Sub-letting agricultural holdings

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Case: Private Arbitration – Troop v Gibson [1986]

1. One of the frustrating things for practitioners in agricultural law is that so many of the interesting points are dealt with at Arbitration and, as a consequence, are not part of any system of reported cases.

2. Although it is not uncommon for Arbitration decisions to become well known within the industry, strictly speaking Arbitration is a private process. For those of you who like to have case authority to be able to point this out to the opposition, it is Dolling-Baker v Merrett [1991].

3. Disclosure in relation to Arbitration proceedings is only permissible in limited circumstances such as:

• With the express or implied consent of the parties

• If there is an Order, or permission of the Court (although that does not mean that the Court has a general discretion to lift the obligation of confidentiality)

• If it is reasonably necessary for the protection of the legitimate interests of an arbitrating party

• Where the interest of justice requires disclosure

4. In the good old days of Schedule 11 of the Agricultural Holdings Act 1986, it was common practice for interesting points of law to be referred by the Arbitrator to the County Court on case stated. As a result it was not uncommon for County Court cases to be reported in journals such as the Estates Gazette. Indeed, some cases that are regarded as leading authorities in their particular areas are reported decisions of cases stated by Arbitrators to the County Court. Two good examples are the issue of latent value for rent review in Tummon v Barclays Bank Trust Co Limited (1979) and the provisions relating to notices in respect of claims for statutory compensation under Sections 71 and 72 of the Agricultural Holdings Act 1986 in Lady Hallinan v Jones [1984]. However, strictly speaking, as County Court decisions, they are not binding on any other Court.

5. Over the course of the last six months or so I have been involved in a series of Arbitrations involving a number of very interesting points. With the exception of one Arbitration, where the other side unsuccessfully appealed to the High Court, all of the Arbitrations to which I refer in the articles must remain confidential. It is not necessary to go quite so far as to say: “All characters in this publication are fictious and any resemblance to real persons, living or dead, is purely coincidental”!

6. A case which I have previously highlighted is a Court of Appeal decision called Akici v L R Butlin Limited [2005] which had nothing whatsoever to do with agricultural holdings. It is a case which was then referred to in the 10th edition of Scammell & Densham.

7. The case involved, to put it neutrally, “shared use”. In the Akici case Lord Neuberger (subsequently Head of the Supreme Court) cast doubt upon the correctness of an existing Court of Appeal decision in Scala House and District Property Co v Forbes [1974], where the Court of Appeal had decided that a breach of a covenant prohibiting sub-letting amounted to an irremediable breach of covenant. Lord Neuberger said that he could see the force of the argument to find the opposite conclusion, namely that sub-letting in breach of covenant was a remediable breach. However, he did go on to say that unless and until the House of Lords (now the Supreme Court) had to consider the position, the law would remain that sub-letting was irremediable.

8. Faced with such comments, and recognising therefore that if a case were to get to the Supreme Court, there is a distinct possibility that a breach of a covenant prohibiting sub-letting may be found to be remediable, I suggested that, out of an abundance of caution, it might be wise to consider serving a Notice to Remedy followed by a Case D Notice to Quit, in the alternative to a Case E Notice to Quit, where a landlord is faced with unlawful sub-letting on the part of the tenant.

9. This suggestion arose from the danger that, during the course of any particular dispute, another case might find its way to the Supreme Court. However, my view has firmly remained that unless and until there is a change as a consequence of a Supreme Court decision, unlawful sub-letting is an irremediable breach of covenant.

10. In a case where there was an acknowledged breach of covenant by sub-letting a cottage without consent under an Assured Shorthold Tenancy, the lawyers on behalf of the tenant took a Preliminary Issue in an Arbitration.

11. The tenant raised two distinct arguments. The first was that, relying upon the Akici decision, he said that unless the tenant was sub-letting in a manner to “put matters out of his control… forever or to all practical intents and purposes”, the technical breach should be treated as remediable. The creation of an Assured Shorthold Tenancy was “an ephemeral interest”. The Arbitrator was not therefore required to treat the creation of the Assured Shorthold Tenancy as irremediable.

12. Secondly, the tenant sought to argue that there was also a distinction to be drawn between an analysis of a general law of forfeiture, and irremediability in that context, and the regime operating under the Agricultural Holdings Act 1986.

13. Both arguments failed. The Arbitrator sought an Opinion from Counsel who advised that the sub-letting pursuant to an Assured Shorthold Tenancy was an irremediable breach of covenant: that is, in the language of cases D and E, a breach which was “not capable of being remedied”.

14. As to the first argument advanced by the tenant, the advice given to the Arbitrator was that it is settled law (at least below the level of the Supreme Court) that a breach of covenant against sub-letting is a breach which is not “capable of remedy” for the purposes of Section 146 of the Law of Property Act 1925 in respect of the general law of forfeiture.

15. The Arbitrator was also advised that the position under the 1986 Act is no different. In support of that proposition reference was made to the Court of Appeal decision in Troop v Gibson [1986]. That case is known primarily as one in which the Court considered the application of estoppel by convention. However, the third ground of appeal which was considered by the Court of Appeal in that case was the proposition that a breach of the covenant against assignment was not capable of being remedied within the meaning of Case E. The Court of Appeal regarded the position under the (then) Agricultural Holdings (Notices to Quit) Act 1977 (now consolidated into the 1986 Act) to be indistinguishable from the common law position considered in the Scala case. One of the Lord Justices of Appeal described the submission on the part of the Counsel for the tenant as courageous.

16. The position therefore remains that, unless and until the issue is considered by the Supreme Court, a breach of a covenant against sub-letting (or assignment) is irremediable and, in the language of the 1986 Act, will be subject to a Case E Notice to Quit. What constitutes “material prejudice” is of course another question…

© P R Williams
P R Williams, Ebery Williams – Author of Scammell, Densham & Williams Law of Agricultural Holdings

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