Appeals to the Court of Session by the Trustees of the Eighth Earl Cadogan's 1961 Settlement Trust against Neil Butler and Linsey Butler (Court of Session)

Factual and Procedural Background

The Defendant parties are joint tenants of an agricultural holding known as Stewart Tower Farm, located in The City, Perthshire. The landlords, identified as the Trustees of Company A's 1961 Settlement Trust, sought to exercise a power of resumption under the lease to recover possession of two of four cottages on the holding for sale or letting. The tenants challenged this by applying to the Scottish Land Court for a declaration that the landlords had no right to resume possession of these cottages. Additionally, the tenants served a contested improvements notice seeking approval to construct two new agricultural buildings: a cattle shed and a covered walkway, at an estimated cost of approximately £200,000. The landlords objected to these improvements, arguing that they were inconsistent with the type of farming specified in the lease.

Following evidence, submissions, and a site inspection, the Land Court declared the resumption notice contrary to the good faith of the lease and approved the improvements notice only for the new cattle shed. The landlords appealed both decisions to the Court of Session, and the appeals were heard together.

Legal Issues Presented

1. Whether the landlords validly exercised their power of resumption under the lease to recover possession of two cottages forming part of the holding.
2. Whether the improvements notice served by the tenants for the construction of two agricultural buildings should be approved, particularly considering the type of farming permitted under the lease.

Arguments of the Parties

Appellants' Arguments

• The holding was not let as a dairy farm, and the rent was assessed accordingly; thus, the lease was restricted to arable and livestock farming.
• The cottages’ materiality should be judged by reference to the farming type specified in the lease, making the dairy operation irrelevant.
• The tenants’ use of cottages for dairy purposes was not contemplated under the lease, and retaining cottages for such use without paying rent was improper.
• The 1951 modernisation requirement for cottages had no bearing on the parties' understanding after 70 years.
• Evidence showed that since 1998, at least two cottages had been sublet, indicating their redundancy and lack of materiality to the holding.
• Resumption of the cottages would not prevent the tenants from maintaining a viable business; thus, objections based on business impact were insufficient.
• Regarding improvements, the landlords contended that their statutory repairing obligations under section 5 of the 1991 Act meant the tenants’ need for a new cattle shed was due to landlord neglect, and the new shed was not necessary for the farming purposes specified in the lease.

Appellees' Arguments

• Although not let as a dairy farm, the lease contemplated the tenants’ ability to convert and use the holding for dairying at their own expense, with no landlord obligations for compensation or removal of dairy-related improvements.
• The cottages could be occupied by dairy workers, and the modernisation requirement indicated the importance of all four cottages to the holding.
• The materiality of the cottages should be assessed as of the lease date, not by recent use or rent paid.
• The Land Court applied the correct test regarding the impact of resumption on the holding and reached a decision open to it.
• The legal test for approval of improvements is whether they are reasonable and desirable on agricultural grounds for efficient management of the holding.
• The tenants argued the new cattle shed was necessary for the non-dairy specific needs of a mixed arable and livestock farm and that the landlords failed to provide evidence of a properly repaired or replaced building as an alternative.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming the common law principles governing a landlord’s contractual right to resume part of the leased subjects, noting that statutory notice to quit provisions do not apply. The primary inquiry was whether the proposed resumption of two cottages fell within the scope of the resumption clause and was reasonably within the contemplation of the parties at the lease’s inception.

Applying the test from established case law, the court examined the lease as a whole, including the clauses permitting dairying at the tenant’s expense and limiting landlord obligations. It found that although the lease was not let as a dairy farm, dairying was expressly contemplated, and the cottages were materially necessary for the tenant’s mixed farming operation, including the dairy element. The court rejected the landlords’ argument that the cottages were not material due to rent assessment and subletting, emphasizing the parties’ original intention at the lease date.

Regarding the improvements notice, the court distinguished between the two buildings. The covered walkway was purely dairy-related and thus not approved, as approval would confer compensation rights contrary to the lease terms. The new cattle shed was approved because it was objectively reasonable and desirable for efficient management of the holding, addressing defects in the existing structure and serving non-dairy agricultural purposes as well.

The court also addressed the landlords’ contention that the tenants should rely on the landlords’ statutory repairing duties under section 5 of the 1991 Act. It held that these duties relate to fixed equipment and do not preclude tenant improvements or the court’s approval thereof. The absence of a landlord proposal to repair or replace the cattle shed further supported the approval of the new shed.

Throughout, the court recognized the expertise and fact-finding role of the Land Court, deferring to its findings absent error of law, which it found none.

Holding and Implications

The court REFUSED BOTH APPEALS and confirmed the Land Court’s determinations.

The direct effect is that the landlords cannot resume possession of two of the four cottages as sought, and the tenants’ improvements notice is approved only in respect of the new cattle shed, not the covered walkway. No broader precedent was established beyond affirming the application of established principles on resumption rights and improvements approval under agricultural leases.