Since the publication of our last e-bulletin, three key judgments have been handed down. All three relate to rent reviews in the context of agricultural leases.
The case of Morrison-Low v Paterson’s Executors is thought to be the first case concerning a rent review of a lease under the Agricultural Holdings (Scotland) Act 1991 considered by the courts since the passing of the Agricultural Holdings (Scotland) Act 2003. The case considers the treatment of the single farm payment subsidy (“SFP”) in the context of agricultural rent reviews. The case results from an ongoing dispute between the landlord and tenant over the correct value for the new rent. The landlord sought rent of £32,000, an increase of £10,000 from the current rent at the time of the application of £22,000. Conversely, the tenant sought a reduction in rent to £10,266.74, following conflicting opinions on how SFP fell to be treated in fixing the new rent. The Land Court decided SFP was not properly to be regarded as part of the earnings of the farm and should not therefore be considered in fixing rent.
Having assessed the farm in terms of its budget, fertiliser, return on tenant capital, profit share and cottages, the Land Court calculated the new rent due as £20,800 per annum. Having determined that SFP was not properly to be regarded, the Court did suggest that the rent amount fixed should contain a convenience figure to reflect the ability of the tenant to use the landlord’s property as a means of realising SFP income. The Court allowed £9 per acre.
The ruling will no doubt prove significant for landlords and tenants alike. Previously, SFP had often been a key factor in determining rent amounts. Low or fluctuating commodity prices often mean that many farmers are wholly reliant on SFP for profit or to mitigate their losses. Without it, little or no profit would be made. There has been some concern in landowning circles that the ruling perhaps leaves the door open to tenants to argue that, where SFP is the only source of profit, no rent should be payable. It will, of course still be important to consider the potential for diversification of the land for other potential sources of income. Comparable rents in the area which happen to be higher will also be relevant.
The other two cases are The Coulson Trust v AC Stoddart & Sons and Forbes v Cameron.
In The Coulson Trust v AC Stoddart & Sons, a case in which the tenants had been attempting to fix the new rent for seven years, the Court of Session upheld the Land Court’s decision not to admit adjustments to pleadings and a preliminary plea due to the unfairness which would be caused to the tenant. The landlord had attempted to challenge the jurisdiction of the court to fix a new rent on grounds that there had been a variation of the rent within the three years preceding the review date in the form of a small rent reduction following resumption. Admission of the preliminary plea, which the Land Court suggested could have been taken years earlier, would simply have prolonged proceedings and would not therefore have been in the interests of justice. The quality of oral testimony would no doubt have been affected and could therefore impact upon fairness to the tenant’s case. Accordingly, the application was remitted to the Land Court to fix the new rent.
In Forbes v Cameron the Inner House reversed the Land Court’s earlier decision on the interpretation of “Whitsunday” when it was undefined for the purposes of the ish (the termination date) of the lease. The Land Court had decided that the term fell to be interpreted in the context of the lease as a whole. As the lease defined “Whitsunday” as “15 May” in the rent payment clause, the Land Court took the view that the same interpretation should be taken for the purpose of a notice to quit.
On appeal, however, the Inner House disagreed and decided that when “Whitsunday” is used and no specification is provided as to the date or month in the context of the ish of the lease, the term “Whitsunday” is defined in accordance with Section 1(4) of the Term and Quarter Days (Scotland) Act 1990. It was irrelevant that the term had been defined for other parts of the lease. The notice to quit had been served on 28 May and was accordingly deemed to be valid. The decision will perhaps come as a relief to practitioners, landlords and tenants who use the terms “Whitsunday” and “Martinmas” in the belief that they mean 28 May and November respectively unless otherwise defined in the lease.