Barrett & Ors v Morgan [1998] EWCA Civ 1118 (30 June 1998)

THE VICE-CHANCELLOR: This appeal raises an interesting point on the law relating to agricultural sub-tenancies. The plaintiffs, appellants in this court, are the freehold owners of agricultural land in Co. Durham. The land was subject to a tenancy held by two individuals but was farmed by the defendant, Mr Morgan, who is the respondent in this court. Mr Morgan held a sub-tenancy from the two individuals, who were tenants under the head-tenancy. The two individuals and the plaintiffs, whose relationship to one another I will explain in a moment, wanted to obtain vacant possession of the land in order to sell it with vacant possession. They agreed that the freeholders would serve notice to quit on the two tenants and that the two tenants would not serve any counternotice invoking the relevant provisions of the Agricultural Holdings Act 1986. The purpose of this agreement was so as to enable the freeholders to obtain possession against the sub-tenant.

On the expiry of the notice to quit the head-tenancy, so it was believed, would come to an end and, with it, the sub-tenancy. The scheme, although put into effect by the notice to quit served by the freeholders, originated, according to the facts as found by the judge, from the two tenants, or from the advice given to them by their land agent. The two tenants, it was appreciated, could not themselves, by serving notice to quit on their sub-tenant, bring about the desired state of affairs in which vacant possession could be obtained against the sub-tenant. A notice to quit served on Mr Morgan would, as they knew, have led to the service of a counternotice invoking the protection of the 1986 Act. Nor, so the two tenants believed, could a notice to quit served by them on their head landlord, the freeholders, have achieved the desired result either. According to the case law as it then stood (it has since changed), a tenant could not by putting an end to his own tenancy impair or destroy the interest which he had granted to his sub-tenant (see Brown v Wilson [1949] 208 LT 144). So the solution, the freeholders and the tenants concluded, was for the freeholders to serve the notice to quit. The tenants would naturally refrain from serving a counternotice invoking the statutory protection.

The short point on this appeal is whether the scheme works. The judge below, Mr Peter Smith QC, sitting in Newcastle as a Deputy Judge of this Division, held that it did not. He held that a notice to quit served pursuant to what he described as a collusive agreement between freeholders and their tenants could not by itself destroy a sub-tenancy held from the tenants. The deputy judge relied particularly on Sparkes v Smart [1990] 2 EGLR 245, a decision of this court on facts comparable to the facts of the present case.

On this appeal Mr Derek Wood QC, counsel for the appellants, has in effect submitted that Sparkes v Smart was wrongly decided, decided per incuriam . He has relied on two other Court of Appeal decisions, Harrison v Wing [1988] 2 EGLR 4 and Pennell v Payne [1995] QB 192, as constituting soundly based authority justifying a different conclusion from that reached by the deputy judge. The deputy judge's order was made on 18th October 1996. He refused leave to appeal but leave to appeal was given by this court on 6th March 1997.

I will state the facts as shortly as possible for the point of issue to be comprehensible. The case, of course, involves agricultural land. The land is at Mordon in Co. Durham and belonged in 1970 to the Fourth Earl of Eldon. On 1st March 1970 the Fourth Earl granted a tenancy of the land to himself and his two sons. The elder of his two sons is now the Fifth Earl. His younger son is Mr Simon Scott. So the Fourth Earl and his two sons became tenants of the Fourth Earl. The tenancy comprised over 900 acres. It was a tenancy from year to year from 1st March 1970 with an annual rent of £3,350. Under Clause 3 of the tenancy agreement, the tenancy was terminable by 12 months' notice to quit given by either landlord or tenants expiring on 13th May in any year. That is the tenancy in respect of which the notice to quit that has led to the present proceedings was given.

The Fourth Earl of Eldon died on 20th October 1976. His two sons were his executors. On 1st April 1977 probate was granted to the two of them. A number of transactions or dispositions relating to the freehold land comprised in the 1st March 1970 tenancy agreement were entered into or made. First, on 3rd April 1984, 3.2 acres of land were vested in the first and second plaintiffs in this action as trustees for Mr Simon Scott's children. The first plaintiff is Mr Barrett, a partner in the firm of solicitors, May, May & Merrimans; the second plaintiff is Mr Scrope, a partner in the firm of land agents, Smith Goreham.

On 25th July 1984 the two executors assented to 387-odd acres of land vesting in Mr Simon Scott. On 30th July 1984 Mr Simon Scott transferred 23.58 acres of the land that had been vested in him to his wife, who is the third plaintiff in this action, Mrs Mary Scott. Finally, on 23rd July 1986 Mr Simon Scott transferred 331-odd acres of land, are comprised in the 1st March 1970 tenancy agreement, to the first and second plaintiffs, Mr Barrett and Mr Scrope. Here again the first and second plaintiffs were to hold as trustees for Mr Scott's children.

The position from 1970 to 1980 was that the tenants under the 1st March 1970 agreement farmed the land. They had originally been the Fourth Earl and his two sons but after the death of the Fourth Earl in 1976 the tenants farming the land were the Fifth Earl and Mr Simon Scott. But, apparently, by 1980 the land was becoming somewhat dilapidated and in bad condition and a local farmer, a Mr Morgan, began farming the land under an arrangement made with the tenants. An attempt was made to produce an arrangement under which Mr Morgan would not have the benefit of the protection afforded to agricultural tenants by the relevant statute. In 1970 it was the Agricultural Holdings Act 1948, now it is the Agricultural Holdings Act 1986. The arrangement involved the creation of a so-called partnership between the Fifth Earl, Mr Simon Scott and Mr Morgan under which the partners would pay a rent of an agreed sum for the land.

On 5th December 1980 Mr Morgan accepted the proposed terms and began farming the land, ostensibly under this partnership arrangement. But it was held by the deputy judge in this present litigation that the partnership was no more than a pretence. That is now accepted by the other parties. The Fifth Earl and Mr Simon Scott accept that Mr Morgan became -- as a result of his going into occupation of the land, farming it and paying a rent for it to them -- their sub-tenant.

So from December 1980 Mr Morgan has been farming the land under what is accepted to be, although it was never formally prepared as, a sub-tenancy from the two surviving tenants, the Fifth Earl and Mr Simon Scott. The freeholders, from whom those two tenants held the 1970 tenancy, were the first and second plaintiffs in respect of the land they held as trustees for Mr Simon Scott's children, and in relation to a small parcel of land, the 23-odd acres, Mr Simon Scott's wife, Mrs Mary Scott.

By 1991, with Mr Morgan still farming the land under the arrangement I have described, Mr Simon Scott was anxious to raise capital for the benefit of his children. He had some discussions about how to do this with Mr Scrope, the family land agent, and one of the trustees holding the freehold interest in the land for the benefit of his children. Mr Simon Scott's brother, his co-tenant the Fifth Earl, sympathised with Mr Simon Scott's desire to raise capital for the benefit of his children and supported him in his proposals. There were negotiations for the sale to Mr Morgan of the land which he was farming. Mr Morgan was, it seems, a willing purchaser but there was a dispute as to the price. The family, including the freeholders, the trustees of the family settlements and Mrs Scott, and the tenants under the 1970 tenancy, the Fifth Earl and Mr Simon Scott, wanted to sell the land at its vacant possession value. Mr Morgan, farming the land with, as he thought, the protection of the statutory scheme under the 1986 Act, was willing to purchase at a price which took account of his protected possession. The deputy judge's recital of the facts suggests that the value of the land subject to the occupancy of an agricultural tenant would have been something like 30 per cent less than the vacant possession value of the land. The 30 per cent reduction would have been a substantial sum.

So Mr Simon Scott consulted Mr Scrope as to what might be done. Mr Scrope was a land agent. Mr Scrope consulted solicitors, Burgess Salmon, about what could be done. The upshot of these consultations was that advice was given to Mr Simon Scott, and through him to his co-tenant the Fifth Earl, that if notice to quit were served by the freeholders on the tenants under the 1st March 1970 tenancy agreement, the Fifth Earl and Mr Simon Scott, and if the tenants refrained from exercising their statutory right of serving a counternotice invoking the statutory regime established by the 1986 Act, then, on the expiry of the notice to quit, the 1970 tenancy would determine and with it, they were advised, would determine also by operation of law, willy-nilly and whether Mr Morgan liked it or not, his sub-tenancy. So the family decided, and no one can criticise them for doing so, to take advantage of the legal consequences of the steps to which I have referred. Notices to quit were prepared, either in the office of the solicitors or in the office of the land agents. They were sent by the freeholders to the tenants, Mr Simon Scott and his brother the Fifth Earl, requiring them to give up possession of the land comprised in the tenancy on 13th May next. The notices were dated 1st April 1992 and the date on which possession was to be given up was 13th May 1993.

The legal thinking underlying the scheme that was put into operation was, very shortly stated, as follows. At common law a periodic tenancy, a tenancy from year to year or tenancy from month to month, can be determined by notice to quit served either by the tenant or by the landlord. Where agricultural tenancies are concerned, statute requires that the notice to quit must be notice of at least 12 months, as indeed was provided for by the 1st March 1970 agreement. At common law a sub-tenancy granted by a tenant holding under a periodic tenancy determines with the tenancy on the expiry of the notice to quit.

That state of affairs is in contrast to the position brought about by a surrender by the tenant of the tenancy. If a tenant surrenders his tenancy to the landlord, that too will put an end to the existence of the tenancy. But it will not, in so doing, bring to an end sub-tenancies that the tenant had previously granted. That is a crucial distinction between the result of bringing a tenancy to an end by notice to quit and bringing the tenancy to an end by surrender. The notice to quit, being essentially a unilateral act whether served by the landlord or served by the tenant, brings the tenancy to an end in accordance with the terms of the tenancy itself. Accordingly an interest granted out of the tenancy, such as a sub-tenancy, comes to an end with the determination of the tenancy. Surrender, however, is not a unilateral transaction. A surrender may be express, by deed to which both landlord and tenant are parties, or may be implied by law from acts done by the landlord and the tenant respectively. Whether express or implied, a surrender is essentially a consensual transaction. The parties agree to bring about the termination of the tenancy. The distinction between a surrender and a notice to quit is, in my view, essentially the difference between a consensual act, the surrender, and a unilateral act, the notice to quit. In the present case, the freeholders and the tenants, and those advising them, believed that a unilateral act by the landlord, in serving notice to quit, could terminate the sub-tenancy whereas a surrender by the tenants to the landlords would not have achieved that result.

The deputy judge came to the conclusion, and there has been no challenge to this before us (nor, I imagine, could there be), that the freeholders and the two tenants had agreed between themselves, prior to the service by the freeholders of the notice to quit, to adopt the scheme to which I have referred and to adopt it for the purpose of bringing to an end Mr Morgan's sub-tenancy. There are a number of passages in the judgment which make that plain. I should, I think, refer to them.

"Faced with this, Mr Scrope sought advice, probably from Burgess Salmon. The position was considered, I find, exclusively with Mr Scott [that is Mr Simon Scott] alone. This at first sight was curious. Mr Scott is after all one of the mesne tenants with Lord Eldon, his brother. Mr Scrope, I find, took no instructions from the children, nor from Mrs Scott, the other freeholder. Mr Scrope in his advice tellingly said he was glad the children had taken his advice. The result of the advice was that a decision was made to serve notices to quit terminating the head lease."

"8.4 The next part of the scheme was not to serve a counternotice, otherwise vacant possession could not be obtained. No counternotice was served. The only reason given was that Mr Scott, not surprisingly, and Lord Eldon, hardly less surprisingly, were anxious to assist the freeholders in the desire to recover possession from Mr Morgan by destroying his subtenancy. They could not do so because as against them he would be able to assert their rights. It was quite clear that Lord Eldon was willing to fall in to any scheme which would give vacant possession to his nephews and nieces. He was not really consulted, he was informed of the proposed notice and, according to Mr Scrope, took it on the chin.

The use of the word "collusively" and the use of the adjective "contrived" have a somewhat pejorative innuendo. The innuendo is unnecessary. The scheme that was acted on is no better or no worse for being described as contrived. If the agreement between the freeholders and the tenants enabled their joint object of obtaining vacant possession against Mr Morgan to be achieved, their object cannot be defeated by describing their agreement as a collusive agreement. The fact of the matter, as to which there can be no dispute, is that the purpose of the scheme that was agreed upon was to enable vacant possession to be obtained from Mr Morgan. That was its purpose. The steps agreed upon were that the freeholders would serve notice to quit on the tenants and that the tenants would not, by serving an appropriate counternotice, claim the protection of the statutory regime under the 1986 Act.

The continuance of the tenancy was necessary for the purpose of enabling the strangers' interests, the sub-tenancy in the present case, to continue. The principle was applied in Mellor v Watkins [1874] 9 QB 400, a decision of the Court of Queen's Bench. It was a case in which a tenant had surrendered to his landlord property comprised in the tenancy. The question arose as to the effect of the surrender on a sub-tenancy that the tenant had previously granted. Counsel for the plaintiff, who had taken a new tenancy from the freeholder, claimed possession against the sub-tenant. His counsel was Sir Henry James QC. In the report of Sir Henry James' argument it appears that he said this:

"Allen had no power to derogate from his landlord's rights. Subject to those rights, he had a right to sub-let; and by doing that he could not prevent the landlord from giving a notice to quit in invitum, which would have determined both Allen's and the defendant's interest. But no voluntary act on the part of Allen, by which his own interest might be determined, could put an end to the interest which he had created in the defendant. Allen's tenancy was put an end to as far as he was concerned, as between him and Williams, by the voluntary surrender of his lease; but the defendant's tenancy in the cellars still remained, until determined by a proper notice to quit."

There are two passages in that citation which go further than the simple proposition that a surrender of a tenancy does not adversely affect a sub-tenancy. First, Blackburn J referred to a landlord's ability to give a notice to quit "in invitum" and thereby to determine both the tenant's and the sub-tenant's interests. The use of the words "in invitum" suggests that a different result would follow if the notice to quit had been given at the invitation of the tenant. Then, in the next sentence in his judgment, Blackburn J says:

Sir Henry James' admission and Blackburn J's apparent approval of it have been accepted in subsequent cases and in the textbooks as correctly stating the law. It is worth, I think, having looked at Blackburn J's statement of principle in Mellor v Watkins , again emphasizing the difference between the termination of a tenancy by surrender and its termination by notice to quit. The difference is that a notice to quit is essentially a unilateral act: a surrender is not, it is consensual. If a notice to quit is given by a landlord under an agreement with the tenant it is not given as a unilateral act; it is not given in invitum. If a tenant under an agreement with the landlord gives a notice to quit, the giving the notice to quit is not unilateral. It is unilateral notices to quit that destroy sub-tenancies; it is unilateral acts determining the head-tenancies that destroy sub-tenancies. Consensual acts done by arrangement between landlord and tenant do not, in my judgment, do so.

In a case in which a notice to quit has been served pursuant to some agreement or arrangement consensual in its character, and to which both landlord and tenant are parties, the termination of the lease as a result of the service of that notice to quit becomes, in my opinion, indistinguishable from a surrender. That that is so is, in my opinion, supported by Elsden v Pick [1980] 3 All ER 235. This was an agricultural tenancy case in which the tenant gave the landlord a notice to quit which was short by a day or so of the requisite 12 months. The tenant had previously discussed his tenancy and the continuation of it with the landlord's agent and had made it known that, for various reasons, he wanted to relinquish his tenancy. Hence the notice to quit, short, as I have said, by a day or so. By the time the notice to quit had expired the tenant had changed his mind. He contended then that the notice to quit did not comply with the statutory requirement of being a 12-month notice, and that, accordingly, the statute had prevented it from being effective to determine the agricultural tenancy. The judge at trial upheld the contention. The landlords appealed successfully to the Court of Appeal. The Court of Appeal held that the agreement to allow short notice to quit to be served and to be effective was tantamount to an agreement to surrender. Shaw LJ at page 240 said this:

"Thus the time for the ending of a tenancy is a matter of common interest both to a landlord and to his tenant. It may suit them both to determine a tenancy without waiting for what may be as long as nearly two years to bring it to an end. No statute could have so absurd an intention as to constrain a landlord and a tenant of an agricultural holding to remain bound in that relationship at a time when neither desires that it should endure. If they are in accord, can it matter whether they demonstrate that accord by an agreement to surrender or an agreement to accept short notice?"

In such a case, whether it is by agreement to accept short notice or whether it is by agreement for surrender, the termination of the tenancy is brought about not by a unilateral act but by a consensual act. Brown v Wilson [1949] 208 LT 144 was a decision of Hilbery J. The report of the case is somewhat abbreviated, but essentially the facts were that there was an agricultural holding let by B to K and sub-let by K to W. K gave B notice to quit and, at the same time K gave W notice to quit. W served a counternotice under the relevant statutory provision (at that time it was section 31 of the Agricultural Act 1947) but K, who plainly wanted to put an end to his tenancy, did not refer the matter to the relevant tribunal. At the expiration of the respective notices to quit, W refused to give up possession to B. Hilbery J found in W's favour. He said, among other things, this:

Johnson v Moreton [1980] AC 37 was a case in which the House of Lords held that the statutory regime for the protection of tenants of agricultural holdings gave the tenant of an agricultural holding an option whether or not to serve a counternotice claiming the protection of the relevant statutory provisions, and that the tenant could not by a prior agreement divest himself of the benefit of that option. Consequently, a clause in a tenancy under which a tenant agreed not to serve a counternotice was held by the House of Lords to be unenforceable. The case casts doubt on the enforceability against a tenant of an agreement to surrender an agricultural tenancy. It does not, in my opinion, detract from the conclusion that a notice to quit given pursuant to an agreement between landlord and tenant is tantamount to a surrender.

Gisborne v Burton [1989] 1 QB 390 is the next case I should mention. In this case an individual owned an agricultural holding. He wanted to let it but, in doing so, to deprive the tenant of the benefit of the statutory regime giving security of tenure. So he let the property to his wife, and his wife granted a sub-tenancy to the defendant. The freeholder subsequently died and his personal representatives wanted to recover possession. So they served notice to quit on the wife determining her tenancy. She refrained from serving any counternotice, nor did he serve any notice to quit on the sub-tenant. The scheme was, in substance, the same scheme as was put into effect in the present case. The personal representatives, after the expiry of the notice to quit, claimed possession from the sub-tenant. A majority in the Court of Appeal held that the tenancy to the wife was a sham, a pretence without any reality. They held that the sub-tenant was in reality a tenant holding directly from the landlord to whom he had, for years, been paying his rent. No notice to quit had been served on the sub-tenant, so his agricultural tenancy continued. The notice to quit served on the wife was so much waste of paper. Ralph Gibson LJ dissented in this case. He held that the tenancy granted to the wife was not a sham, was a reality, and should be treated on that footing. It is of interest that nowhere in the case is there to be found any discussion of what the consequence would have been had Ralph Gibson LJ's view, that the tenancy to the wife was effective, had been the majority view. There was no consideration given to the question whether the apparently collusive arrangement between wife and personal representatives under which notice to quit would be served on the wife and she would refrain from serving any counternotice invoking the statutory protection, made any difference to the effect of the notice to quit on the sub-tenancy and whether the freeholders could claim possession from the sub-tenant.

Harrison v Wing [1988] 2 EGLR 4 was another Court of Appeal decision. In this case the owner of an agricultural holding died. His executors allowed one of their number, described in the report as S, to occupy the land paying £12 an acre for it. S then granted Harrison an annual tenancy. Harrison thought, and there was nothing to indicate the contrary, that S was the owner of the land. Later S, who had become the sole surviving executor, assented to the land vesting in him and two other persons. The three of them then served notice to quit on S, S being one of those serving the notice as well as the recipient of it. S, an agricultural tenant, did not serve a counternotice claiming the benefit of the statutory regime nor did he serve a notice to quit on Harrison. The County Court judge held that S did not have a tenancy and therefore could not create a valid sub-tenancy. But the Court of Appeal (a two-man Court of Appeal) decided the case on a different ground. They agreed with the judge below that a valid sub-tenancy had not been created. But Croom-Johnson LJ, who gave the judgment with which Sir Denys Buckley (the other member of the court concurred), noted that Harrison had been allowed into occupation by S. Harrison could not have been described as a trespasser; he was therefore a licensee. He was a licensee occupying agricultural land and his interest was, accordingly, transformed by the relevant Act into a tenancy from year-to-year. On that footing Croom-Johnson LJ held that notice to quit had been given by the freeholders terminating S's tenancy and that S had been under no obligation to serve a counternotice. S's duty as executor or trustee, would have required him not to serve such a notice. So the freeholders were entitled to possession against Harrison. No consideration was given in this case, anymore than had been given in Gisborne v Burton , to the effects of the collusive arrangement between the three freeholders, one of whom was S, and the tenant, S himself, as to the steps to be taken to obtain possession as against Harrison. There was no discussion of that matter and, for that reason, no opinion expressed on it.

The consequence of a collusive arrangement made between head landlord and intermediate tenant was, however, considered in Sparkes v Smart [1990] 2 EGLR 245. This was a case in which an agricultural holding was farmed by a farmer under a tenancy from freeholders. Their identity does not matter. The father had, apparently, a number of children, one of whom was a son, Rodney. The father allowed Rodney to take over the farm. The arrangement between the father, the tenant, and Rodney, his son, was construed as constituting Rodney a sub-tenant of the farm. The family turned out to be thoroughly disunited and everybody wanted (bar Rodney) to ease Rodney out of his position as sub-tenant farming the land. It was learned that the freeholders were desirous of selling. So the husband of a daughter of the tenant purchased the land from the freeholders. He then, by prior arrangement between himself and his father-in-law, the intermediate tenant and Rodney's landlord, served notice to quit on his father-in-law. His father in law did not serve a counternotice claiming the protection of the statutory regime and did not serve any notice to quit on Rodney. The scheme was so far as possible concealed from Rodney. At the expiry of the notice to quit the son-in-law, Sparkes, brought proceedings for possession against Rodney, contending that his father-in-law's tenancy had been determined by the notice to quit and that Rodney's sub-tenancy had gone with it. The Court of Appeal would not accept that that was so. The main judgment was given by Purchas LJ. At page 249 he said:

"It is necessary to consider the position of Rodney when the notice was served by [the son-in-law] upon William [the father] and in the further context of William's failure to serve a counternotice. On this aspect of the case Mr Evans readily conceded that his only hope was to attack the findings made by the judge that the whole of this operation was collusive. If it was collusive then Mr Evans did not seek to argue that Rodney was entitled to be placed in the position of William as Kelston's tenant. Notwithstanding Mr Evans able arguments, I find it quite impossible to entertain any doubt as to the judge's finding on this aspect of the case. The evidence was overwhelming."

Mr Wood has pointed out, with justification, that there does not seem to have been in Sparkes v Smart any argument addressed to the court to the effect that even if there had been a collusive agreement the sub-tenancy would still have been brought to an end by the notice to quit. It seems to have been accepted that if the finding of a collusive agreement was correct, the notice to quit terminating the tenancy could not also have determined the sub-tenancy. I agree with Mr Wood that it appears that that was the way the matter proceeded before the Court of Appeal in Sparkes v Smart . But that circumstance does not, in my judgment, deprive the case of its status as an authority. The question of the consequence of a collusive agreement was clearly before the court as one of the main issues in the case. The language of Purchas LJ, in saying Mr Evans, who was counsel for the freeholder, readily conceded that his only hope was to attack the finding made by the judge that the whole of the arrangement was collusive, suggests to my mind that the court agreed with the sense of the concession and that Mr Evans was swimming with the tide: "Mr Evans readily conceded." Sparkes v Smart is a Court of Appeal authority and is binding on us. In my judgment, it is authority for the proposition that if there has been an agreement between landlord and tenant, entered into for the purpose of enabling the landlord to obtain possession as against a sub-tenant, and the terms or the gist of which are that the landlord will serve a notice to quit and the tenant will refrain from serving any counternotice invoking the protection of the statutory regime, then the agreement between landlord and tenant, the "collusive" agreement, has the consequence that the notice to quit may determine the tenancy but does not determine the sub-tenancy. In effect, the determination of the tenancy is as though it were brought about by a surrender.

For my part I find this conclusion consistent with principle. In such a case as the Court of Appeal was considering in Sparkes v Smart the tenancy was brought to an end not by a unilateral act on the part of the freeholder in deciding to serve a notice to quit on the intermediate tenant, but by a consensual agreement, and intermediate tenant as to how the sub-tenant, Rodney, was to be defeated. The sharp distinction between notice to quit and a surrender to which I have already referred, between a unilateral act on one of the hand and a consensual arrangement on the other, requires, to my mind, that the sort of arrangement facing the Court of Appeal in Sparkes v Smart , and indeed facing us in this case, to be placed on the consensual side with a surrender, rather than on the unilateral side, with a notice to quit.

The final case to which I should refer is Pennell v Payne [1995] QB 192. This was a case involving an agricultural holding with a tenancy and a sub-tenancy. It was a case in which the tenant had sub-let the holding to a company in breach of a term in the tenancy agreement. The question which arose after the landlord had given notice to quit (relying on the tenant's breach of the term of the tenancy agreement, and the case having been referred to an Agricultural Land Tribunal in accordance with the statutory provisions) was whether the landlord's position had been in any respect adversely affected by the grant of the sub-tenancy. The argument that the landlord's position had been adversely affected was that the tenant could no longer, by a service of notice to quit, determine the tenancy and with it the sub-tenancy. The proposition was that once the sub-tenancy had been granted the tenant had barred himself from being able, by service on the landlord of notice to quit, to destroy the sub-tenancy. In Brown v Wilson Hilbery J had so held. The case involved, therefore, a consideration of whether Brown v Wilson had been correctly decided. The Court of Appeal held that it had not. The only judgment given in the case was given by Simon Brown LJ. Hoffmann and Leggatt LJJ agreed with it. The case is clear authority, in overruling Brown v Wilson , for the proposition that an intermediate tenant who serves notice to quit on the head landlord does an act which on the expiry of the notice to quit determines not only his own tenancy but also any sub-tenancy that he may have granted. The case is not, however, an authority on the consequences of a collusive arrangement between landlord and tenant for service by one of them on the other of a notice to quit. It does not, and could not, detract from the authority of the decision of the Court of Appeal in Sparkes v Smart to which I have already referred.

There are, if one goes down every avenue of possible facts, difficulties in reconciling Pennell v Payne with Sparkes v Smart . But each decided a separate point. Pennell v Payne decided that Brown v Wilson had been wrongly decided and that a head tenant could at common law give a notice to quit to a landlord which, on its expiry, would determine also a sub-tenancy. As to that, the case is of course binding on us. But that is not the point that arises in the present case. Sparkes v Smart , on the other hand, was a case dealing with consequences of a collusive arrangement between landlord and tenant entered into for the purpose of determining a sub-tenancy. In regard to that, the decision of the court, binding on us, was that the notice to quit served pursuant to such an arrangement may determine the tenancy, but it does not affect the continuance of the sub-tenancy. For the reasons I have given, I regard the result of Sparkes v Smart as being consistent with principle. But that perhaps is not as important as the fact that, in my judgment, it binds this court.

Mr Wood submitted, uncontroversially, that at common law upon the determination of a head lease any sub-letting created out of it automatically comes to an end. He acknowledged an exception at common law, recognised by statute in section 139 Law of Property Act 1925 and its predecessor provisions, where the head tenant surrenders his tenancy to the head lessor. But he submitted on the basis of two Court of Appeal decisions, Harrison v Wing [1988] 2 EGLR 4 and Pennell v Payne [1995] QB 192, that the exception to the common law rule is strictly limited to cases of surrender properly so called. To that he added the absence of any exercise of the power in section 29 of the Agricultural Holdings Act 1986 and paragraph 7 of Schedule IV to that Act, or of the corresponding power in the Agricultural Holdings Act 1948, to provide protection for sub-tenants where the interest of the head tenant is terminated by a notice to quit. This, he said, makes it plain that Parliament never intended that sub-tenants should (otherwise than by the recognised exception) enjoy statutory protection against a head landlord, and it was inherent in the position of the sub-tenant that he had no such protection. He contrasted the position of business sub-tenants, under Part II of the Landlord and Tenant Act 1954, and residential sub-tenants under the Rent Act 1977, who are protected.

I acknowledge the force of that argument but I am not able to accept it. Like my Lord, it seems to me that the characteristic, significant for present purposes, of a surrender, as distinct from the determination of a tenancy as a result of a notice to quit, is that the former is consensual, there being agreement outside the lease and the landlord not being obliged to accept the surrender, whereas the latter is a unilateral act within the lease of the person serving the notice. Of course the person on whom the notice to quit is served has the right to exercise his statutory option to serve a counternotice or to choose not to do so. But this does not alter the nature of that transaction as being essentially unilateral, in the straightforward case, where the landlord and tenant act as landlords and tenants ordinarily do in their own interests. Where the facts are as they are here, that in order to obtain vacant possession and destroy the sub-tenancy the mechanics of a notice to quit are employed by the landlord, but only because the tenant himself, in agreement with the landlord, has taken the initiative to obtain the service on him of that notice to quit on the footing that a counternotice will not be served, then the position seems to me to be tantamount to a consensual surrender, even though technically it would not constitute surrender.

Do the authorities preclude us from arriving at such a result? Certainly there is nothing in Mellor v Watkins [1874] LR 9 QB 400 inconsistent with this approach. The decision of this court on the relevant point in Harrison v Wing seems to me to have turned on the narrow question whether a person who is both one of three landlords holding jointly as trustees for sale and is also the tenant was voluntarily putting an end to his own interest by joining in the notice to quit served by the landlords. In answering that question in the negative, this court did not consider any question of a collusive agreement designed to defeat the sub-tenancy. This court specifically accepted the principle of Mellor v Watkins , but distinguished that case on its facts.

Sparkes v Smart [1990] 2 EGLR 245 is the closest to the present case on its facts. The court agreed with His Honour Judge Da Cunha in the court below that the effect of a collusive scheme between landlord and tenant for the landlord to serve a notice to quit and for the tenant not to serve a counternotice in order to defeat the sub-tenancy was in effect the same as a voluntary surrender of the head lease, though it is right to acknowledge that counsel for the landlord in that case was recorded (see page 249G) as not seeking to argue that the sub-tenant was not entitled to be placed in the position of tenant of the landlord if this court accepted that the scheme was collusive. Nevertheless, that case is entirely consistent with what I believe to be the right principle.

In Pennell v Payne no doubt was cast by this court of the correctness of the proposition that a collusive scheme between head landlord and head tenant designed to destroy the sub-tenancy constituted an exception to the common law rule. That case was concerned with the effectiveness of an upwards notice to quit served by the head tenant, a conditional termination of the tenancy. It was not concerned in any way with a collusive scheme. I cannot read it, therefore, as constituting authority supporting Mr Wood's submission that the exception from the common law rule is confined to surrenders in the strict sense.

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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Barrett & Ors v Morgan [1998] EWCA Civ 1118 (30 June 1998) URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/1118.html Cite as: [1998] L & TR 172, [1998] 4 All ER 179, [1999] 1 WLR 1109, [1998] EWCA Civ 1118, [1999] WLR 1109

England and Wales Court of Appeal (Civil Division) Decisions