When land has been occupied for agricultural purposes and there is no written agreement regulating the terms of the occupation, the question of whether or not an unwritten agricultural lease has been created can arise - and if a lease has been created, what type of agricultural lease is it?
In 2017, the Scottish Land Court decided two cases concerning parties who had been occupying land for a long period of time and claimed to be tenants under a secure agricultural lease. These recent cases did not set any significant new precedents in terms of the law but they did apply existing law to facts of the cases, reiterating the key factors to be considered in such cases.
In order to create any sort of lease there are four cardinal elements which must be satisfied - rent, duration, parties and subjects.
Payment of rent is crucial. Technically speaking, rent need not be in the form of money - it can be a return based on a share of fruits or produce or specific services. The court in the recent case of John Gunn v Sheilagh Gunn or Luyken and Reiner Luyken (Case reference SLC 156/16 dated 27 September 2017) stated that whatever form the rent takes, if it is not in a fixed amount, it must be capable of ascertainment by reference to some agreed formula or method. In that case, the purported tenant had given their purported landlord vegetables which they had grown on the land and eggs which were laid by their hens, but this was not sufficient to establish payment as a rent because the quality of the produce supplied by the tenant to the landlord was entirely at the discretion of the tenant, as was the frequency and timing of any such supply.
In the case of J & S Wight Limited v Joan McGowan and Others (Case reference SLC16/16 dated 27 January 2017), the tenant claimed that when he had initially taken occupation of the land there was a huge volume of fencing to be done and the landlord at the time had said that the fencing work carried out by the tenant would be taken into consideration when he eventually asked for rent. The court in that case took the view that in those circumstances, there was no agreement between the parties upon the rent or a formula or procedure for fixing the rent at that time - the landlord could unilaterally have decided that no consideration should be given to the works and set a rent far in excess of what the tenant was willing to pay. When the tenant in the J & S Wight case began to pay a monetary rent at a later date, the payment of rent at that time was sufficient to satisfy the cardinal requirement of payment of rent - thus a lease was created at that time.
The next element which must be fulfilled is duration. There is authority for the position that where the parties intend to enter into a relationship of landlord and tenant, and the tenant has been in possession of agricultural subjects without the parties having agreed a specific duration, the Law will apply a duration of one year (Gray v University of Edinburgh 1962 SC 157). Thereafter, the continued occupation with the consent of the landlord after that initial year could ultimately result in an extension of the term of the lease. However, the intention of the parties as to the duration can be significant. That said, it may be a difficult for either party to produce evidence as to what the intention was at the outset - particularly if the occupation commenced a number of years ago.
The next element which must be considered is who the parties to the lease are. The landlord is likely to simply be the owner of the land from time to time - but who the tenant is may not be quite so straightforward in the case of an unwritten lease. If (as many do) the tenant farms in a partnership, there may be a question as to whether the lease is to the partnership or to individuals. If the lease is to the partnership, it could be subject to the possibility that it may terminate if there is a change in the partnership.
If the parties have been in occupation of the same subjects throughout a lease, then determining what the leased subjects are should be straightforward. However, if the possession of subjects has changed over the years then that could give rise to another complexity. In the Wight case, the purported tenants argued that the removal of a field from the lease was a change sufficiently material to be constitutive of a new lease at that date, albeit the Court in that case did not consider it to be so (since the rent did not change and the number of sheep grazed remained similar).
If the four cardinal elements which are required to create a lease are satisfied, the next question which may be asked is what type of agricultural lease has been created? If a lease commenced before 27 November 2003, then it is possible that the tenant will have a secure agricultural lease under the Agricultural Holdings (Scotland) Act 1991. Whilst a secure agricultural tenancy is only created for an initial period of one year, it will continue on tacit relocation and there are very limited opportunities for a landlord to bring it to an end - resulting in the tenant having security of tenure. A secure agricultural tenant may also have a pre-emptive right to buy. Therefore, when parties are seeking to establish what sort of tenancy exists it is likely to be in the tenant's interest (but not in the landlord's interest) for the lease to be created prior to 27 November 2003. It is still possible to create an unwritten agricultural lease on or after 27 November 2003 - but only in the form of a seasonal grazing lease, a short limited duration tenancy, limited duration tenancy or, more recently, a modern limited duration tenancy.
Determining whether an unwritten agricultural lease has been created will depend upon the facts of each case. In addition to the above mentioned factors, there may be other considerations, such as whether or not the tenant has exclusivity of possession of the property. It could be that the occupier does not have an agricultural lease benefiting from the protection of the agricultural holdings legislation - but instead merely some form of licence to occupy the land. If you have a concern regarding the occupation of your land or a basis upon which you are occupying land, please speak to your usual Brodies contact.