2 Statutory extension of tenure
5.28 Section 2 of the Agricultural Holdings Act 1986 converted two categories of tenancy and licence into yearly tenancies, thus bringing them within the protection of the security of tenure, compensation and other provisions of the Act.
These were63:(i)an agreement under which any land is let to a person for use as agricultural land for an interest less than a tenancy from year to year, and
(ii)an agreement under which a person is granted a licence to occupy land for use as agricultural land. The licence could be of any duration, however long or short.
5.29 Where s 2 applied, the statutory conversion of the tenancy or licence took immediate effect, with the result that the anniversary date of the yearly tenancy thus created will be the date on which the conversion takes place ie the annual term date fixed by the date of grant of the tenancy or licence.64
5.30 The public policy represented in these provisions was to bring most agreements for the letting of agricultural land within the security of tenure regime of the 1986 Act, however short or temporary they may have been (with limited exceptions, discussed further below). This policy has been radically altered in the Agricultural Tenancies Act 1995, which applies to all lettings on or after 1 September 1995. The 1995 Act is based on freedom of contract and permits the use of short term and flexible letting arrangements without the application of anti-avoidance provisions of the kind set out in s 2 of the 1986 Act (and discussed in detail below). Despite this fundamental change in public policy, however, the courts have continued to interpret s 2 without taking cognisance of the altered public policy considerations underlying the later legislation.65
5.31 In each case the circumstances must be such that if his interest were a tenancy from year to year he would in respect of the land concerned be the tenant of an agricultural holding.
The land must, for example, be used for ‘agriculture’ in the sense that it is defined in the 1986 Act.66 Where s 2 applies, the agreement will take effect ‘with the necessary modifications’ as if it were an agreement for the letting of land for a tenancy from year to year – unless Ministry consent was obtained before it was entered into.67 These provisions were a considerable trap for those letting land on short term arrangements prior to the introduction of farm business tenancies in the Agricultural Tenancies Act 1995. Although the danger of creating a secure tenancy were removed by the 1995 Act for most short term arrangements entered into on or after 1 September 1995, the operation of s 2 of the 1986 Act still retains considerable importance when assessing the legal status of short term arrangements entered into before this date.68(a)Conversion of short-term lettings into yearly tenancies
5.32 Where under any agreement agricultural land was let to a person for an interest less than a tenancy from year to year, then unless prior Ministry approval had been obtained, the agreement will have taken effect in law, with necessary modifications, as a letting of the land for a tenancy from year to year.69 Thus, a tenancy for six months, or for 364 days, will be converted into a yearly tenancy with full protection. A tenancy for one year exactly is also an interest ‘less than a tenancy from year to year’, and as such will be converted by section 2 into a yearly tenancy. A yearly tenancy is something more than a fixed term of one year, because unless a notice to quit has been given the tenant has the right to stay on from year to year, whereas under a fixed tenancy for one year exactly he does not.70 A grant for a term certain exceeding one-year but less than two is not, however, caught by the section, and does not create a protected yearly tenancy.71 For the purposes of the section the ‘interest’ referred to is the interest that as a matter of law the agreement gives rise to, and ‘the parties cannot take that actual interest out of the ambit of s 2 by agreeing to treat it as an interest of some other length or type’.72
5.33 It is irrelevant that the parties thought that they were creating some other type of agreement; the section is mandatory in that, once facts to which it applies exist, the parties cannot vary or exclude its operation by agreement or conduct.
No issue of estoppel, taking the tenancy outside the operation of s 2, can arise. Thus s 2 will apply to convert a tenancy at will into a fully protected annual tenancy.73 Its application to gratuitous tenancies at will was, however, doubted in Colchester B C v Smith74 eg, where a tenant holds over in possession without furnishing any consideration, monetary or otherwise. The section will apply to convert an agreement for a lease into a protected tenancy, but only if the agreement is enforceable as between the parties. The agreement must be for a lease of certain duration.75 In Mexfield Housing Co-operative v Berrisford76 the Supreme Court reviewed the case law and held that if the term agreed is uncertain in duration, it will be treated as a tenancy granted for the duration of the tenant’s life. Such tenancies are converted by s 149 (6) of the Law of Property Act 1925 into a fixed term tenancy of 90 years terminable by notice on the tenant’s earlier death.77 As the term is rendered certain by operation of the 1925 Act, it follows that an agreement to grant a tenancy of this nature should in principle be enforceable in equity. The agreement must however be in writing78, and in a subsequent decision – Hardy v Haselden79 – the court of appeal refused to order specific performance of a verbal agreement to grant a tenancy for life.5.34 The section did not apply where the Minister (at that time the Minister of Agriculture, or in Wales the Welsh Office Agriculture Department) approved the agreement prior to its being created, and neither did it apply where the tenancy or licence was made in contemplation of the use of the land only for grazing or mowing during some specified part of the year. Its application was also excluded in the case of agreements made before 1 March 1948, and in cases where the tenancy was granted by a person ‘whose interest in the land is less than a tenancy from year to year’.80
5.35 The overall result of the operation of s 2 was to convert many informal or short-term agreements, which were never intended to have security of tenure, into yearly tenancies with full protection.
The Court of Appeal held in Keen v Holland81 that no issue of estoppel can arise, so that the section also applied to confer protection even where the parties expressly intended that the agreement should be outside the protection of the Agricultural Holdings Acts altogether. It therefore presented a trap when letting land, prior to the introduction of farm business tenancies in September 1995, and care was required to avoid creating an interest less than a tenancy from year to year, especially where an agreement was informal and/or oral, eg a trial tenancy,82 a weekly tenancy,83 or a backdated tenancy executed when less than one year of its term was left to run.84(b)Conversion of certain licences into yearly tenancies
5.36 Section 2 also operated to convert licences to occupy agricultural land into yearly tenancies ‘where the circumstances are such that if [the licensees] interest were a tenancy from year to year he would in respect of that land be the tenant of an agricultural holding.’85
5.37 The courts have formulated two principles which govern conversion under this provision. A licence to occupy agricultural land will only be converted into a protected annual tenancy if it confers exclusive occupation on the grantee, and (secondly) if such occupation is granted pursuant to an agreement that is contractually enforceable. These are, in fact, manifestations of one guiding principle; to be converted into a tenancy from year to year, a licence must be capable of subsisting as a tenancy at law, and (moreover) must not thereby be converted into something radically different to the transaction entered into.86 Quite apart from the requirements of exclusivity and contractual enforceability, discussed below, it follows that s 2 cannot operate where the necessary intention to create legal relations is absent87 or where a grant of exclusive possession is referable to some legal relationship other than landlord/tenant, eg vendor and purchaser.88 On the defining requirement of exclusive possession for the establishment of a tenancy the principles established by the House of Lords in Street v Mountford89 will be applicable and highly relevant.
(i) Contractual Enforceability
5.38 The Court of Appeal held in Goldsack v Shore90 that s 2 only operates where there is a legally enforceable agreement – in other words a contract supported by valuable consideration. The section therefore operates to convert contractual licences to occupy agricultural land, and will not convert a purely gratuitous licence into a yearly tenancy.91 A key question will therefore be, in many cases, whether valuable consideration moved from the licensee to the landlord in return for the latter permitting occupation of the land and its use for agricultural purposes. The payment of ‘rent’ in monetary form, whatever it may be called by the parties, will clearly furnish the requisite consideration. A licence granting rent-free occupation can also be converted into a fully protected tenancy, however, provided it is supported by some other form of valuable consideration and is legally enforceable. The cases furnish numerous examples where this has occurred. In Verrall v Farnes,92 for example, a landowner installed the defendant for a 12 month rent-free ‘trial period’, with a view on its expiration to granting a full agricultural tenancy. The defendant was to keep crops, and to sell any livestock he did not wish to keep, paying the proceeds of sale over to the landlord. It was held that although the defendant was not paying rent, his position was not that of a mere gratuitous licensee. The landlord was clearly obliged to allow him to remain on the land for the probation period while, on the other hand, the defendant could not simply abandon the stock and the farm without giving reasonable notice. It was therefore a contractually enforceable agreement, and as such was converted into an annual tenancy with security of tenure. Similarly, in Gold v Jacques Amand93 a licensee agreed to erect a building on the land during a ‘trial’ period and, having started building, was contractually bound by the agreement to complete it.
This was held to be a licence granted for value to which section two applied, and a tenancy arose under the 1986 Act.5.39 Clearly, if the Court detects consideration in the form of any benefit to the landlord, even where no rent is payable, this will render the agreement contractual and within s 2. So in one case a licensee who occupied land rent free, on condition he reclaimed and cleared it, was held to be holding under a contractual licence, and hence a yearly tenancy.94 Any other benefit to the landlord – such as manuring or reseeding land or (for instance) erecting fences or buildings – will also clothe a licence with enforceability, and thus lead to the statutory creation of a protected yearly tenancy. An express undertaking to re-seed an area to grass after an arable cultivation has also been held to furnish sufficient consideration to engage s 2.95 The Court will not, however, imply an obligation to cultivate in a husband-like manner, thereby furnishing consideration for the license, unless this was clearly intended by the parties.96 Obligations as to cultivation may be implied where, on the facts, a tenancy at will has been created. They will not, however, be implied into what is (on its proper construction) a licence, for the purpose of clothing it with consideration solely in order to bring s 2 into play.97 An act of part performance by a licensee who has been offered a tenancy has been held to render a contract enforceable and thus within s 2, even if the rent was not agreed, eg dissolving an existing partnership pursuant to a condition of the offer, and purchasing fencing materials to improve the holding.98
(ii) Requirement of Exclusive Possession
5.40 Section 2 refers to licences to ‘occupy’ agricultural land. Consequently, the licence must have given the licensee the right to exclusive possession if s 2(2)(b) were to operate to convert it into a yearly tenancy. This is the principle in Harrison-Broadley v Smith99 and Bahamas International Trust Co Ltd v Threadgold.100 An agreement whereby the owner of land entered into partnership with a manager would not, therefore, confer a tenancy on the ‘partner’ or ‘manager’ – provided the partnership was one of substance and not merely a ‘sham’ or device for avoiding security of tenure.101 Similarly, a family arrangement whereby part of a farm was farmed by the son, who also managed his parents’ livestock on the land, did not create a licence with sufficient exclusivity of possession to bring s 2 into play. This would have required a provision in the agreement prohibiting entry by others (including the parents) or one giving the occupier the right to exclude others.102 Any other licence of a non-exclusive nature would, likewise, fail to confer a tenancy on the grantee – for instance, a right merely to keep animals on the land during a limited part of the year.103 Similarly, a licence that was not a licence to occupy the land, but merely to take the produce of the holding, would also fail to confer a tenancy on the grantee.104 A licence to remain in possession on expiry of a tenancy to harvest crops was not, therefore, within s 2.105
5.41 Licences of any duration were converted into yearly tenancies by s 2. Provided it gave exclusive possession and was enforceable in law, a licence would be converted into a protected yearly tenancy even if it was of uncertain duration106 or (for instance) if it was a licence to occupy for life. Prior to the introduction of farm business tenancies by the Agricultural Tenancies Act 1995 the danger of creating a protected tenancy inadvertently could not, therefore, be overestimated. So, for example, a family arrangement whereby the tenant’s son farmed the land on behalf of his father in return for annual payments created a tenancy by operation of s 2.107 Similarly, in another case108, an exclusive licence granted by a tenant to his son, after refusal of landlords consent to an assignment, was held to create a subtenancy by operation of s 2. It was particularly important, where successive licences were granted which purported to grant shared occupation rights (thus avoiding the conferring of exclusive possession), to employ clear drafting so as to avoid any implication that the arrangement was ‘sham’. In Evans v Tomkins109 a written licence agreement in 1985 reserved to the landlord the right to graze horses and livestock in common with the licensee. The agreement was renewed in 1986 and 1987, but the last agreement failed to reserve shared grazing rights to the landlord, who had been grazing on the fields. The agreement was held to be a licence for lack of exclusivity, but only because the 1987 agreement was, on its proper construction, intended to set out jobs to be done in lieu of rent and was supplemental to the 1985 agreement, whose terms still applied. One final idiosyncrasy of the legislation should be noted: whereas a tenancy for a fixed term of between one and two years was exempt from the protection of the legislation110 a licence of this duration would be converted into a protected yearly tenancy by s 2.
(c)Limitations on Statutory Conversion
5.42 Clearly, by making provision for the conversion of short-term tenancies, and licences of any duration, into an annual periodic tenancy, the 1986 Act radically altered the nature of the initial agreement made between landlord and tenant. It also radically altered the terms of the agreement – most importantly by extending the tenancy’s term indefinitely as an annual tenancy with full security of tenure, and by applying the statutory rent review mechanism to vary the rent (or provide for one on review if the initial licence was rent free). The statute does not have unlimited effect, however, and cannot fundamentally alter the nature of the agreement between the parties, or its basic terms, in other respects.
5.43 Section 2(1) provides for the agreement to take effect ‘with the necessary modifications’ as if it were a tenancy from year to year. The court will not rewrite the essential terms of the parties’ agreement and it must remain recognisably the same agreement after the necessary modifications have been made.111 The extent of the modifications the court will make is therefore limited to those necessary to make the parties agreement – as it stands – functional as a tenancy from year to year with the statutory rights that the 1986 Act confers on protected tenants eg modification as to the dates when the rent is to be paid or in the anniversary date of the tenancy.112 According to Lord Evershed in Goldsack v Shore113 the agreement ‘must be capable of being so modified (and that must mean modified consistently with its own terms) as to become enlarged into a tenancy from year to year’. If the effect of applying section 2 will be to convert the parties’ agreement into something radically different from the agreement they contemplated when contracting it, then the section will be inapplicable.
5.44 New life was breathed into this principle by the decision of the Court of Appeal in Davies v Davies.114 The occupier in this case had a seasonal agreement to graze livestock in the summer months. In 1994, a once-for-all arrangement115 was made by the parties whereby the occupier was permitted to sow a crop of winter barley over the winter following his summer grazing. This variation of the existing arrangement was expressly subject to a condition subsequent, namely that he reseed the land to grass at the end of the year. If the agreement had been converted into an annual tenancy by s 2 the effect would have been to fundamentally alter the nature of the agreement between the parties. The occupier would have had the right to farm the land as arable indefinitely, without reseeding it at the end of each year,116 and the obligation to reseed would have been postponed to the end of the yearly tenancy – possibly many years hence. The presence of the condition subsequent obliging the licensee to reseed the land at the end of the arrangement was a significant feature of the agreement which prevented the statute from operating in these circumstances. If the obligation to reseed was postponed to the end of the annual tenancy, moreover, this would also remove the very consideration given by the licensee in return for the landlord’s permission to use the field for arable cropping for the one season in 1994.
5.45 By way of contrast, it was held in Barn Well Farming Ltd v Backhouse117 that a term in a licence to occupy a copse for grazing livestock, to the effect that the land would be taken back and replanted if the arrangement did not work, was based on the assumption that the licensees would not have security of tenure. The modification to the parties’ rights in this case came about because they thought they were entering into a non-secure arrangement, whereas in fact the effect of s 2 was to create an annual tenancy protected by the 1986 Act. Although this transformed the terms of the arrangement they had originally entered into, it could not be regarded as too radical to prevent the section operating to create a fully protected annual tenancy – in other words the ‘necessary modifications’ to the arrangement were implicit in the operation of s 2 and were not too radical to prevent its operation.118