Sound Estate Management – is it sound?

Carr v Evelyn and Others is a Decision of the First-tier Tribunal handed down on 16 August 2019. The case provides welcome guidance on the law governing the ground of sound estate management, used to recover possession of a farm protected under the Agricultural Holdings Act 1986.

The Decision represents a continuing run of success for Charlotte Razay and me in high profile and important cases in our world of agricultural law. As with another recent success, The Earl of Plymouth v Rees, Mr Stephen Jourdan QC was again briefed at the 5-day Trial before the Tribunal.

Although this is a success in another important case, we recognise that every dispute that goes to a Hearing is a failure because the objective is to settle disputes. That still happens in the majority of cases. However, when a dispute does go to a Hearing or a Trial, it is important to win, particularly (as here) when acting for a delightful farming family.

Background Legal Structure

Section 27(3) of the Agricultural Holdings Act 1986 ("1986 Act") contains various grounds on which a landlord can seek to recover possession of an agricultural holding protected under the 1986 Act. The list includes:

  • bad husbandry;
  • a requirement for non-agricultural use where planning permission is unnecessary; and
  • where the landlord seeks to recover possession on the ground of sound estate management.

Whenever a landlord gives a notice to quit in reliance upon a section 27(3) ground, if the tenant gives a counter-notice, then the landlord must apply to the First-tier Tribunal ("FTT") for consent to the operation of the notice to quit. Before the FTT, the landlord faces two hurdles. First, he must establish the particular ground on which the notice to quit is given under section 27(3). Secondly, he must persuade the FTT that the Tribunal should not withhold consent on the basis that "in all the circumstances it appears to them that a fair and reasonable landlord would not insist on possession".

Where a tenant has died, and the process of succession is underway before the FTT, then a landlord can make an application under section 44 of the 1986 Act to rely upon any of the grounds contained in section 27(3). Where a landlord makes such an application within succession proceedings, he must still satisfy the fair and reasonable landlord requirement.

The Case

The crux of the case was whether the Landlords were entitled to have consent granted by the FTT to the operation of a Notice to Quit, where the Landlords argued that they should do so in the interests of the sound management of their estate.

The submission made on behalf of William Carr was that the real underlying motivation behind the Landlords' application was a desire to remove the Carr family from the estate and that the application was, in effect, "a construct to achieve that purpose". The Tribunal concluded that it was "satisfied that the motive underlying the section 44 application had been the [Landlords] wish to remove the Carr family from the estate. The Tribunal does not form that view lightly".

Importance of the Case

The importance of this case is not about the Landlords' motivation or the FTT's findings with regard to that. The interest lies in the bigger picture as to the FTT's analysis of the law relating to a landlord's wish to rely upon the ground of sound estate management to recover possession of a farm protected under the 1986 Act and features relevant to that analysis.

The Facts

By a tenancy agreement dated 3 July 1964, Graham Carr became the tenant of an agricultural holding known as Home and Pishill Farm, extending to some 158 hectares, and forming part of the Stonor Estate in Oxfordshire. It was common ground that the Holding is protected under the 1986 Act.

Graham died on 15 July 2016, and one of his sons, William, applied for succession. The application was opposed by the Landlords, who, as trustees of the J P M H Evelyn 1997 Settlement, are the owners of the Stonor Estate. The Landlords served a notice to quit under Case G, but also issued their own application, under section 44 of the 1986 Act, for the FTT's consent to the operation of the notice to quit, based upon the ground of sound estate management.

In 2018, the Landlords conceded that William was an eligible person for the purposes of the application, satisfying all three of the 'close relative' condition, the 'livelihood' condition and the 'occupancy' condition. The Landlords also conceded that William was suitable, having regard to (a) the extent to which he had been trained in, or has practical experience of, agriculture; and (b) to his age, health and financial standing. The Landlords however reserved their right to challenge William's suitability, having regard to other 'relevant matters'. Those relevant matters included historic issues which existed between Graham and the Landlords. The FTT concluded that William was "a more than suitable person, or candidate, to take on the tenancy of the holding".

William's Financial Standing

One ground upon which the Landlords opposed William's suitability was based on the contention that William and his wife were "persons of substantial wealth". Full disclosure of the Carr family's financial position was made and it was then analysed by the FTT in the Decision.

The FTT rejected the Landlords' submission that a person (such as William) who, independently of his economic relationship with the holding, has sufficient income and resources for his economic survival, is not a person suitable to take on a tenancy of an agricultural holding, because the purpose of the succession provisions is intended only to be available to those who, without the benefit of such provisions, would suffer hardship.

In determining that William was, in all respects (training, skills, resources, health and character) a suitable person to carry on the farming of the land and to be tenant of the holding, the FTT went on to observe that:

"Far from his wealth, or resources, constituting a handicap, or bar, to his suitability as a tenant, they reinforced that suitability, in that they afford the [Landlords] the security and satisfaction that he has the resources available to ensure the proper farming of the holding and to meet, in full, all his obligations as the tenant of the holding".

Sound Estate Management

In its 40-page Decision, the FTT addressed thoroughly the principles that apply and the previous case law.

The starting point is the decision of the Divisional Court in National Coal Board v Naylor [1972]. From that case the principle was established that sound management referred, not to the management of the estate, as an economic unit, but the management of the land comprised in the estate; that is to say, the management of the estate as an agricultural unit. It follows that a proposal based on sound estate management is not to be judged by the effect upon the 'landlords' pocket', but the effect that the proposal would have on the management of the particular farming estate.

The FTT considered the proposition where the purpose of the termination of the tenancy was to sell, or to develop, land or buildings within a holding, in order to raise money for necessary expenditure on the estate. The Tribunal concluded that this would or could constitute sound management of the estate.

The FTT considered the impact of an earlier decision of the Agricultural Land Tribunal ("ALT") in Collins v Spofforth (2008). The FTT agreed with the ALT's proposition that the fact that the landlord hopes, or intends, that a particular course of action will be profitable, does not preclude that activity from constituting sound estate management, if, otherwise, it falls within the ambit of sound estate management. The amalgamation of holdings on an estate might constitute sound estate management. However, that is dependent upon whether, for example, the estate was made up of a number of unviable holdings, the farming of which was likely to fail.

The Landlords' Plan

It was not until May 2017, some 9 months after Graham's death, that the Landlords launched their Section 44 application. The sound estate management ground was based upon the Carrs losing the entirety of their tenancy and the holding being divided between two tenants. 132 hectares of the Carr holding land (327 acres) would pass to the Stracey family and 25 hectares (62 acres) to the Hunt family. Inevitably that resulted in a focus upon the farming enterprise of the Straceys.

As regards that, the FTT accepted the expert evidence which expressed concern as to the Straceys' capital base. The FTT concluded:

"Taking all matters together, the Tribunal is not at all persuaded that the proposed extension of the Straceys' holding would do anything other than impose serious potential strains on the Straceys' business. Far from improving the long term viability of the Straceys' business and so protecting the farming and husbandry of the land farmed and, under the [Landlords] proposals, to be farmed by the Straceys, it seems clear to the Tribunal that the proposed amalgamation might very well have the opposite effect and, in consequence, put at risk the continued farming and husbandry both of the Straceys' current holding and of the prospectively expanded holding".

The FTT decided that these risks reinforced its view that there was no basis upon which the FTT could be satisfied that the current proposals are desirable upon grounds of sound estate management.

Fair and Reasonable Landlord.

The FTT went on to consider the fair and reasonable landlord test, albeit that it was unnecessary given the conclusions that it had reached. The Tribunal concluded that the Landlords' case did not satisfy that test.

Conclusion

The above is the briefest summary of a complicated case, reflected in the 40-page Decision. However, as in the Spofforth case, the attempt on the part of the Landlords here to use sound estate management as a ground to recover possession failed. Whether this case will spark an interest on the part of other landlords, in relation to this ground for the recovery of possession, remains to be seen.