The case of Thomas v Turner (2022) received considerable coverage in the legal press, although in the author’s opinion, the outcome of the case was not a surprising one. The case concerned an agricultural tenancy governed by the provisions of The Agricultural Holding Act 1986 (AHA 86) . It was an oral tenancy and did not contain any prohibition on assignment. Shortly before the landlord served a Notice to Quit, the tenant (Mr Thomas) assigned his agricultural lease to a company owned and controlled by him, registered at his address. The Notice to Quit was therefore addressed to the former tenant.
The question for the court was whether the well-known Mannai test could be used to save this Notice to Quit. Although successful at first instance, the Landlord ultimately lost the case, the Court of Appeal (CoA) finding that addressing the notice to the wrong recipient amounted to a failure to fulfil a formal condition, which was an error that could not be saved by the principles established in Mannai. The decision of the CoA seems logical and is one in line with the principle of separate legal identity as regards companies and their shareholders/directors.
However, two questions are to be addressed generally: (1) why would a tenant in the position of Mr Thomas assign his oral agricultural tenancy to a company owned and controlled by him and (2) is there anything a landlord in this position can do to prevent such a disaster?
AHA 86 tenants have security of tenure although it is possible for a landlord to bring them to an end if certain grounds are satisfied. Such grounds include the death of the tenant. By assigning his interest to a company, Mr Thomas ensured that this particular ground could never be relied upon by the landlord, thus meaning his tenancy could continue in perpetuity unless the landlord was able to satisfy other grounds for termination (such as fault based grounds or redevelopment).
Landlords of oral AHA 86 tenancies are no doubt feeling uncomfortable following this ruling. Such a landlord can serve Notice on his tenant pursuant to section 6 of the AHA 86, requesting the tenant enter into a written agreement embodying any orally agreed terms between the parties, together with the matters included in Schedule 1 to the AHA 86. Effective service of a section 6 notice by a landlord bars assignment, sub-letting or parting with possession of the holding by the tenant without the landlord's consent from the date of service until the date on which an agreement is concluded in accordance with the section 6 request, or by award of an arbitrator appointed following notice.
Paragraph 9 of schedule 1 permits the inclusion within the new written tenancy of a covenant by the tenant not to assign, sub-let or part with possession of the holding or any part of it without the landlord's consent in writing.
So the key takeaways are, if you are a tenant with an oral AHA 86 tenancy, consider assigning it to a company. If you are a landlord, consider serving a s.6 notice.
