The answer is: when a valid notice to quit has not been served and the lease does not qualify as an agricultural tenancy. This was highlighted in the recent appeal to the Sheriff Principal at Airdrie Sheriff Court of Manus O'Donnell v Graham McDonald.
The facts of the case
- Mr McDonald was the tenant of a property called Woodcroft Field in Moodiesburn under a verbal lease with the landlord, Mr O'Donnell.
- The premises were leased for the purposes of operating a riding school.
- Most of the time, horses grazed on either the field used as the riding school or the field on which hay was formerly grown for their winter feed.
- The lease commenced on 8 February 1989 and had continued from year to year on the basis of "tacit relocation", a common law doctrine explained below.
- On 13 July 2004, Mr O'Donnell served a notice to quit on Mr McDonald, stating that the lease was to terminate as at 31 March 2005 at the latest.
What the court initially decided
There were two main issues for the Sheriff at first instance to consider:-
- was Mr McDonald's tenancy under the lease an agricultural tenancy within the terms of the Agricultural Holdings (Scotland) Act 1991? If so, different rules applied to the service of the notice to quit; and
- had Mr O'Donnell served a valid notice to quit?
The Sheriff initially decided that, although the overall purpose of the lease was to allow Mr McDonald to operate a riding school, the substantial use of the premises for grazing horses rendered the tenancy an agricultural tenancy. He therefore held that the notice to quit failed to comply with the terms of the 1991 Act and refused to order Mr McDonald to vacate the premises.
Agricultural or not?
Mr O'Donnell appealed the decision to the Sheriff Principal who considered that the issue of the nature of the tenancy fell to be decided by reference to the predominant purposes for which the land, as a whole, was let. The 1991 Act provides that an agricultural holding is the total land comprised in a lease that is used for agriculture for the purpose of a trade or business. In the case of the riding school, the court on appeal decided that the substantial purpose of the lease was a riding school, rather than an agricultural tenancy, and so Mr McDonald was not entitled to the protection of the 1991 Act.
The case therefore fell to be decided on whether the notice to quit had been validly served. Since the lease was a verbal one and no notice to quit had previously been served, it had continued from year to year on the same terms and conditions as were originally agreed on the basis of a common law doctrine called tacit relocation. Tacit relocation raises a presumption that the parties agree to the lease continuing in its present form for a year at a time, which is rebuttable by one or both parties intimating an intention to terminate the lease at least 40 days prior to the next yearly expiry date. Tacit relocation also operates where a written lease specifies a termination date if a valid notice to quit has not been served at least 40 days prior to the specified termination date.
There is no prescribed form of notice to quit under the common law and the court decided that Mr O'Donnell's notice to quit was sufficient to prevent the operation of tacit relocation at the next termination date, which was 7 February 2005 (since the original lease started on 8 February). Even though Mr O'Donnell's notice specified 31 March 2005 as the termination date, the lease would end on 7 February and the court subsequently granted a common law decree of removing.
A lease is one contractual relationship where the interests of the two parties involved, landlord and tenant, are inherently opposed. A prudent landlord or tenant should therefore ensure that a written lease is put in place. Indeed, a verbal lease cannot have an original duration of more than a year and a tenant who wishes to stay longer must therefore hope that the landlord doesn't serve a notice to quit which prevents tacit relocation from giving him another year in the premises.
Even when a written lease has been put in place, a landlord who is relying on getting his premises back at the lease's expiry wouldn't be happy to hear that his development plans for the premises have to be put on hold for another year. The fact that the rent remains the same and cannot be increased may be a further bitter pill to swallow. Landlords, and indeed tenants who wish to vacate their premises, should have a good diary system in place to remind them that a valid notice to quit should be served timeously (and in accordance with the notice provisions in the lease) as they may be disappointed and frustrated otherwise.
The full text of the case can be found on the Scottish Courts' website at http://www.scotcourts.gov.uk/opinions/A1135_04.html