Agricultural holdings Act 1986: Should tenants reveal secret assignments?

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Is the recent County Court decision of Turner v Thomas [2021] cause for concern for tenants holding undisclosed assignments in their chest of armoury?

The assignment of a tenancy to a company is a common weapon deployed by tenants under the Agricultural Holding Act 1986 ("1986 Act") to avoid the landlord's ability to determine a tenancy on the death of a 1986 Act tenant.

There is no statutory requirement for a tenant to disclose to a landlord that an assignment of the tenancy has taken place. So, in the absence of an express provision in a tenancy agreement, a tenant is not obliged to tell the landlord about an assignment.

The case

The tenant farmer ("Farmer") had an oral tenancy in respect of approximately 20 acres of land in Gwynedd ("Holding"), protected by the 1986 Act ("Tenancy").

The "Original Landlord", the Claimant's predecessor, served a notice to quit dated 4 November 2019 ("Notice to Quit") on the Farmer seeking to terminate the Tenancy.  

Unbeknown to the Original Landlord, the Farmer assigned the Tenancy to a company ("Company"), by a Deed dated 1 November 2019 ("Assignment"). The Assignment was not disclosed to the Original Landlord, before the Notice to Quit was served.

The Farmer is the sole director and sole shareholder of the Company. Following the Assignment, the Farmer carried on farming the Holding, but on behalf of the Company not on his own behalf, as he had done before the Assignment.

The issue that the Court had to determine was whether the Notice to Quit was valid, given that it was addressed to the Farmer and not the Company.

The law

The question of the validity of notices to quit served in such circumstances, has given rise to much litigation.

It is well trodden ground that a company is a separate legal entity from the individuals who sit behind its corporate veil. There is also authority that notice given to an assignor after a tenancy has been assigned will not constitute valid and effective notice.

"Reasonable recipient" test

In Thomas the Landlord relied on the "reasonable recipient" test, derived from the case of Mannai: Would it have been clear to a reasonable tenant reading the Notice to Quit that the Original Landlord was giving notice to quit the land and terminate the Tenancy?

The Landlord averred that in the absence of any other person appointed as secretary to the Company, the Farmer was the person responsible for the discharge of the Company's administrative functions and accordingly, fulfilled the role of company secretary. Further, the Farmer was the person responsible for the management and farming of the land.

Defending the claim, the Company emphasised that Section 93 (1) of the 1986 Act requires notice to be given or served on the person to or on whom it is to be given. The provisions in section 98 (1) relating to service on a company only arise if the notice is addressed and given to a company. It was not.

The Court held that any reasonable recipient of the Notice to Quit would appreciate that the Notice contained an error, in that it was addressed to the Farmer, not the Company. A reasonable person in the Farmer's shoes would appreciate the meaning that the Notice was intended to convey.

In the Judgment, reference was made, that it was the Farmer that had set up the Company and acted as its secretary. He assigned the Tenancy to the Company, but he continued to carry out the farming of the Holding.  There was no material difference as to what was required of the Farmer, whether acting in his personal capacity or on behalf of the Company.

The Court may have reached a different conclusion had separate individuals been involved in the new limited company, rather than being the alter ego of the farmer himself.

Consequences

Whilst this is a County Court decision and thus not binding precedent, it will no doubt cause concern for tenants holding undisclosed assignments in their back pockets. The Judgment does not suggest that assignments to company vehicles will be invalid, but it does suggest that the Court is prepared to look behind the corporate veil, when considering the validity of notices to quit addressed to the wrong recipient.