13. Two Questions in the Law of Leases

Lord Gill

A. Introduction

In his years as a practitioner and as holder of the Chair of Conveyancing at Glasgow University, Professor Robert Rennie has served his profession and his alma mater with distinction. His contribution to the development of our property law is fittingly recognised by the publication of this Festschrift. It is a privilege to contribute this essay in honour of my good and esteemed friend.

In this essay I consider the meaning and effect of the decision of the House of Lords in Clydesdale Bank plc v Davidson.1 That decision raised two fundamental questions; namely, the nature of the rights of pro indiviso proprietors of heritable property and the nature of the tenant’s right in a contract of lease. I put forward the following propositions, namely (1) that in modern Scots law, on entry or, in the case of a long lease, on registration, the tenant in every contract of lease has a right in rem in respect of the subjects of let; (2) that on the question of the validity of the lease in that case, the Clydesdale Bank case was correctly decided; (3) that the decision of the Scottish Land Court in Serup v McCormack,2 being a logical extension of that decision, was correctly decided; and (4) that the obiter dicta of the judges in the Clydesdale Bank case to the effect that the invalid lease was a valid contract for occupation and management of the land were unsound.

B. The Nature of the Rights of a Pro Indiviso Proprietor

In Magistrates of Banff v Ruthin Castle Ltd3 Lord Justice Clerk Cooper, as he then was, eruditely expounded the distinction in Scots law between joint ownership, being the class of right typified by the ownership of co-trustees, and ownership in common, being the right typified by the ownership of two or more persons in whom the right to a single subject has come to be vested, each being entitled by his separate act to dispose of his separate share. I am concerned in this article with owners in common in the sense in which Lord Justice Clerk Cooper used that expression.4 There are three defining characteristics of the relationship that governs such owners.

(1) Unanimity

Since pro indiviso proprietors hold the property in common, there is deemed to be unititular possession among them, each having an equal share or such proportionate share as they may agree upon.5 The universal rule of common ownership is that there must be unanimity in decision-making affecting the subjects. This principle is based on the Roman law.6 Bell recognised that that was the law,7 but he advocated a principle of majority-based decision making.8 That idea failed to find favour in the courts. In the Clydesdale Bank case Lord Clyde described it as “somewhat delphic” and as being “unilluminated by authority.”9 But in the context of this essay that is a side issue, since Bell insisted that there had to be unanimity in the granting of leases.10 That has been the consistent view of the courts. It is now beyond question that a single pro indiviso proprietor cannot grant a lease that would be binding on singular successors.11 Each individual proprietor has an effective veto, unless by contract he renounces it, on any proposed act of management with which he disagrees.

(2) Use

Each proprietor is entitled to make use of every inch of the property. Therefore, no single pro indiviso proprietor may take exclusive possession of any part of the property unless the others consent.12 If the land is let, each proprietor is entitled to a share of the rents.13 No individual proprietor may obtain an excessive benefit at the expense of the other proprietors without prior agreement.14 If he does so, he must account to them for the ordinary profits accruing to him from the period of his possession.

Nevertheless, the proprietors may validly agree inter se that the subjects will be possessed by one or more of their number. It is then a matter for agreement on what terms the occupying proprietor will occupy the subjects.15 In such a contract, it is open to the proprietors to agree that in return for having sole and exclusive possession, the occupying proprietor will make a compensatory payment to the others.16

(3) Division and sale

In a relationship of the kind considered in the Clydesdale Bank case each of the pro indiviso proprietors can rely on the rule nemo in communione invitus detineri potest, a rule said by Lord Jauncey to be justified by considerations of public policy. The dissatisfied proprietor has no right to evict a co-proprietor from the subjects. His only remedy is the drastic remedy of the action of division and sale, which is derived from the Roman actio de communi dividundo. The right of each proprietor to enforce this remedy is absolute.17 In an action of division and sale the court may order that the subjects should be divided up rateably or, if that is impracticable, that they should be sold and the proceeds divided.18

C. The Decision in Clydesdale Bank Plc v Davidson

In the Clydesdale Bank case the central question for the House of Lords was whether pro indiviso proprietors could grant a valid lease to one of their number.

The appellant was one of three pro indiviso proprietors of a tract of agricultural land. All three entered into a contract that purported to be a lease by which the other two let the land to the appellant. A month later, all three granted a standard security in favour of the Bank over part of the property. Some years later, they granted a further standard security over the rest of the property. The standard securities were granted in consideration of loans to the appellant only. When the appellant defaulted, the Bank enforced the securities and raised an action of removing against him. The appellant defended the action on the plea that he had a protected agricultural tenancy.

A straightforward resolution of the case was set out by Lord Jauncey to the following effect. At the date of the purported lease the appellant enjoyed a real right in the subjects entitling him to possess them jointly with the other pro indiviso proprietors. The contract concluded on that date neither superseded nor altered that real right. It conferred on the appellant a personal right to enforce the obligation by his co-proprietors to refrain from exercising their rights to joint possession in return for the compensatory payments. When the contract ceased to have effect, the appellant’s right to possession qua proprietor would continue unchanged but his co-proprietors would no longer be disabled from jointly exercising their possessory rights. The contract was not a lease.19

Lord Clyde and Lord Hope concurred in holding that on general principles of contract a body of pro indiviso proprietors cannot grant a valid lease to one of their number. In doing so they adopted the reasoning of Lord Justice Clerk Ross in the court below, which was based on the view that a party cannot be both creditor and debtor in the same obligation, and that the purported lease could not validly confer on the appellant the subordinate right in rem of tenancy in respect of land over which he enjoyed the pre-eminent right of ownership.

D. Serup v McCormack

A similar issue has since been considered by the Scottish Land Court in Serup v McCormack.20 In that case a tenant who had a valid lease of an agricultural holding became one of the pro indiviso proprietors of the subjects of let during the course of the lease. Some years later she conveyed her pro indiviso share to a partnership in which she was one of the partners. The Land Court’s general conclusion was that on the tenant’s becoming a pro indiviso proprietor, all of the considerations relied on by the Inner House and by the House of Lords in the Clydesdale Bank case applied. Therefore the lease then became invalid. Distinguishing the principle that applies in the case of a servitude21 the Land Court held that when the former tenant thereafter divested herself of her pro indiviso share in the subjects, the lease was not thereby resuscitated.

On the first point, the Land Court was clearly right in interpreting the Clydesdale Bank decision as it did and in following it. The considerations that in the Clydesdale Bank case invalidated the lease at the outset had the same effect when they arose during its currency. In particular, on the tenant’s acquiring pro indiviso ownership, the greater right of ownership absorbed and extinguished the lesser right of tenancy22 and the now pro indiviso proprietor thereupon became immune from eviction at the hands of his fellow proprietors.23 On the second point, the lease, when entered into, was a valid lease of an agricultural holding that conferred on the tenant security of tenure by statutory relocation on the expiry of the contractual term;24 restricted the landlord’s opportunities to serve notice to quit;25 and created the prospect that the tenancy could be continued under the same statutory provisions in the hands of an acquirer after the tenant’s death.26 These considerations plainly ruled out the idea that the tenancy was not extinguished but instead went into a state of suspended animation in which it would remain until the uncertain day when the tenant should cease to be a pro indiviso proprietor.

E. The Personal Right Theory

Catherine Bury and Douglas Bain have recently published a stimulating article in which they question the soundness of the Clydesdale Bank decision and advance a theory that a lease that does not confer a right in rem upon the tenant may nevertheless be validly constituted among pro indiviso proprietors.27 They describe this as the “non-real personal lease.”28 They argue that since the House of Lords accepted in the Clydesdale Bank case that the contract was a valid contract between the proprietors for the occupation and management of the land by one of their number, that contract should have been recognised as in substance a personal lease. Such a lease qualifies as a lease to which the agricultural holdings legislation applies and should therefore have been held to confer the security of tenure that was unsuccessfully claimed by the appellant. I shall refer to this as “the alternative theory.”

In briefest outline the conclusion of the alternative theory is that it is not necessarily a requirement for the protection of the Agricultural Holdings (Scotland) Act 1991 that the lease should confer a real right. Therefore, a contract of the kind considered by the House of Lords to be a valid occupation and management contract may qualify as a personal lease that is protected under the 1991 Act.

This theory therefore raises the two fundamental questions to which I have referred. On the first, the essential issues are whether, despite the Leases Act 1449, the common law personal lease survives in Scots law; and, if so, whether it can attract the protection of the agricultural holdings legislation. On the second question, the essential issue is whether, although the contract in the Clydesdale Bank case did not confer on the purported tenant the right in rem of tenancy, since he already had a right in rem as a proprietor, the contract was nonetheless a valid contract the effect of which was to confer on the appellant a personal lease, and in consequence the protection of the agricultural holdings legislation. The success of the alternative theory depends on there being favourable answers to both questions.

F. The Nature of the Tenant’s Right in the Contract of Lease

(1) The common law

The common law adopted the general principle of the Roman law that the right of the lessee in the contract locatio conductio was prestable against the lessor, but not against a subsequent owner. The locus classicus in Stair is as follows:29

A tack of itself is no more than a personal contract of location, whereby land, or any other thing having profit or fruit, is set to the tacksman for enjoying the fruit or profit thereof, for a hire, which is called the tack-duty; which therefore did only oblige the setter and his heirs, to make it effectual to the tacksman, but did not introduce any real right, affecting the thing set, and carried therewith to singular successors; but so soon as the thing set ceased to be the setter’s, the tack could only defend the tenant till the next term of removing.

At common law, therefore, the lessee had only a right of action against the lessor and his representatives to be maintained in possession for the duration of the lease. Since feudal law did not allow a right in land to be effectual against singular successors of the proprietor without sasine, the tenant had no protection against them and could be removed from the tenancy with ease.

In that state of the law, conveyancers attempted to secure the tenant’s vulnerable position in relation to a singular successor of the landlord by drawing on the analogy of sasine and conferring on the tenant a simulated form of infeftment for the purpose of creating a real right. This procedure is described with derision by Paton and Cameron as a “specious form of charter and sasine.”30 It was not, and could not be, a true infeftment since the tenant’s right was that of temporary occupation only.31

(2) The emergence of the right in rem

The Leases Act 1449

The Leases Act 1449 was passed with the specific purpose of correcting the weakness in the law that left the agricultural tenant defenceless to removal by a singular successor of the landlord.

The Act, in the Glendook version quoted by Rankine,32 provided as follows:33

It is ordained for the safetie and favour of the puir people that labouris the ground, that they, and all utheris that hes taken or sall take landes in time to cum fra lordes, and hes termes and zeires thereof, that suppose the lordes sell or annaly that land or landes, the takers sall remaine with their tackes, unto the ischew of their termes, quhais handes that ever thay landes cum to for siklike maill as they tooke them for.

Although the Act was introduced at the instance of James II to remedy the injustice of the eviction of labourer tenants at the will of the landlord, its scope was not limited to the “puir people that labouris the ground.” It extended to “all utheris.”

In the Ius Feudale, Craig interprets the 1449 Act as having conferred on the tenant a real right:34

Again, a covenant sometimes appears in a tack whereby the lessor undertakes that he will not remove the tenant from his holding. Such a covenant is however personal to the lessor who enters into it; and although the original grantor of the tack (being owner of the subject at the time he granted it) is bound by his obligation not to remove the tenant, the covenant loses its force on a change of ownership and cannot be enforced against a singular successor. As has been seen, the opposite rule applies to a tack covenanted to endure for a fixed term of years, for such a tack confers a real right on the tenant and affects the subject itself, especially when (as I have explained) possession has followed upon it.

Stair,35 Erskine36 and Bell37 are to the same effect. Bankton is to similar effect;38 but Kames adheres to the view that a tack is a mere personal right that was not made real by the 1449 Act.39

Mackenzie describes the effect of the Act in the following way:40

Tacks which before this Act were only personal rights are by this Act made real rights … Possession is the same thing to tacks that sasines are to alienations: and of old some tacks had sasines or instruments of possession: but neither was necessary nor is now usual. And the reason why they used sasines then, being to make the tack real, and to defend against singular successors; this was no more used after the Act of Parliament by which possession makes a tack a real right.

In consequence of the 1449 Act the practice of taking sasine on a lease fell into disuse in the 15th century. Mackenzie’s confident interpretation of the Act goes to the heart of the matter.

The nineteenth century controversy

The words of Sir George Mackenzie are a useful preface to the controversy that preoccupied the Court of Session as to the effect of the 1449 Act on the nature of the tenant’s right. In the early nineteenth century the nature of the tenant’s right became the subject of judicial controversy in the context of commercial leases.41 The controversy was precipitated by the attempt by conveyancers to secure a debt over the debtor’s tenancy by having the debtor assign the tenancy to the creditor and by the creditor’s granting a sub-tenancy to the debtor. If the debtor’s tenancy conferred only a right in personam under such an arrangement, the assignation would effectively transfer the lease to the creditor upon intimation of it to the landlord; whereas if the tenancy conferred a right in rem, the creditor’s right to the tenancy would be perfected only upon his taking possession.

At that stage, the preponderant view of the writers was that the 1449 Act conferred a real right of tenancy.42 In a lecture prepared for delivery in 1821-1822 Baron Hume described the far-reaching effects of the statute. Having expounded the principle that the lease, in its native and proper character, is a matter of personal contract, he describes the lease as a sort of estate or real interest in the tenant. This, he says, is a new and foreign character bestowed by the 1449 Act and is the oldest ordinance to that purpose in the law of any country of Europe.43

Inglis v Paul

Inglis v Paul44 brought the controversy into the open. In that case a sub-tenant assigned his sub-tenancy to a bank in security of a cash-credit. Two days later, the assignation was intimated to the principal tenant, but not to the sub-sub-tenant who occupied part of the subjects. The bank did not enter into possession. About two years later, the sub-tenant was sequestrated. The bank thereupon intimated the assignation to the tenants of the property and required that they should pay the rents to the bank. Thereafter the trustee was elected and was granted decree of adjudication. The resulting competition between the assignee of the sub-lease, who had failed to take possession of the subjects, and the sub-tenant’s trustee in sequestration was considered by the whole court.

The view of Lord Justice Clerk Boyle and seven other judges on the point was as follows:45

The rule of law is, that rights are completed by delivery. In feudal subjects, this is accomplished by sasine or symbolical delivery; and in subjects which do not admit of sasine, by giving natural or civil possession. Tacks, in one respect, are personal; and in another, real rights. In a question between the landlord and the tenant or his assignees, they are personal rights; therefore, in a competition between two bona fide and onerous assignees, the landlord is bound to prefer him who first intimates his assignation (which is the way of completing a personal right) and to put him in possession accordingly. But, in a question with the singular successors of the landlord and the tenant or his assignee, a tack is a real right by force of the statute of 1449; and therefore it is incomplete, unless possession, natural or civil, has been attained.

Lord Balgray agreed that the bank’s case failed for want of possession. He accepted that until possession followed on the assignation of the lease, the title of the assignee was not secure; but he rejected the idea that the assignation was not perfected by intimation to the landlord, but only by possession. Assignation of the lease, although quite complete as to title, might be defeated and disappointed by allowing the cedent to remain in possession. The assignee thereby exposed his right to danger and risk. But in the view of Lord Balgray, the question was not what was necessary to complete the assignee’s right to the tenancy. The decision depended on different principles. This was his view:46

It was constantly to be kept in mind, that a lease by the law of Scotland was nothing but a personal right. It was a bona fide contract for the use of land or other subject, as laid down by the civil law. It was very true that the Scotch act 1449 bestowed, from public utility, a peculiar privilege on those who held leases of heritable subjects, that they should be protected in the possession of their subjects against all persons till the contract expired, if they were in the actual possession. This was an exception from the general rule, and a privilege bestowed; but it altered not the nature of the right. To say that a lease is a real right, is a most egregious mistake in point of law. No doubt it is effectual against singular successors, and it descends to heirs; but this arises from other extrinsic and adventitious circumstances, totally distinct from the true legal nature of the right. Being a personal right, a lease naturally becomes the subject of assignation; and that assignation is perfected by intimation to the landlord or author from whom it flows, or acknowledgment by them, provided always he has originally bestowed the right of conveyance. Abstractly, therefore, the assignation of a lease is perfected, and must be perfected, by intimation to the landlord. It requires intimation to no other human being. So much is this the case, that suppose a number of intimations were made to a landlord, and it is required of him to give possession, he is bound to deliver it to the first intimated assignation. No authority can be pointed out in the law of Scotland to the contrary.

In this view Lord Balgray was supported by his First Division colleagues Lord Craigie and Lord Gillies, who expressly dissented from the majority view that the assignee acquired right to the tenancy of the subjects only by taking possession.47

Brock v Cabbell

A year later the point came up again in Brock v Cabbell48 and was considered by a court of 15 judges including all 12 of the judges who had taken part in Inglis v Paul. The point arose in similar circumstances. The tenant granted an assignation of the tenancy in security to a bank. The assignation was intimated to the landlord. The bank thereupon sub-let the subjects to the former tenant who remained in possession and paid the rents. The bank at no time thereafter entered into possession. The competition was between the bank and the trustee in bankruptcy of the former tenant. In that context, the lease controversy inevitably returned.

The Lord President and five judges, four of whom had been in the majority in Inglis v Paul, gave the majority opinion. It begins in uncompromising terms:49

It is a general rule in the law of Scotland, that possession, natural or civil, is necessary to complete the transference of a real right. A tack is a real right, by force of the statute 1449, in a question been assignees and adjudgers from the tenant; and to that case, therefore, the general rule applies. This is vouched by the concurrent authority of every institutional writer, and by an uninterrupted series of decisions for more than two centuries.

Lord Fullerton concluded that the lease became:50

... in virtue of the statute 1449 a real right, a character uniformly assigned to it by our institutional writers and confirmed by a series of decisions which it is impossible now to disturb.

The conclusion of the majority was that since the bank had never taken possession of the land after the assignation, the assignation/sub-tenancy arrangement was “a collusive device to create a latent security over a real right, without change of possession.”51

Lord Gillies again allied himself with Lord Balgray, concurring in the result advocated by the majority but challenging the general propositions that I have quoted. Their position was succinctly expressed as follows:52

We consider a lease to be a right of an anomalous nature. Its creation and its transmission are to be regulated as if it were, what it truly is, a personal right. We, therefore, cannot affirm that it is the law of Scotland that an assignation of a lease duly intimated is per se an imperfect right, unless followed by natural or civil possession.

The usually taciturn Lord Craigie delivered an erudite opinion, lengthy by the standards of the day, that has not attracted academic attention. In it the true point of division clearly emerges. The opinion gives us an insight into the mind of a conveyancer who, even four centuries after the 1449 Act, was still influenced by the spirit of the Roman law.

Lord Craigie’s opening statement makes his position clear. He quotes the 1449 Act and immediately concludes from the wording of it as follows:53

Thus it appears, 1. That, by the common law, the landlord or proprietor of lands could not effectually grant a lease to endure beyond the period of his right. 2. That the extension of the right of the tenant by positive statute, and in express deviation from the common law, is confined to the case of buyers or singular successors in the property of the lands.

He then makes the claim that that is how in practice the 1449 Act has been understood. He cites three cases in which the tenant’s right does not prevail against third parties who acquire the landlord’s interest; namely where the land falls into the hands of the superior by virtue of a feudal casualty; or in the case of a lease granted by a wadsetter when the right of reversion has been exercised; and in the case where the right of the lessor has been set aside. In all of these cases, he says, the current leases flowing from the landlord are of no effect for ensuring possession to the lessee.

At this point, Lord Craigie has to face the fact that nearly all of the writers take a different view. This is his untroubled response:54

It is the more necessary to attend to this, because in many of the books of authority there are expressions from which it has been inferred, that, by the statute, leases had become real rights, and that they could not in any case be effectual to third parties, unless followed with natural and actual possession. The very opposite proposition, as it humbly appears to me, is the true one.

Lord Craigie then emphasises that, properly speaking, a lessee of lands has no right to the lands. He has only a right of possession. Therefore his possession must be governed by the properly attested agreements between those who have an interest in it.55

As matters stood after 1830, the clear division of opinion on the controversy had been resolved in favour of the strong majority view that the right of the lessee was a real right. In that respect, the court was at one with the writers. After Brock v Cabbell the real right theory was not to be challenged for nearly forty years.

By 1838, the Third Report of the Law Commissioners in Scotland, of whom George Joseph Bell was one, expressed the view that the law respecting the effect of the 1449 Act on the rights of singular successors in the land was well settled by the statute and by a long series of decisions making the possession of the tenant serve the purpose of sasine on the lease, to the effect of conferring a real right independently of any record.56 The Law Commissioners recommended57 that it should be possible for a tenant to create a security over his lease by an assignation that would be recorded in a public register, the register being a form of publication that would make the creditor’s security effectual.58 In due course the Registration of Leases (Scotland) Act 1857 provided that the registration of a long lease, would make the tenant’s right valid against singular successors of the landlord,59 the act of registration having the same effect as entry into possession had been held to have in the case law;60 and that on being recorded the assignation of the lease in security constituted a “real security” over the lease.61

In 1845 the real right issue arose obliquely in Hamilton v Hamilton62 in relation to an agricultural lease that did not contain a conventional irritancy. The question was whether the landlord could nevertheless irritate the lease for the tenant’s failure to implement certain obligations ad factum praestandum. In finding against the landlord on that point, two of the majority judges, Lord Mackenzie and Lord Jeffrey, expressly relied on the consideration that the tenant had acquired a real right by entering into possession of the land. They held that such a right could be terminated by irritancy only where the irritancy was expressly warranted by a statutory or a conventional provision.

In 1867 in Campbell v McKinnon63 Lord Kinloch in the Outer House took the view that a lease conferred only a personal right. The Inner House overturned his judgment. In the leading opinion Lord Curriehill described the principle that possession under a lease conferred real rights on the tenant as “trite law.”64 The judgment of the Inner House was affirmed by the House of Lords,65 where Lord Westbury said that the effect of the 1449 Act was that upon entry to the land the lessee’s right became real.66

Only a year later, the question arose again in Edmond v Reid.67 In that case an agricultural tenant was bound by a residence clause. She indicated her intention not to reside on the farm. There was no irritancy clause in the lease. The landlord concluded for declarator of the existence of the tenant’s obligation to reside and, if the tenant should fail to reside, for decree that she had forfeited all right to possession of the farm.

The action was defended on the ground inter alia that the landlord was not entitled to a declarator of forfeiture since there was no irritancy clause to support it. In pursuing that defence, counsel relied on Hamilton v Hamilton68 for the submission that “a lease was a real right. Non-residence did not create an irritancy, and there was no conventional irritancy.”69 On being pressed by the court to make her intentions clear, the tenant lodged a minute that was construed as a judicial declaration that she would not fulfil the residence condition.

In the leading opinion, Lord Justice Clerk Moncreiff took the line that the landlord was not seeking declarator of irritancy at all, because the conclusions were “entirely for the future” and related solely to the effect of a subsequent refusal by the tenant to fulfil the conditions of the lease. He then turned to the real right issue. He said that he did not question the “doctrine” in Hamilton v Hamilton70 that a lease conferred a real right on the tenant; but in his view the lease was nevertheless a mutual contract and was subject to the principle that no-one could take the benefit of the lease and at the same time repudiate its conditions. He followed the decision in Drummond71 where the court had held that although a residence clause was not fenced with a power of irritancy, the contract would necessarily come to an end if the tenant should put it out of his power to fulfil the conditions of the lease. On that point, the Lord Justice Clerk relied on Hamilton v Hamilton in holding that the tenant’s declared inability or unwillingness to fulfil the lease constituted a renunciation.

The other three judges concurred in the result; but the submission for the tenant, and the Lord Justice Clerk’s support for the decision in Hamilton v Hamilton, provoked Lord Cowan and Lord Neaves. While both were content to decide the case on the basis of the tenant’s declared intention not to observe the residence clause, neither was prepared to accede to the real right theory. Lord Cowan put the matter as follows:72

The argument of the defender was founded on a fallacy. He said a lease was a real right, and to be assimilated to a feu-right. That is not its nature. A contract of lease is a mutual contract, and although, under the statute 1449, with some of the privileges of a real right, it does not substantially differ from a mutual contract.

Lord Neaves’ view was as follows:73

The defenders’ counsel was in error when he argued that a lease was the same in character as a feu-contract. It is no doubt an heritable contract, on account of its being for a tract of future time. That is a totally different matter from its being a real right.

The Act of 1449 was for the benefit of the poor people who laboured the ground. It prevented the vendees of the lessor from turning out the lessee. It declares the right followed by possession to have that effect, but that is not making it, properly speaking, a real right.

These dicta are the starting point for the alternative theory.

A decade later, in his Lectures on Conveyancing,74 Montgomerie Bell concluded that leases at an early period were raised to the position of real rights, conferring a title of possession preferable to that of purchasers and creditors whose rights were subsequent to the date when possession was taken under the lease.75

(3) Twentieth century developments

The state of the law on the nature of the tenant’s right in the early twentieth century is summarised in Rankine’s conclusion that leases, originally and in their nature merely personal contracts, were in certain cases converted into real rights by the 1449 Act “as liberally construed by the Court.”76 That can fairly be said to be the starting point for the modern expositions of the law on the nature of the tenant’s right.

The question arose again in 1949 in Millar v McRobbie.77 In December 1947 the then proprietors of an arable farm granted the defender a 14-year lease with entry at Whitsunday 1948. The lease conditions provided for the customary sequence of handover arrangements by which the incoming tenant would have access to parts of the land from 1 March 1948 for the purpose of sowing and by which, in due course, the tenant would have access after his waygoing to reap his final crop. Thereafter the landlords sold the farm to the pursuer with entry at 29 February 1948. The defender duly took access to the land under green crop between late March and early May and during that period prepared and sowed the ground. The pursuer then had the defender interdicted from entering on the land on the plea that the lease was not binding on him as a singular successor of the landlords, the defender not having taken entry to the land in terms of the lease.

In the appeal of the defender to the Inner House, counsel for the defender did not argue that his right in personam against the former proprietor was good against the singular successor. Instead, he argued that he had been in possession of part of the land from March onwards and that that limited possession was sufficient to confer on him the protection of the 1449 Act. The First Division refused the appeal by distinguishing between the possession that would have followed from entry at the specified date and the anticipatory or deferred occupation of certain parts of the land by which the agricultural cycle was maintained.78

The significance of this case is that it established that the theory that the tenant has a right in rem, and that the right is made effective by the taking of possession, was firmly part of the law of Scotland. That is clear in Lord President Cooper’s opening statement:79

It has been well settled for centuries that possession under a lease is the equivalent of sasine in relation to feudal property. Without possession the tenant is merely the personal creditor of the lessor. By entering into possession the lessee publishes to the world in general, and to singular successors in particular, the fact of his lease, and since the practice of taking sasine on a tack fell into disuse in the 15th century, no substitute has been recognised by our law for possession except registration of long leases under the Act of 1857.

In view of the classic statement of Lord Kinloch in Wight v Earl of Hopetoun80 which was affirmed by the House of Lords,81 that a lease of that kind ran from Whitsunday to Whitsunday, notwithstanding handover arrangements, the decision in Millar v McRobbie was inevitable. It is significant however that neither the arguments of counsel nor the opinions of the judges make any reference at all to the nineteenth century controversy.

The decision in the Clydesdale Bank case further affirmed that the tenant’s entry into possession conferred the real right.82

G. Conclusions

(1) The personal right theory

Two influences underlay the minority view in this extended controversy. First, the Roman law in which a lease of land, as part of the wider contract of hire, conferred on the lessee only a right in personam against the lessor; and second, the strict feudal theory on which sasine endowed the proprietor with rights of ownership that were valid against all comers.

The essence of the argument for those judges who held to the personal right theory was simple. The tenant under the Roman contract locatio conductio had a right in personam, against the lessor only, to be maintained in possession. The purpose of the 1449 Act was to protect the tenant against removal by the landlord’s singular successor. On that view, there was an interpretation of the 1449 Act that dealt with the perceived mischief in a perfectly intelligible way without the need to confect a right in rem; namely that the Act protected the tenant’s right in personam by making it prestable against the singular successor. In this way the 1449 Act secured the tenant’s position against the singular successor,83 with minimal change to the existing law, while remaining true to its civilian roots.

To those who held the minority view, the analogy between the taking of sasine under a disposition and the taking of possession under a lease was at best an imperfect one. To them, the taking of possession was only the palest shadow of sasine. The idea that the mere taking of possession could confer a right in rem was heresy.

This line of argument came naturally to judges who were steeped in the principles of the Roman law and of feudal conveyancing. To them the taking of sasine was a significant juristic act by which the fullest rights of ownership were conferred and publicly acknowledged. The private act of taking possession under a private contract that endowed the lessee with, at most, subordinate and temporary rights in the subjects could not meaningfully be equiparated with sasine.

But this view failed to win the day. The liberal construction to which Rankine referred was favoured by most of the writers from earliest times and has had a secure place in the case law for the last two hundred years. The obiter dicta of two judges in Edmond v Reid are the last judicial statements to have been made in support of the personal right theory. It is perhaps a criticism of the alternative theory that in wresting these dicta from that single case, Bury and Bain have failed to place their theory in its full historical context.

Over time, the 1449 Act has come to be accepted as (1) conferring a right in rem on the tenant in a contract that meets the requirements of a valid lease; and (2) applying to leases of subjects of all kinds.84 Although the 1449 Act specifically refers to “lands,” the courts have interpreted it as applying also to residential dwellings, minerals, quarries, ferries, harbours and salmon fishings.85

In their critique of the Clydesdale Bank case, Bury and Bain suggest that because the contract between the pro indiviso proprietors was held not to be a true lease, nevertheless because it regulated the terms upon which the defender would occupy and farm the subjects, it qualified as a personal lease and fell within the definition of “lease” in section 85(1) of the Agricultural Holdings (Scotland) Act 1991.

Even on the assumption that the contract in the Clydesdale Bank case was a valid contract between the pro indiviso proprietors for occupation and maintenance of the farm, there is, I think, a flaw in this line of argument. If I am right in my interpretation of the twentieth century authorities, it is beyond any reasonable challenge, in my view, that in the modern law of Scotland a contract of lease that meets the essential requirements that were agreed and re-stated in Gray v Edinburgh University86 confers a right in rem on the tenant. On the other hand, if the contract fails to meet those requirements, it is not a lease at all.

The argument for the survival of the common law form of personal lease suggests that such a lease may attract the protection of various statutory regimes and, in particular, when it is a lease of agricultural land will be a “lease” within the definition of that term in section 85(1) of the Agricultural Holdings (Scotland) Act 1991.

For the reasons that I have given, I conclude that the common law personal lease is no longer part of the law of Scotland. But even if it were a valid form of lease, the question whether it fell with any particular statutory regime would depend on the relevant legislation. For example, it may be that under the Housing (Scotland) Acts a party may be deemed to be a tenant even if he holds under a form of tenure that is not a lease at all.87 That however does not advance the argument.

On the assumption that a contract of the kind considered in the Clydesdale Bank case were to constitute a personal lease, such a lease would not necessarily come within the special definition of “lease” in section 85(1) of the Agricultural Holdings (Scotland) Act 1991.88 Ex hypothesi a personal lease is good only against the lessor. It cannot therefore fit into the scheme of the 1991 Act where every lease to which the Act applies is subject to a statutory form of annual relocation89 after the expiry of the contractual term and is good against any subsequent landlord of the holding. Moreover, the wideness of the definition of “landlord” in section 85(1) of the 1991 Act is such that the landlord may be a person who is not vested in the ownership of the land. The definitions of landlord and tenant in section 85(1) apply, of course, only for the purposes of the 1991 Act.

In any event, the results of the alternative theory would be incongruous. If a pro indiviso proprietor were to acquire a purported personal lease of agricultural land granted by his co-proprietors, his co-proprietors would not qualify as the “landlord” in terms of section 85(1) of the 1991 Act because under that definition all persons having a share in the title to the land constitute the landlord. Even if it were possible for the lease to be granted by the co-proprietors including himself, the lease would be unworkable. By reason of the rights of every individual pro indiviso proprietor that are inherent in his ownership, and by reason of the principle of unanimity to which I have referred, the appellant – on that hypothesis – could prevent inter alia the service upon him of any notice to quit under section 21 of the 1991 Act, any notice for a review of rent under section 13, any demand to remedy fixed equipment under section 22 and any application for a certificate of bad husbandry under section 28. That would be an unreasonable result.

One other aspect of the case for the alternative view is the suggestion that in the Clydesdale Bank case the House of Lords failed adequately to consider what constitutes one of the cardinal elements of a lease, namely a rent. The suggestion is that their Lordships took too narrow a view of rent as being a payment of money, there being wide definitions of rent given by the writers which comprehend a non-pecuniary consideration. This again seems not to advance the argument. No-one would dispute that the cardinal element of rent covers payment in money’s worth; but the judges of the House of Lords were dealing with a contract which, whatever its substance or validity, purported to provide for payment of a money rent.

(2) The pro indiviso proprietor issue

The discussion as to the nature of the tenant’s interest in a lease may in the event be futile if the contract in the Clydesdale Bank case was invalid on other grounds. To succeed in the alternative theory its proponents must still establish that a personal lease created by several pro indiviso proprietors in favour of one of their number is a valid contract. In my view, if the personal lease known to the Scottish common law had survived to the present day, the arrangement between the pro indiviso proprietors in the Clydesdale Bank case could not have been such a contract, for the good and sufficient reason that it is not possible for a party to be both creditor and debtor in a contract. The logic of this principle is recognised as a general principle of the law of contract.90 In the specific case of leases the principle is established by a powerful tract of authority in cases such as Price v Watson91 and Kildrummy (Jersey) Limited v IRC.92 These authorities were reviewed and affirmed by the House of Lords in the Clydesdale Bank case.

Although the principle can be securely rested on logic, it is also justified by a consideration of the consequence identified in Price v Watson,93 namely that the so-called tenant, as a pro indiviso proprietor, has rights of ownership over every inch of the subjects of let and would therefore be secure against eviction.94

In this discussion I am considering only the case where pro indiviso proprietors grant a purported lease to one of their number. In the Clydesdale Bank case, in both the Inner House and the House of Lords, the court was referred to the Outer House decision in Pinkerton v Pinkerton.95 That was an example of the converse case where an individual granted a lease to four joint tenants of whom he was one. Neither court found it necessary to consider the validity of such a contract. In my view, it is irrelevant to the present discussion; but it may be that the judgment of Lord Mackay of Clashfern in that case is not the last word on that subject.

Bury and Bain seek support for their argument in a statement of Lord Johnston in Higgins v Assessor for Lanarkshire,96 a case where the pro indiviso proprietors let the subjects to one of their number, namely:97

That [the tenant] could be ejected by his co-proprietors I have no doubt. Qua tenant, he could not avail himself of his rights as co-proprietor pro indiviso to resist removal at the instance of his co-proprietors … that fact does not enable him to maintain himself in possession qua tenant till he is removed with his own consent.

Higgins v Assessor for Lanarkshire was a case about valuation for rating. The question was whether the rent passing under the lease was a true indicator of the annual value of the subjects on the statutory valuation hypothesis. For the answer to that question, it did not matter whether the lease was valid or not. The issue of the validity of the lease was not raised by either party to the appeal and none of the judges considered it. Lord Johnston’s statement, which was plainly an obiter dictum, simply assumed the validity of the lease. That dictum was referred to in the Clydesdale Bank case both in the Inner House and in the House of Lords. Neither court considered it to have any persuasive value.

All of these points are raised to support the general contention that the House of Lords while ruling out the validity of the contract as a lease by pro indiviso proprietors to one of their number, nevertheless upheld the validity of it as an occupation and management contract and, by extension, a personal lease. This is the key element in the alternative theory; but it may be a step too far.

The House of Lords authoritatively confirmed the now uncontroversial point that the pro indiviso proprietors of land are entitled to agree among themselves that one of their number will have sole occupancy of the land and to agree on the terms and conditions on which he will occupy it. Such terms and conditions could include, for example, the payment by the occupying proprietor to the others of a sum reflecting their share of the rents that would have been received if the land had been let to a third party; or the payment of a sum representing a proportion of the net profits of the occupier’s farming enterprise; and the payment by them to the occupier, at the termination of the contract, of their share of the value of the occupier’s improvements.

In this way, the contract could achieve a similar result to that which would have applied if the land had been let to a third party. However, in such a contract, the parties would be, on one side, the occupier and, on the other side, the other pro indiviso proprietors. The contract in this case was between different parties, namely, on one side, all of the pro indiviso proprietors and, on the other, one of the three qua individual. The judges of the House of Lords regarded the purported lease document as being in itself a valid contract by which the pro indiviso proprietors regulated the occupation and management of the land. Those statements were plainly obiter. In my view, they are unsound. Since the contract was between all three proprietors and one of their number, it failed as a contract for occupation and management on the same logic on which it failed as a lease.

This objection could be dismissed as raising a mere matter of form. But the objection goes beyond that. The contract bore to be, and was intended to be, a lease. I cannot understand how, as the judges of the House of Lords seem to have implied, it fell to be read as being what it did not bear to be, and was not intended to be; namely, a contract between all three pro indiviso proprietors contracting as such inter se. It would seem to be an extraordinary interpretation of the purported lease that the parties to it, having reached consensus on the creation of a lease over the subjects, however mistakenly, should be held to have had the common intention of creating a contract of an entirely different kind.

Furthermore, if the purported lease could have been so regarded, I cannot see how intelligible terms could have been read into it. The contract was intended to make the appellant tenant of the land, and as such vested in the rights conferred by the contract and subject to the duties that it imposed; but subject also to the provisions of the 1991 Act and related statutes such as the Succession (Scotland) Act 1964. I fail to see how the contract could be read as having entirely different consequences for the appellant qua owner in occupation. On that view, therefore, I conclude that the appellant in the Clydesdale Bank case acquired neither a right in rem to occupy the land qua tenant, nor a right in personam to the exclusive occupation of it qua proprietor.

---