Judgement in the case of The Crown Estate Commissioners v Wakley and Wakley was handed down on the 15th December 2016, where the Crown was found to be in breach of a Farm Business Tenancy and having misrepresented the condition of the farm to the incoming tenant. The Tenant was awarded £1.75 million in damages.
Mr and Mrs Wakley moved their business and family from Aberdeen to Somerset to take on a Crown Estate farm tenancy in 2007. On their initial viewing of the farm in June 2007, they were shown around Staple Park Farm, by a representative of The Crown Estate.
On viewing the Farm and in subsequently taking the decision to submit a tender at the rent they offered, Mr Wakley relied upon assurances given to him that the milking parlour (which had been mothballed during a void period) was ‘right up to date’, the slurry/dirty water storage and disposal system was ‘right up to date’, that the farm had a plentiful and reliable freshwater supply and effective distribution system, and that the silage to be purchased as part of the incoming valuation was ‘very good’.
Mr and Mrs Wakley moved to the farm at Michaelmas in 2007 along with their herd of Holstein Friesians and their three children. Their occupation at this stage could be characterised as either an agreement for lease or a tenancy at will pending finalisation of the terms of the tenancy.
Mr Wakley soon realised that the re-installed milking parlour was not in as good a condition as had been expected, and in particular the cow ID systems did not work properly.
Over the following four years, it also became clear that the natural freshwater supply was not reliable and of questionable quality, and that there were numerous leakage issues with the mains supply.
The farm was also prone to flooding in heavy rain, and being situated in a bowl, much of the surface water runoff from the surrounding fields ran onto the farm yard and into the slurry lagoon, dramatically increasing the amount of slurry.
The silage turned out to be of poor quality and contaminated with wire, the quality issues made it difficult and expensive to balance a TMR and the wire obviously caused problems with lesions to digestive tracts, increasing mortality.
If you google this case there are now a number of commentators sharing the lessons that can be learnt from what was a 285 page judgement. Following a fourteen-day hearing such a lengthy and detailed judgement has naturally aroused a lot of interest from those involved with agricultural tenancies.
Whilst other commentators have pointed out the lessons to learn for landlords, as the agents acting for the Tenant, the Wakleys, soon after they took up occupation, we perhaps are in a unique position for commenting on what lessons there are also to be learnt for tenants. We were involved in trying to sort out the issues that were created following the Wakleys taking up occupation of Staple Park Farm, and in the judgement Judge Blunt commented that our firm was “conscientious, determined and rigorous in the discharge of our [sic] duties to our [sic] clients”. When acting for tenants taking on long term farming tenancies, our approach generally is to take the same detailed and wide ranging approach one does when buying a farm.
1. Proof of title
The landlord’s title to any property needs to be established in a similar way as if buying a property. You want to be sure that the landlord you are dealing with is not representing other legal interests or is heavily mortgaged and therefore you know exactly whom you are “getting into bed with”. Obviously in this case this was not such a worrying issue.
2. A lack of written information can be as dangerous for a tenant as it is for a landlord
In this case a lot of time was spent questioning the representations made by the Landlord’s agents prior to the Wakleys taking occupation, many of them only oral. If a prospective tenant wants to rely on such representations these should be recorded in writing, and ideally the landlord’s agent should also confirm them in writing. However if not, tenants should make their own notes and send them to the Landlord. This perhaps is even more important where, as it was in this case, the lease, schedule of condition and other documentation had not been completed before taking up occupation. This case illustrates the type of problems caused if a tenant’s understandable elation on being granted a long term tenancy causes them to take their “eye off the ball” and have less in writing than they should before taking occupation. A common misconception also is that the less there is in writing, the more advantage a tenant has. This case illustrates the reverse, with the failure of notes being taken of a landlord’s representations leading to problems and a very awkward situation for both parties.
3. How is the condition of a farm dealt with?
Of course a new tenant of a long term tenancy will face different scenarios as to the condition of any farm. Traditionally and ideally the outgoing tenant would have spent their last twelve months addressing their repairing obligations, with the landlord doing the same, so the farm is available in a good condition. Therefore the same condition is needed when the farm is to be returned at the end of the new tenancy. The outgoing tenant may have a full repairing lease, or the repairing responsibilities may be split with the landlord, which under Agricultural Holding Act or FBT tenancies may refer to the “model clauses” or have their own formula. On taking occupation of the farm a dilapidation claim/schedule of condition is prepared, sometimes between the outgoing tenant’s agent and the incoming tenant’s agent, or by the landlord’s agent, where either further works are carried out or monies owing for dilapidations are passed to the incoming tenant, to put everything in good order, and then being responsible for returning it in the same condition at the end of the tenancy.
4. What can too often happen
In this case, the farm had been vacant for some months with the outgoing tenant having been long gone. The Landlord had not invested enough in putting the farm right, and hoped that the incoming tenant would do this for them. As the judgement illustrates, representations were made to the Wakleys as to what condition the farm was in, and as faults began to appear, illustrating that some of the representations were erroneous, in the main after the Tenant had taken occupation but before the Tenant had signed the lease, the Tenant was able to negotiate with the Landlord that they would address these. This is a common enough scenario but can leave a tenant exposed having not yet secured ongoing possession of the farm.
5. “Caveat emptor”
Ideally before committing to the tenancy, the incoming tenant needs to understand in depth how the farm functions and whether the infrastructure and services provided are in the condition expected or described by the landlord. This judgement confirmed a “caveat emptor” can be used, where a landlord can shift the responsibility onto the tenant to find out the condition of the farm. “Buyer beware”. Practically, for the landlord to achieve an effective caveat emptor, as always, it is best for this to be confirmed in writing and applied carefully throughout the process, and detailed, if necessary item by item, by the landlord’s agent, when asked.
6. What can go wrong
We have heard of many cases of the over-enthusiastic tenant, keen to secure a tenancy, taking the landlord’s word for the condition of the property, but subsequently having to go to considerable expense sorting out the “unseen” issues that later come to light. It was these unseen issues on the farm being let by the Crown that caused the most problems: Land having already been let to a third party overlapping with the start of the new tenancy; the land being contaminated with wire shed from deteriorating vehicle tyres scattered and hidden from sight throughout the farm; silage that had been made by a contractor from the previous season with similar lethal wire contamination which the Wakleys claimed killed a number of the milking herd; insufficient slurry storage which could not cope with flash floods and structurally was impossible to inspect without being empty, and having faults that leaked only a few yards from an adjoining stream; leaking and insufficient mains water supply (probably the most common headache for landlords and tenants). Other common problems can be no appropriately certified electrical systems, asbestos survey reports, health & safety reports or risk assessments etc. and tenants if accepting full repairing arrangements should consider commissioning their own structural survey especially of any older buildings. Perhaps the lesson here is that there is always more to the condition of a farm than immediately “meets the eye”.
7. A landlord’s approach to be wary of
In this case the Landlord wanted to see how far a prospective new tenant would go in taking on responsibility for the condition of the farm moving forward. However a tenant should always be wary where a landlord takes such an approach, as effectively the tenders being made, (assuming as with most farms they are put out to tender to let on a long term basis), would not be made with everyone knowing what basis their tenders are made on (i.e. if the condition of the farm was not transparent and known). In such a situation a tenant is asked to set out their conditions in their tender form and if there is a draft lease available, realistically the prospective tenant should have already had professional advice so they are able to set out terms they would not find acceptable or would need amending. However in some respects this defeats the most valuable objective of the tender exercise, as the tender is a process created whereby everyone is bidding for the same thing. The reason for this is the landlord can then make an informed decision comparing tenders for the “same thing”. Whilst each tenant may have some conditions, if a landlord has left too much to still be identified (“the unseen issues”) they may pick the highest tender and then can be sucked into a series of negotiations making adjustments as the “unseen issues” are identified. So a landlord may end up having accepted a tender that turns out to be worse than another tender might have been, and the tenant has to deal with the extra work, agent’s fees (negotiating with the landlord’s agent) and the knock-on effect to their business, not expected or accounted for in their tender.
8. False economy for the landlord not to prepare fully for a letting
It therefore can be a false economy not to prepare properly for the letting of a farm. Landlords might be loathed to go to this expense, but if dealing with a responsible, business-like and forward-looking tenant, it is work the landlord will have to carry out before the farm is let in any event. It is better, in our opinion, to go to this expense at the outset, to avoid the unnecessary delay and detailed negotiations otherwise required and also to be more likely to maintain a better ongoing landlord/tenant relationship.
9. “Transparency” is in everyone’s interest
The catchword for the process of letting a farm must be “transparency”. If entering into a long term arrangement, any other approach is always going to “come back and bite” the landlord, and also sour the relationship with the tenant. A draft lease should be available from the outset and the landlord should make clear whether, for instance, they are prepared to provide investment for new buildings or equipment on appropriate terms, and what those terms might be. And if the farm is not in good order, exactly what the landlord will be responsible for putting in good order and by when, and providing proof of the condition of the “unseen” items that the tenant will take on responsibility for. These can include surveys of drains, electrical certificates, asbestos reports, surveys/tests of water supplies, and surveys as to the condition of the infrastructure, buildings and other services. Effectively a similar approach can be taken when letting a farm as when selling a farm with a legal pack at tender or auction. Whilst the tenant may be advised to commission their own surveys if they wish, the landlord can at least be confident that the tenders received are from prospective tenants who have all had the same information, and there is also less opportunity for opening up negotiations in respect to these issues after a tender has been accepted. However good an opportunity renting a farm is, it is as much the type of relationship the landlord is offering that will determine the success of what in effect, after all, is a form of partnership, and how well things work out for the tenant.
10. Is there enough time?
Another lesson to learn from this case is timing; giving enough time prior to the expected start date of the tenancy for prospective tenants to have an opportunity to view and inspect the farm a number of times and prepare detailed tender applications with budgets, cash flow and financial statements; the landlord having the time and opportunity to inspect prospective tenants’ existing holdings, and to address any tender conditions or queries before a landlord accepts a tender subject to the signing of the draft lease. On the basis there is twelve months’ notice given by an existing tenant, a lease where possible should be signed many months in advance of the new tenant actually moving in.
11. Get it all agreed first
Therefore a tenant should be as keen as a landlord, if not more, to have everything agreed and signed up before moving his business and home.
12. Without a signed lease the landlord can gain the “upper hand”
The danger in a tenant committing before all the documentation is completed is that there is a running negotiation which then puts a tenant on the back foot if they have already moved in. The tenant does not want to do anything to “queer their pitch” with the landlord, as there will be a long term relationship to be taken into account. (A landlord sometimes can “dangle” the inducement of additional land and buildings to add to the holding already offered.) A tenant and indeed a landlord may be over optimistic as to how the other will behave but having moved onto the farm, if significant issues arise or have not already been sorted out contrary to the tenant’s understanding (maybe due to relying on oral representations) that effect the viability of the tenant’s business, then a totally different dynamic applies. The landlord ultimately can evict the tenant without a completed lease and therefore in the majority of cases has the upper hand. It is a misconception that once the tenant is in and has possession then they are “comfortably set”.
13. Application of the Unfair Contract Terms Act’s “reasonableness test” to “full and final settlement” clause – the most important lesson
- The most important lesson, however, that can be learnt from this case, perhaps, is how the tenant in this case, having signed up a lease, was able to unravel what one would have, on the face of it, expected to be a conclusion of matters between the parties when the lease was signed. Surely where a lease specifically includes compensation and agreed remedial action because of previous misrepresentations, this would prevent any further claims? Indeed the Wakleys received advice at the time that there would be “no going back” once they had signed the lease and a “full and final settlement” clause was inserted by the Landlord, albeit at the last minute.
- However at the same time the Wakleys were presented with a deadline of a matter of days, making clear that if the lease was not signed, the Landlord would be seeking to regain possession of the farm. This of course was after the Wakleys had already uprooted their family and business from Scotland to the new farm.
- The Wakleys’ “bargaining lever” was as summarised to them by Mr Townsend prior to the Landlord issuing the deadline: “As we have discussed, the strength of your position is merely political, and the fact that they have not served the notice and now cannot get you off the farm for two years. Clearly, politically it would not look good if they have caused you these problems and they then turn around and say the result of the financial implication of these problems is, we are not going to grant you a Tenancy Agreement. This would not play well to the ‘gallery of public scrutiny’”.
- The Landlord’s “full and final settlement” clause had to meet the “reasonableness test” under Section 11(1) of the Unfair Contract Terms Act 1977, which Section 3 of the Misrepresentation Act 1967 uses to determine whether such an exclusion of liability and remedy is lawful where a misrepresentation is involved. The Landlord’s strength of bargaining position relative to the Tenant was that much greater, taking into account the alternative means by which the Tenant’s requirements could have been met. In this case they could not have been met, as the Wakleys contended they had spent all their money in moving to the new farm and would lose their business and home if they could not stay on at the farm. The Judge found it was not fair nor reasonable for a “full and final settlement” clause to be demanded by the Landlord. The parties were not of equal bargaining power. The Crown’s resources to enable them to fund disputed issues and if necessary to engage in litigation, were also unequal. The Landlord would have been aware of the vulnerability of the Wakleys and the difficulties they would have in obtaining another farm on which to work and to live with their children. The Landlord was aware of the Wakleys’ cash-flow problems which the Judge found had been in part caused by the Landlord’s breach of covenants in respect to making right the condition of the farm they misrepresented before the Wakleys moved to the farm from Scotland.
14. The lesson for landlords or anyone in a more dominant negotiating position dealing with commercial negotiations is to be careful to differentiate between the ordinary “cut and thrust” of such commercial negotiations, and crossing the line of being unfair and unreasonable. A good understanding and a close eye needs to be kept on the Unfair Contract Terms Act 1977.
15. A cautionary note for tenants and a salutary warning for landlords, where tenants commit to a farm before the lease has been signed up.
16. Tenants – get your agent involved at the outset
Whilst tendering for a farm is an expensive process in time and money (with no guarantee of success), apart from impressing a landlord with an agent’s early, full and continuous instruction, it can avoid a lot of the type of problems the Wakleys experienced. Renting a farm is very different from farming one’s own farm. There is an extra “relationship” involved (with the landlord which is very different from a relationship with a mortgagor or the bank manager) and the need to record things in writing to avoid misunderstandings. This extra layer of paperwork is vital to the success of the business.
The Crown has appealed on parts of the Judgement which is now due to be heard in Spring 2018.