This article was originally published in the Summer 2018 issue of ALA Magazine on Wednesday 22nd August 2018.
Fyffe v Esslemont, Scottish Land Court, 28th March 2018
This is a significant and novel decision of the Scottish Land Court to grant a landlord’s application to remove the 1991 Act status from his agricultural tenant because, put bluntly, the tenant was not really farming anymore and had not been for decades.
It also contains useful guidance for agricultural landlords, tenants and their advisors, as to what is acceptable evidence of farming arrangements and, specifically, that “desktop exercises” to try to retrospectively change the basis of legal occupancy from the true position on the ground will not be accepted by the Land Court.
The tenant in this case diversified to such an extent that he was not personally responsible or did not personally have any input into farming activity on the holding, aside from running a “hobby flock” in the years immediately prior to the case (and the Court’s inspection). Instead the would-be agricultural tenant had devoted a very significant proportion, if not all, of his time to running a successful commercial business, Monarch Conservatories, from the holding (although the business had moved elsewhere by the date of the hearing). By running the business from the holding, particularly during its formative years, he had avoided paying a commercial rent. The landlord had objected, but not seen through the objections until this case was heard.
Procedurally, this was a long and complex case about what appears on the face of it to be a simple question: if an agricultural tenant is no longer farming, can he still be an agricultural tenant? Even though there was still some farming going on, at least on the periphery and largely if not solely carried out by third parties, the answer the Court eventually came to was “no”. The Court found that the tenant had given up farming sometime in the late 1990s and that thereafter, his efforts were more directed to “being seen to be farming” than actually farming.
Counsel for both parties had sought to dispose of the case by Debate, but the outcome of that Debate (issued by the Court in March 2016) was to the effect that it was not possible to conclude from the written pleadings and legal arguments alone that the tenant had “wholly or substantially” abandoned agricultural use, as that was a question of fact and degree in each case, requiring assessment of the evidence at Proof. This shows that such decisions will not be lightly made.
The 47 page detailed note from the Land Court following such assessment of the evidence at Proof, sets out evidence heard over what was originally estimated to be a four day hearing which grew into a total of a 12 day hearing in three instalments over a period of several months. It is one of the longest Land Court hearings in recent times, involving over 200 documents being produced. There is reference to the parties making an unsuccessful attempt to settle the case part-way through the Proof.
This case is unusual both on its particular facts and on the nature of the evidence led in Court. It is very rare for an agricultural tenant to diversify (whether with consent or not) to such an extent that there is little, if any, “agricultural purpose” left. That is what the Court found, on the evidence, had happened in this case. The tenant tried to make out a case for continued agricultural use and agricultural purpose, but he was not believed and his demeanour and answers given to the Court were very strongly criticised, as was the documentary evidence in support of his position. It is not, therefore, a case which suggests there is any problem for other secure agricultural tenants, but it shows that the Land Court can, and will, look at each case on its own facts and merits, scrutinise the evidence and ultimately grant applications if the case can be proven.
Where the tenant had run what was the Farm as a successful commercial business for decades subject to a diversification notice which was objected to by the landlord, there was no obvious remedy for the landlord. What the landlord sought and eventually succeeded in proving after a long and no doubt expensive battle was that the tenancy was no longer a 1991 Act tenancy because it did not meet the definition in the relevant Scottish legislation as being run as an agricultural business. The tenant had “wholly or substantially” departed from the agricultural nature of the original lease. He had in fact been running a successful commercial business from the holding and doing very little, if any, farming himself, latterly purchasing what the Court found to be a “hobby flock” and permitting others to manage parts of the holding for agricultural purposes on what was claimed, but ultimately found not to be, contracting agreements with the sale of the standing crop.
The tenant had told his landlord that he had given up farming. He tried to deny in Court that he had ever done so, but during the course of the evidence it was found that he had lied on oath in respect of this denial.
Readers of ALA Magazine will be very much aware that the 1991 Act tenancy or “secure agricultural tenancy” is the strongest form of agricultural tenancy a Scottish tenant can hold, conferring security of tenure and the pre-emptive right to buy on the tenant and his successors. There are very limited grounds on which such a tenancy can be terminated.
Those limited grounds extend to irritancy (if there are grounds to do so in the written lease); “incontestable” notice to quit in very narrow circumstances, largely confined to serious and irremediable fault grounds on the part of the tenant; or failure in succession or abandonment by the tenant (in practice very rare).
Not surprisingly, the landlord applicant had some difficulty in deciding what to ask the Land Court for and after some preliminary discussion about the appropriate procedure and crave (what they were asking the Court to do) settled for asking for a finding not that there was no longer a tenancy at all, but that the tenancy was not subject to the 1991 Act. The Court granted that crave.
In other words, the tenant still has a tenancy, but it is no longer regulated and protected by the 1991 Act. He has lost security of tenure and the pre-emptive right to buy to name some of the strongest rights under that legislation.
“Sham” Agreements versus The Position on the Ground
It has been recognised in Scots agricultural law that a properly constituted contract farming agreement can enable someone to achieve assistance with day to day farming of the land whilst not relinquishing control of their interest over that land and the benefits which may flow from it. Examples abound of contract farming agreements which are, however, not truly contract farming agreements. “The farmer” needs to take an active involvement in the contract farming arrangement and take on risk. In the case of a tenant farmer, the arrangement must not be to cover up sub-letting, or it most probably breaches the terms of the lease (whilst some leases permit sub-letting in particular circumstances this is rare).
In this case, the tenant had taken some advice on a contracting and sale of standing crop arrangement designed to enable another or others to carry out farming activities whilst ensuring that the tenant continued to be the farmer and to be engaged in agricultural activity and that there was no sub-letting contrary to the terms of the agricultural lease. The Court found that the arrangement in this case was a “sham” to disguise the true nature of what was going on (i.e. that the tenant was not carrying out or responsible for any significant farming activity and that he was truly sub-letting). The tenant had obtained advice as to how to structure a sale of crop and contract farming arrangement, whereby the sale of crop offset the contracting fee, so that if there was any claim as to sub-letting there was no rent and, therefore, one of the vital elements of a sub-let would be missing. The Court found that the sale of crop was not based on its true valuation, but a “balancing payment” for invoices under the purported contracting agreement which the Court found in this case to be a “euphemism for rent” to try to create the impression that there was in fact no sub-let. The purported contracting arrangement was not backed up by the evidence as to the position on the ground, particularly the farmer (i.e. the tenant) did not take on any risk in the contracting agreement and the invoice for the crop did not represent a sale for a valuation at any particular date. For example, one of the invoices examined by the Court was issued some months after the crop would have been harvested.
The tenant had copied over invoices provided by a former agent for one particular year in a subsequent year and further undermined his position by creating a balance due by the purported contractor, thus removing the possibility of arguing there could be no sub-lease because there was no rent or rent equivalent. This is another warning about the copying over of documents, use of styles/proformas, or use of artificial arrangements designed to avoid a particular legal status, which might work in one particular year/circumstance, but which need to be looked at in the particular circumstances and before the arrangement on the ground commences.
The tenant’s position was further undermined by virtue of the fact that he (or his advisers) had confirmed in applications for Scottish Government grant funding that the land was let out to others.
In this case the Court found that it did not need to look into the question as to whether an agricultural tenant could legitimately sub-let on a short term grazing lease where, for example, he had additional grass beyond his requirements in a particular year without breaching his lease. In Fyffe v Esslemont, a much more significant departure was in fact found to exist. The tenant in this case played no “meaningful part” by way of management, control or otherwise, in the purported Contract Farming Agreement.
The Land Court specifically reserved judgement as to whether short term sub-letting of grass would constitute a breach and many tenants and practitioners would welcome a decision on this. In Fyffe v Esslemont, the Court found that seasonal grazing by third parties was the principal and in some years the only agricultural activity on the holding.
This is an unusual case which ultimately turned on its particular unusual facts and as a result of the tenant not being believed and being found to have lied on oath on a number of occasions. It does demonstrate that seemingly radical results can follow such a case; here a tenant formerly with full 1991 Act rights losing all such protections. It also demonstrates the importance of ensuring that contract farming and other occupancy arrangements for use of agricultural land are set up correctly and in advance of the activity commencing on the ground or, where that is not possible, of ensuring that the written paperwork is consistent with the activity on the ground.