Judgement in the case of The Crown Estate Commissioners v Wakley and Wakley found the Crown 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 to comment 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.
- 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.
- “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.
- What can go wrong
We have experience of many over-enthusiastic tenants, 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”.
- 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 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”.
- 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 quoted by Judge Blunt in his judgement: “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 Landlord was aware of the Wakleys’ vulnerability and 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.
- 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.
The Crown has appealed on parts of the Judgement which is now due to be heard in Spring 2018. A fuller account of the lessons to learn for tenants can be found here.
Download/view the article here.