Landlords of Perthshire farm lose appeals against Land Court’s decisions not to allow resumption of cottages and approve new cowshed

About this case:

• Citation:
  [2024] CSIH 22
• Judgment:
  External link
• Court:
  Court of Session Inner House
• Judge:
  Lord Malcolm

Tenants and respondents Neil and Linsey Butler had applied to the Land Court seeking approval for a cattle shed and covered walkway which the landlords objected to, along with a declaration that the landlords could not exercise a power of resumption over two farm cottages. The appellants argued that the purpose of let was not for use as a dairy farm, and therefore the necessity of the cottages and shed in respect of this purpose could not be considered by the Land Court.

The appeal was heard in the Inner House by the Lord President, Lord Carloway, together with Lord Malcolm and Lord Pentland. Upton, advocate, appeared for the appellants and R Sutherland, advocate, for the respondents.

Material to the lease

The respondents were the joint tenants of Stewart Tower Farm in Stanley, Perthshire, with Mrs Butler being the granddaughter of the first tenant. While the original lease provided that the farm was not let as a dairy farm, provisions were made in the lease for the possibility of conversion and the farm was used as such until 1989 and then again later on a smaller scale. Following a 2005 diversification, the tenants added an ice cream parlour and café, leading to a desire to expand the dairy herd and construct more modern cattle accommodation.

After the appellants intimated that they wished to exercise a power of resumption contained in the lease to recover possession of two of four cottages currently forming part of the holding, the respondents applied to the Scottish Land Court for a declaration that they had no right to do so, considering that the cottages were required for farm employees. The court was also asked to approve a contested improvements notice in respect of two buildings which the tenants wished to construct at a cost of around £200,000, to which the landlords had objected.

After hearing evidence and conducting a site inspection, the Land Court declared that the resumption notice was contrary to the good faith of the lease, and approved the improvements notice for the cattle shed only. It accepted evidence that four on site units of accommodation were required, and thus resumption of two cottages would be problematic for the tenants. The court recognised that the case was a marginal one, and expressed a view that it might have been sympathetic to the resumption of one cottage, however the landlords insisted on the application for two cottages.

In respect of the improvements notice, the court held that the existing cattle shed had multiple age-related defects which would normally be addressed by new accommodation. The type of farming was irrelevant, as the improvement would be needed whichever type of farming was adopted.

For the landlords it was submitted that the holding was not explicitly let as a dairy farm and the rent was not assessed on that basis. The materiality of the cottages was judged by reference to the kind of farming for which the holding was let, and thus the two cottages were not material to the lease. On the improvements, the tenants’ remedy was to enforce the landlords’ duties to repair and replace fixed equipment, and in any event the shed was not needed for the purpose specified in the lease.

Misconceived proposition

Delivering the opinion of the court, Lord Malcolm began with the resumption appeal: “In respect of the tenants’ challenge to the resumption notice the court applied a now well established test. There is no challenge to any of its findings of fact, for example as to the importance of at least three on site units of accommodation for farm workers. It is said that the court erred by judging the matter by reference to the needs of the dairy business, a purpose for which the land was not let. However it was correctly recognised that dairying was permitted by the lease, and indeed was expressly contemplated as a use of the holding. The landlords’ proposition that dairying was not the mutual purpose is misconceived.”

He continued: “The Land Court did not err by assessing the materiality of the cottages to the business as a whole, including the dairy element. The nature and character of the holding was that of mixed arable and livestock, with permission to have a dairy herd, albeit in respect of the latter without correlative obligations on the landlords. In these circumstances it would have been erroneous to assess the validity of a resumption clause without reference to the requirements of the dairy operation.”

Lord Malcolm concluded on this matter: “The landlords emphasise that the dairy use is not taken into account when determining the level of rent, however that simply reflects the structure of the bargain as just mentioned. It is of no relevance to the materiality of the cottages for a farming operation contemplated in the lease.”

Addressing the second appeal, he added: “Because of the deficiencies in the current building, a new shed would be reasonably required even in the absence of a dairy herd. Contrary to the landlords’ contention, the intention of the current tenants to use it for dairying purposes has no impact on what is an objective and straightforward test for approval of the proposed improvement, namely is it reasonable and desirable on agricultural grounds for the efficient management of the holding? There has been no challenge to the relevant findings in fact on this issue, and the answer remains yes, no matter whether the livestock does or does not include dairy cows.”

Both appeals were therefore refused and the determinations of the Land Court confirmed.