useful land was involved – would make obvious sense. Drains provide an even more compelling example. A landlord should be able to replace an old small bore shallow tile drain with a modern drainage system – and take advantage of the opportunity to set it at a depth appropriate for modern farming machinery. It would serve no useful purpose to give the tenant a right to insist on replacement tile by tile.

[30] Mr Kermack suggested that buildings might fall to be treated differently from other equipment. Section 5 referred to “buildings and other fixed equipment” as if there were two categories. But the definition in sec 85 repeats that reference and makes no attempt to create or maintain separate categories. In any event, farm buildings which require replacement because of the state of the fabric will often also fall far short of modern requirements for efficient farming. Put shortly it would be very surprising to find that Parliament in legislating on such practical matters had intended the legislation to have the effect of forcing a landlord, at the instance of a tenant, to spend money to replicate out of date equipment. We would accordingly be very slow to construe it to that effect. It might be added that although it could be thought that no tenant would be expected to seek to compel like for like replacement without good cause, it is not simply the risk of a tenant acting on a whim but of a tenant using the threat of enforcement of an uneconomic obligation to achieve another objective which has to be considered.

[31] The Act provides no clear machinery for dealing with all the consequences of the need to deal with worn equipment, whether replacement is given a wide or narrow meaning. For example, although the Act – at sec 15 – provides for rent increase to reflect the completed work it does not provide for temporary inconvenience. Such inconvenience could be considerable. We do not accept that construction of sec 5 can safely be based on an assumption that Parliament has provided for every eventuality. As discussed below it seems to us that the tenants’ submission in that regard rests on a proposition which simply does not stand close examination. But, in any event, the Act makes no explicit provision for any kind of balancing exercise; weighing the wider interests of the landlord against those of the tenant.

[32] Mr Kermack was prepared to modify his submissions to avoid the more extreme consequences. He accepted, for example, that a landlord would be entitled to replace, say, Scots slates with Welsh slates but he contended that the landlord had no power to replace slates with tiles or any other alternative form of roofing. The narrow construction was to involve an obligation to replace an item or part of the fixed equipment by an identical item without regard to cost or benefit. (For completeness we note that he accepted that this was subject to any over-riding statutory requirements such as building regulations.) No authority for such a narrow proposition was cited and, as it makes little practical sense, it cannot readily be assumed that Parliament intended such a restriction. It can be said that the Land Court in Haggart and Brown appeared to take a different view of this very example. The Court assumed that the landlord could replace a pantile roof with “slates, asbestos, or other roof covering”: p19. Put shortly we are entirely satisfied that the landlord is not restricted to like for like replacement.

[33] Mr Kermack suggested that an obligation to “replace” broken crockery would not allow “any old tea-plate” to be used if a plate in a matching set was broken. That would require replacement of like with like. But, in that case, it is the functional test which leads to that result rather than a narrow construction of language. If a matching set was needed and a matching plate could not be found, the whole set might have to be replaced with a matching set, perhaps of a different pattern. Much would depend on context. He also made reference to Davidson v Macpherson for the proposition that the landlords were bound to fulfil their obligations without regard to cost. They would have to replace an item even if it was uneconomic to do so. We accept without difficulty that when a person enters a contractual obligation to do some specific thing, he cannot avoid performance by reference to adverse financial implications. However, that decision was in a wholly different context and we do not find it of assistance in defining the nature and extent of the obligation. Where the obligation is not explicit, the financial implications of alternative courses may well be an important aspect of construction. In a statutory context, it can be said that Parliament would not expect money to be wasted.

[34] The landlords, while making the point that in principle the risk was with the tenant in relation to loss of value of his improvements, stressed that absence of specific provision to protect the tenant was likely to be a lacuna: a gap or omission in the Act left by oversight or accident. The tenants met this with the contention that as the Act made quite elaborate provision for the parties’ responsibilities in relation to equipment, there could be no question of a lacuna and that the absence of other provision to protect the tenant against possible adverse consequences was to be resolved by accepting that Parliament meant the words “replace” and “renew” to mean much the same thing.

[35] The tenants’ response can be seen to rest implicitly on the proposition that Parliament, having considered the problem, decided that rather than making elaborate provision to deal with the problem by providing expressly either for a test of reasonableness or for compensation for any loss of value in tenant’s improvements, decided that the practicalities and the legitimate interests of the landlord should be subordinated to the interests of the tenant and that this should be done by relying on a narrow construction of the word “replacement”. We think such contention does not withstand even a simple examination. If Parliament had deliberately intended a landlord to be restricted in this way, more explicit language would have been found. We are satisfied that the absence of express provision to cover the interests of the tenant in the comparatively rare situation where the adverse consequences for a tenant of a landlord’s provision of modern equipment would outweigh the benefit, can be explained either as a lacuna, or a decision that the risk should lie with the tenants.

[36] The landlords did point to some statutory provisions which might ameliorate the impact on the tenant. It is fair to say that they recognised that these did not take the matter very far. Sir Crispin also suggested that any gap might adequately be filled by accepting that the landlord was obliged to act reasonably and that the Court could determine what was reasonable. We shall come back to that question but, first, look further at the various statutory provisions to which reference was made.

[37] We did not hear any detailed discussion of any other provisions of sec 5(2) as being relevant to the substantive issue although it can be seen that various issues might arise if a landlord or tenant could not agree as to the extent of work required. It is commonly the tenant who will assert that renewal or replacement is necessary when the landlord contends that further repair would be adequate to maintain the equipment in tolerable working condition. It would be unusual to find a dispute the other way. However, such issues do not appear to arise here where there is no dispute that the roof, a substantive part of the building, is beyond repair. For reasons discussed in Telfer v Buccleuch Estates, Note of 15 Feb 2008 at [22] to [27] we are satisfied that it is for the landlord to decide what work requires to be done to implement his obligation to “replace or renew” equipment. If he fails to comply with his statutory obligation the tenant will have a remedy but the tenant is given no say in the matter at the stage when the landlord puts the work in hand. There is no role for the Court in the normal case. We note, in passing, that the so-called category 2 obligation plainly contemplates the situation where equipment will have been “improved” during the tenancy. However, we accept that such improvement might have been by agreement and this provision does not appear to have any bearing on the issues before us.

[38] Proper construction of any provision requires consideration of context. We have looked at the broad context of the practical operation of an agricultural business. The more specific context is the terms of the Act as a whole. The parties examined the Act in some detail and it is appropriate to look at various provisions although only the first two of these relate directly to construction of the word “replace”. Section 10 deals with the rights of a landlord to enter a holding to carry out works and sections 14 and 15 relate to rent. The other provisions discussed show the limited scope of remedies which might be available to a tenant whose improvements have lost value due to a landlord carrying out works of replacement.

[39] If guidance was required as to the normal meaning of “replacement” it might be found in the provisions of sec 4 which make reference to Schedule 1. They deal with the various provisions required in a lease and the fifth of these relates to damage by fire. The landlord is bound to “reinstate or replace”. This reflects the distinction in meaning discussed above. If Parliament had intended a landlord to be limited to renewal or reinstatement in sec 5(2), it could have avoided any possible ambiguity by saying so. A similar comment can be made in relation to sec 6 which provides that the proceeds of any fire insurance policy require to be expended “on the rebuilding, repair or restoration of the buildings”. This provision uses the words “rebuilding” and “restoration” rather than “replace”. It gives a clear indication that the draftsmen had the contrast in mind. This supports the view that replacement was used in the wider sense including substitution.

[40] Section 10 gives power to the landlord to enter the holding for various purposes. Purposes (b) and (c) are in the following terms:

“(b) fulfilling the landlord’s responsibilities to manage the holding in accordance with the rules of good estate management.

(c) providing, improving, replacing or renewing fixed equipment on the holding otherwise than in fulfilment of [responsibilities to manage the holding in accordance with the rules of good estate management]”.

[41] It is unnecessary for present purposes to consider the scope of (b) and the implications of the reference to good estate management. However, it can be said that on the face of it, the provisions of (c) appear to give the landlord an unqualified power to carry out works against the will of the tenant. Read short, it is an unqualified power to enter the holding to carry out work on the fixed equipment including work to “improve” it. The whole purpose of such a provision must have been to give a positive power. No such power would be needed if consent could be obtained. However, there is no doubt that the provisions of 10(b) and (c) taken together are a little clumsy if (c) does not imply some restriction. Lord Gill has commented that: “This provision refers to work which the landlord is obliged to execute at common law where his obligation has not been written into the lease under section 4, and paragraph 5 of the First Schedule to the 1991 Act; or work which he is obliged to execute under a special provision in the lease; or work required of him by the tenant under section 5(2)(a), or work of improvement executed by the landlord under any of the categories specified in section 15(1)”: Gill para 7.44. While there may be a question as to why Parliament would have seen a need for an express power in any of these cases there is no doubt that the observations of Lord Gill are entitled to great respect. The effect of his gloss is that the landlord cannot be said to have power under this section simply to carry out improvements at his own hand.

[42] Reference was made to the power of the Court to vary rent under sections 14 and 15. We are satisfied that the main significance of these provisions, in the present context, is that they allow rent to be varied other than under the provisions of section 13. In other words, at any time within the 3 year period, rent can be varied under these provisions but only in respect of certain specified types of changes. Section 13(5) does not appear to impose any such restriction. It appears to carry the clear implication that where improvements have been carried out by the landlord other than in agreement with the tenant, the tenant can be rented on them. There is no compelling reason why that should not be the case. However, as we have noted above, the landlords accepted that any element of betterment in an improvement would fall to be excluded for rental purposes. Accordingly, we need express no further view for present purposes.

[43] We heard some discussion of provisions which might ameliorate a tenant’s position to some extent. Section 18 would allow the tenant to remove his improvement from the old building in some circumstances. He could reinstate it in the new building if he saw fit. This right is subject to the qualification that the landlord may elect to purchase the equipment at its value to an incoming tenant. Although that might be the same as the value to any tenant prepared to move it, it is not difficult to see circumstances in which the existing tenant might effectively lose much of the benefit and value of an improvement if the landlord had a right to let the old building lapse into ruin by replacing it with a separate building. The obligation under subsection (4) on the tenant to make good all damage to the old building occasioned by removal of his equipment might simply add insult to injury. But we think that the short point is that the provisions of section 18 clearly did not have the circumstances of a dispute like the present in mind. While they might allow a tenant to salvage something they would not often provide anything like full compensation in the eyes of the tenant. Section 19 has no real bearing on the present case.

[44] The tenant will, of course, have the benefit of the provisions of Part IV in respect of any improvements. But, here again, these would seldom provide full compensation in the circumstances with which we are dealing. Compensation is to be based on the value to an incoming tenant: section 36(1). It will only be due where the tenant has given appropriate notice or obtained appropriate consent: section 37 and 38. Section 60 makes some provision for claims by the landlord or tenant against the other on the termination of the tenancy. There are various restrictions but, in any event, the problem here is one triggered by replacement of a piece of fixed equipment – not one arising on termination of tenancy. These provisions have no real bearing on the problem.

[45] It is clear that the Act makes no provision for treatment of fixed equipment which has become surplus to the needs of the holding for any reason. In this context, too, the landlords’ contention that there was a lacuna in the Act is more persuasive than the tenants’ contention is that this is covered. We accept that, at common law, there is no power in a landlord, at his own hand, to declare equipment redundant. In England it appears that there are specific provisions for arbitration to deal with circumstances where, for one reason or another, one party wishes to assert that certain equipment is redundant: Muir Watt and Moss at paras 10.19 to 10.22. The absence of similar provision in the Scottish legislation cannot be explained on the basis that such situations do not arise here. There is no general right to resume and the Act – in section 29 – makes only a very limited provision for notice to quit part of a holding which plainly does not cover circumstances such as are presently under consideration. However, we have no doubt that it is implicit in the concept of replacement that the item replaced ceases to have the status of an item of fixed equipment for the purposes of the legislation. The parties’ statutory obligations in relation to fixed equipment will no longer apply to the superseded item. The landlords will have to leave it safe if it is not to be removed. In practice that might be done by partial demolition or by leaving it externally secure. But this will not necessarily take it out of the tenancy. The tenant will be entitled to make such use as he can of the land, including the former fixed equipment.

[46] Although the tenants’ main contention was that there was no option to replace by substitution, we heard some discussion of whether, if there was such option, it was one to be exercised by the landlord or by the tenant. The cases cited clearly turned on their own very different facts. Mora Shipping Inc v Axa Corporate Solutions was a case about a ship charter involving various parties and governed by a variety of contracts. The issue was whether a particular guarantee gave the cargo insurers a choice as to whether to meet their obligation to pay a contribution by making the payment to the shipowners or to the average adjusters or, alternatively, if it gave the choice to the persons entitled to receive payment to decide who should be paid. Mr Kermack referred to dicta rejecting the contention that, as a matter of law, the choice always rested with the party on whom the obligation lay. The court held that this depended on the context. But the court did affirm the general proposition that the natural meaning of a clause which imposed an obligation on a party to do A or B was likely to be that it was for that party promisor to choose which to do: para 44. Beyond that, we found no useful guidance in this decision. We are satisfied that the plain meaning of sec 5 was that the landlords were given a choice between replacement and renewal. Clear language would be required to give the tenant power to tell the landlord how best to deal with his own equipment.

[47] Sir Crispin suggested that the Court could apply a general test of reasonableness. There is clearly no explicit provision qualifying the landlords’ obligations in respect of fixed equipment by reference to any such test. Statutory provisions require to be applied according to their terms. Where Parliament has made express provisions dealing with fixed equipment, we are not persuaded that these can be qualified by reference to any general test of reasonableness. The Court has no inherent power to apply a test of reasonableness. However, we did not understand the submission to rely on a power in the Court to qualify statutory obligations. Rather it was suggested that where there is an obvious conflict between the interests of landlord and tenant in circumstances which are not governed by express provisions, it may be necessary to imply a term that both parties will act reasonably towards each other. Regulation of the competing rights of a shooting tenant and an agricultural tenant may be seen as an example: Telfer v Buccleuch Estates SLC-119-07 Note of 20 Dec 2012. Mr Kermack resisted this proposition and as it is not necessary for immediate purposes to express a concluded view, we leave that matter over for another day.

[48] As we have seen, the issue in this case was whether the landlord had an option to provide a replacement whole building instead of renewing the roof. The limited crave allowed this to be addressed by way of debate. We are satisfied that the landlord does have a choice and to that extent it can be said that the crave is not supported by relevant averments seeking to exclude the choice. But it may be said that we do not think that it necessarily follows that every such crave would be irrelevant. If the tenant seeks to compel a landlord to deal with a roof and the real dispute is whether the roof is so affected by natural decay and fair wear and tear as to be beyond repair, it might make perfect practical sense to express the crave in terms of renewal and we would not be sympathetic to a plea that such a crave was incompetent or such application irrelevant because, technically, the landlords had a choice. There may be cases where it would be up to the landlord to make it clear that he intended to replace the fixed equipment and how he proposed to do so. It may also be noted that there may be circumstances where a roof can itself be viewed as a distinct item of equipment. This may be of significance when considering whether particular work is properly to be regarded as work of repair for the tenant or work necessitating replacement or renewal by the landlord. But a roof is such a significant part of a structure that we have no doubt that it is reasonable to take a decision based on the state of the building as a whole. If the cost of dealing with the roof as a separate item is disproportionate, replacement or renewal of the building as a whole may well be necessary.

[49] Sir Crispin presented a further contention that, in the present case, the landlords were entitled to nominate a building erected in 1976 as sufficient implementation of any present obligations in respect of the subject building. We do not accept this. While we do not need to go so far as to exclude the possibility that an item of fixed equipment could be replaced by an existing item where such item had not previously been available to the tenant or where its availability had been specifically agreed on terms apt to cover the contention, we do not understand it to be disputed that the tenants have had use of the other building since 1976. The landlords suggest that it was to be seen at that time as additional to the needs of the holding. But they do not seek to rely on the terms of any agreement as to its status. The tenants will have been entitled to assume that the rent they paid covered such building and that it has been regarded, since that time, as part of the fixed equipment. In such circumstances, it seems clear that such a building cannot sensibly be seen as implementing the landlords’ obligation now to replace or renew the subject building.

Decision

[50] For the reasons discussed above we conclude that the power to replace normally allows substitution of one item for another of at least equivalent function and that the landlords have the option to replace or renew equipment which is beyond repair due to natural decay or fair wear and tear.

[51] Although it may be said that the crave which essentially seeks to restrict the landlords to restoration of the roof is not supported by relevant averments, there is no doubt that the tenant has a right to compel the landlords to do something about the state of the building. They aver an extremely protracted history of attempts to reach agreement and there is no doubt that they are entitled to bring matters to a head. We do not think it appropriate to pronounce an Order in terms of the preliminary plea. Parties were agreed that the next stage should be to allow a period of adjustment. This was mainly to allow the pleadings to be tidied but it will also allow the tenant to consider amendment of the craves. We shall then invite submissions as to further procedure.

[52] We consider that the debate should be certified as suitable for the employment of senior counsel. We have found some aspects of this to raise difficult issues although it has not been necessary to express concluded views on all of them. The main issue was one of importance to the present parties and plainly one of potential importance to the tenanted sector as a whole – although fortunately the circumstances in which a tenant might have cause to oppose a modern replacement are rare. As agreed, we continue the issue of expenses for further submission.