The Agricultural Holdings Act contains a complex statutory scheme which governs how landlords serve notices to quit on tenants who are in breach of the terms of their tenancy. Serving notices under Cases D and E of the Act can exert pressure on tenants, but choosing the correct notice is not always straightforward and the potential benefits of serving the notice must be weighed against the risk of initiating a potentially costly statutory process.
Case E - Irremediable Breaches
A landlord can serve a notice to quit under Case E if:
"At the date of the giving of the notice to quit the interest of the landlord in the agricultural holding had been materially prejudiced by the commission by the tenant of a breach, which was not capable of being remedied, of any term or condition of the tenancy that was not inconsistent with the tenant’s responsibilities to farm in accordance with the rules of good husbandry."
The breach must be one that is not capable of being remedied. This generally excludes all breaches of repair covenants. A clear-cut assignment of the tenancy in breach of a prohibition on assignment will be irremediable, but a mere sharing of possession (so common in agricultural holdings) in breach of a well-drafted alienation clause prohibiting sharing will not be irremediable.
The breach must also materially prejudice the landlord’s interest and this may not be easy to establish. A subletting in breach of an alienation clause may be irremediable, but it may not amount to a material prejudice if the sub-tenancy ends prior to the head tenancy (and does not afford security of tenure).
Whilst a Case E notice to quit is often spoken of as an ‘incontestable’ notice to quit, that is not strictly true: the tenant can seek a demand for arbitration within one month of the service of the notice to quit, and given the dire consequences of failing to do so, a landlord must expect a tenant will do exactly that.
Case D - Remediable Breaches
Case D differs from Case E in that there is a two stage process: the notice to quit must be preceded by service on the tenant of a notice to pay or a notice to remedy.
Non-compliance with Notice to Pay
When preparing the notice to pay care must be taken to use the correct prescribed form and to state with precision the ‘rent due’. There has been uncertainty in the past as to whether VAT should be included in the notice as part of the rent due. The case of Mason v Boscawen (2009) confirmed that where VAT is payable on rent it is correct to include it in the notice to pay as part of the rent due. This does not extend to other payments due under the tenancy agreement, for example contributions to the cost of running a private water supply; these should be the subject of a notice to remedy (non-work notice).
If the tenant fails to pay the rent due within two months from the notice to pay, the landlord may serve a Case D notice to quit. The tenant then has one month in which to demand arbitration.
Non-complicance with Notice to Remedy
There are separate prescribed forms for use where the remedy requires the tenant to do work (work notices) and where the remedy does not require work (non-work notices). The notices must give a reasonable period for the tenant to remedy the breach, which often begs the question what is ‘reasonable’. With work notices the statute requires a minimum of six months to remedy, but there is no statutory minimum for non-work notices and land managers must use their common sense (and err on the side of caution) when choosing a reasonable period.
Challenging Notices to Remedy
Tenants can demand arbitration of notices to quit served pursuant to any notice to remedy, but tenants have particular scope for disputing work notices. Where a notice to remedy (work notice) is served the tenant can demand arbitration of the notice within one month of service. Whatever the outcome of that arbitration, the tenant can also (within one month of the arbitrator’s award or service of a notice to quit) serve a counternotice under section 28 of the Act, which forces the landlord to apply for consent to operation of the notice to quit within one month. That means the landlord has to apply to the Tribunal and persuade it that, in all the circumstances, a fair and reasonable landlord would insist on possession. No easy task.
Landlords must be judicious in using Case D and Case E. The stakes are high for tenants and they are very likely to challenge the notices. The stringent deadlines for counternotices and applications mean landlords can swiftly be drawn into potentially costly proceedings. There is a considerable risk that proceedings will be decided not on the merits of the case but on procedural shortcomings such as missed deadlines or mistakes in the notices. The 2017 case of Sowden v SmythTyrrell is a signal example of this. The case considered the validity of a notice to remedy which erroneously identified a breach by referring to the wrong clause number in the tenancy. Happily for the landlord this mistake was not fatal to the notice on this occasion, but of more interest were the comments of the judge as to whether the case should have been brought before him at all:
"Before I turn to the substance of the applications, I wish to record that I consider the present situation unacceptable. The arbitration commenced in May 2013 has taken 4 years to reach a final award. Thereafter the parties have chosen to make a series of applications to court under the 1996 Act, at least one appeal to the Court of Appeal, and an application for judicial review. I was told that, as at 4 July 2017, the legal costs to both parties in total exceeded £500,000 plus VAT. They must now be considerably higher...
the dispute in this case is not only not yet finally concluded, but has also led to legal costs which are wholly disproportionate. I was told that the cost of removing the wall and path to which the tenant so strenuously objects would cost about £9,000."
If you require further information about anything covered in this briefing note, please contact James Maxwell, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2019