Alastair Eric Hotson Salvesen V. John Riddell+andrew Riddell+the Lord Advocate

JurisdictionScotland
CourtCourt of Session
JudgeLord Osborne,Lord Justice Clerk,Lord Nimmo Smith
Judgment Date15 March 2012
Neutral Citation[2012] CSIH 26
Publication Date15 March 2012
Docket NumberXA107/10
Date15 March 2012

SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk

Lord Osborne

Lord Nimmo Smith

[2012] CSIH 26

XA107/10

OPINION OF THE LORD JUSTICE CLERK

in the appeal by

ALASTAIR ERIC HOTSON SALVESEN

Landlord and Appellant;

against

JOHN RIDDELL and ANDREW RIDDELL

Tenants and Respondents:

and

THE LORD ADVOCATE

Intervener

_______

For the landlord and appellant: Reid QC; Gillespie Macandrew LLP

For the tenants and respondents: Ellis QC; Balfour and Manson

For the Intervener: Mure QC; Scottish Government Legal Directorate

15 March 2012

Introduction

[1] This is an appeal against an Order of the Scottish Land Court dated 29 July 2010. It relates to the construction of section 72 of the Agricultural Holdings (Scotland) Act 2003 (the 2003 Act) and its compatibility with the European Convention on Human Rights.

The facts
[2] The appellant owns Peaston Farm, near Ormiston, East Lothian.
He bought it in 1998. It was then subject to a tenancy held by a limited partnership of which the respondents were the general partners. The appellant appointed his agent, Anthony Whale, as limited partner in succession to the nominee of the previous landlord.

[3] The limited partnership was entered into in 1992. It was to run to 28 November 2008 and from year to year thereafter, unless notice of dissolution was given in terms of the partnership agreement.

[4] The lease to the limited partnership was entered into at the same time. It too was to run to 28 November 2008; but, so long as the partnership continued to exist, it would continue from year to year thereafter by tacit relocation unless an effective notice to quit was given (Agricultural Holdings (Scotland) Act 1991 (the 1991 Act), s 3).

[5] On 3 February 2003 the limited partner gave notice to the respondents that the partnership would be dissolved on 28 November 2008. 3 February was a significant date, as will become clear.

[6] On 12 December 2008 the respondents gave notice to the appellant under section 72(6) of the 2003 Act that they intended to become the joint tenants of the subjects in their own right.

Part 6 of the 2003 Act
Background to the legislation
[7] In the post-war reorganisation of British agriculture, Parliament conferred on the agricultural tenant security of tenure, rights of succession and the opportunity that the lease could continue for an indefinite number of generations, and imposed certain onerous liabilities on the landlord for the fixed equipment and for statutory compensations (Agriculture (Scotland) Act 1948 (the 1948 Act), Part 1).
The tenant's position was further secured by judicial recognition of the principle that any provision in the lease or in a collateral agreement that purported to deprive the tenant of his security of tenure was not enforceable (Johnson v Moreton [1980] AC 37; Featherstone v Staples [1986] 1 WLR 661). Under the 1948 Act and its successors, the Agricultural Holdings (Scotland) Acts 1949 and 1991 (the 1949 and 1991 Acts), the granting of fixed term lets was not possible.

[8] The existence of an agricultural tenancy greatly reduced the value of the landlord's interest. A landlord who sought to sell the land could sell it with vacant possession only with the tenant's agreement. As a result, the tenancy had a value to the tenant related to the premium that the tenant could exact from the landlord for an agreed renunciation of the lease (Baird's Exrs v IRC 1991 SLT (Lands Tr) 9). The letting of agricultural land to an individual was therefore not in the landlord's best interests.

[9] In due course the market devised its own solution. Instead of making the individual his tenant, the landlord made him the general partner in a limited partnership in which the landlord or his nominee was the limited partner. The limited partnership had a fixed duration. The landlord granted the lease to the limited partnership for the same duration. By putting the partnership out of existence by dissolving it in accordance with its terms, the landlord could bring the lease to an end (IRC v Graham's Trs 1971 SC (HL) 1). In this way the landlord was assured of recovering vacant possession at a specified date, but had the flexibility to allow the partnership and the lease to continue thereafter by tacit relocation with power to dissolve the partnership at any anniversary. A contractual arrangement of this kind was not objectionable in principle (MacFarlane v Falfield Investments Ltd 1998 SC 14).

[10] Such an arrangement was less advantageous to the general partner than a tenancy; but numerous cases in the Scottish Land Court Reports, which I need not cite, demonstrate that when limited partnership lets were offered in the open market there was strong competition for them, with consequent upward pressure on open market rents. In 1983 there was an unsuccessful attempt to proscribe such lets by way of a proposed amendment to the Agricultural Holdings (Amendment) (Scotland) Bill (HC Deb vol. 41, cols 454-459).

[11] By the end of the last century virtually all new lettings in Scotland were granted on a limited partnership basis. Such few tenancies as were obtained by individuals were usually the result of naivety on the part of the landlord or of carelessness in the operation of grazing lets.

[12] On 4 February 2003 in a debate in the Rural Development Committee of the Scottish Parliament on the Agricultural Holdings (Scotland) Bill (infra), the Minister was unable to provide statistical data on the number of limited partnerships that had been created or dissolved (col 4161); but research on the subject published in 1989 and 1996 indicated that the number of such tenancies ran into thousands (Blight, Land Tenure Forty Years On (1989) JLSS 463; Stockdale and Lang, The Limited Partnership Tenancy in Scotland, (1996) 9 Farm Management 336). A survey by the Royal Institution of Chartered Surveyors in 1995 indicated that of the land in Scotland that was held under various forms of tenure, which for this purpose included share farming, contract farming, management agreements and short term lets, about 24% was held on limited partnership leases.

History of the legislation
The White Paper
[13] In May 2000 the Scottish Executive published a White Paper Agricultural Holdings - Proposals for Legislation.
This identified land reform, and particularly reform of the agricultural holdings legislation, as a key priority. In recognition of the realities of the situation, it accepted the principle that it should be open to landlords to grant fixed term tenancies; but it proposed that such tenancies should be granted to individuals rather than to partnerships. The proposed lines of reform were indicated as follows:

"2.9 Given the advantages that this new option [sc the limited duration tenancy] will have, and in particular to ensure suitable security for future tenants, the creation of the new tenancy will be accompanied by the discontinuation of the use of limited partnerships for all new agricultural leases, whether secure or limited duration. This will be achieved by amendment of the 1991 Act to debar limited partnerships as new tenants. Existing leases where the tenant is a limited partnership will not be affected."

The last sentence that I have quoted was reassuring to landlords in existing limited partnership tenancies.

[14] The White Paper did not propose that the tenant should have the right to buy.

The NFU Scotland/SLF Agreement
[15] After the publication of the White Paper the National Farmers Union of Scotland and the Scottish Landowners' Federation had discussions regarding the details of the proposed new tenancy arrangements.
They concluded an agreement and submitted it to the Scottish Ministers in May 2001.

The Draft Agricultural Holdings (Scotland) Bill Consultation Paper
[16] In April 2002 the Scottish Executive published a Consultation Paper incorporating the Draft Bill.
The substance of section 42 of the Draft Bill, which was to apply only to partnership lets entered into after the commencement of the Act, was repeated in section 58 of the Bill that was later to be introduced to the Scottish Parliament. That section was to become section 70 of the 2003 Act.

The Agricultural Holdings (Scotland) Bill (as published)

[17] On 16 September 2002 the Agricultural Holdings (Scotland) Bill was introduced in the Parliament.

[18] Section 1 dealt with any future grant of a tenancy to which the 1991 Act would previously have applied. It provided that the 1991 Act would not apply to such a tenancy unless the lease was entered into in writing before the commencement of the tenancy and expressly stated that the 1991 Act was to apply in relation to it.

[19] Sections 23 to 33 provided that a 1991 Act tenant who registered his interest with the Registers of Scotland would have a pre-emptive right to buy the land of which he was tenant if the landlord were to take certain steps to transfer it. This right would be enforceable against third party purchasers.

[20] Section 58 dealt with future tenancies in which the tenant was a partnership in which the landlord or his associate was a partner. It provided inter alia that if the landlord or his associate purported to terminate such a tenancy by dissolving the partnership, then on the giving of notice by one of the other partners, the tenancy would be deemed to continue in force with that partner as tenant in his own right.

[21] The Bill did not affect existing limited partnership tenancies.

The Minister's letter of 19 November 2002
[22] In this letter the Minister for the Environment and Rural Development gave notice to the Convener of the Rural Development Committee as follows:

"Section 58 includes anti-avoidance provisions that will apply to tenancies entered into in future, where a limited partnership (or other partnership) has been created as the tenant. These provisions will enable the general partner (ie the de facto tenant) in such partnerships to enforce the rights they would...

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3 books & journal articles
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