Update: agriculture

Cases on agricultural tenancies have been infrequent in recent years, and those creating real excitement in the agricultural sector have been very few indeed.

The High Court decision of 18 December 2008 by Mr Justice Lewison in Mason v Boscawen [2008] EWHC 3100 (Ch) is, however, just such a case. Lewison J's conclusion was that 'rent' payable under a tenancy regulated by the Agricultural Holdings Act 1986 included any VAT element so that the notice to pay, referring to the inclusive amount, and resulting notice to quit were valid. This must have been a great disappointment to the tenant who will, presumably, lose his tenancy. The wider agricultural community, however, is also extremely concerned about the other apparent result of this decision, namely that a landlord's election to waive the VAT exemption or any variation in the rate of VAT chargeable will trigger a freeze on the review of the rents for 1986 Act tenancies.

The law of unintended consequences

The landlord in the case had waived the VAT exemption in relation to the holding and had been adding the tax to the rent demanded. When the tenant failed to pay an instalment of rent, the landlord gave the tenant a notice to pay under Case D of sched.3 of the 1986 Act. A tenant who fails to pay the rent within two months after receiving such a notice may then be given a notice to quit, which he will be unable to contest. The tenant did not comply with the notice to pay and the landlord gave him notice to quit. In an attempt to avoid losing his tenancy, the tenant argued that the notice to pay was invalid because the amount required to be paid was not just 'rent' but also included VAT which was not part of the rent.

The judge had to decide whether 'rent' for the purposes of the notice to pay provisions could include the VAT element payable. In concluding that it did, he accepted the landlord's arguments including that:

• 'rent' carried its modern meaning of 'being the total amount of the consideration payable by the tenant in return for the right to possess the land';
• there is no independent right to recover the VAT other than as part of the rent;
• under the VAT legislation, the starting point is that any agreed amount is deemed inclusive of VAT and that, if VAT later becomes chargeable or the VAT rate changes, the payment for the property also increases.

Doubt over this question has previously led practitioners to give two notices to pay to ensure validity, one including VAT, the other not. One result of Mason v Boscawen, if the decision stands, is the removal of the need for that practice.

Another result of the decision however was, as the judge put it, 'unintended'. The tenant's principal argument was that, if the 'rent' included VAT, it could be increased or decreased either unilaterally by the landlord waiving the exemption, thus adding VAT to the amount previously agreed, or independently by the government altering the rate of VAT, whether up or down. Under s.12 and sched.2 of the 1986 Act, the parties to a tenancy are only able to review the rent every three years. Therefore changes in the 'rent' brought about through VAT would be an 'increase or reduction of rent (whether made under [section 12] or otherwise)' and this would postpone the ability to review the rent for three years following such a change. Given the recent VAT reduction from 17.5 per cent to 15 per cent and the government's prediction of an increase again in 2010, it was pointed out that, depending on when they were last fixed, some agricultural rents might even be frozen for up to eight years.

The judge considered that, although these consequences were unsatisfactory, that was not a reason for changing his conclusion but was a matter for legislation. It is understood that relevant government departments and interest groups are in consultation over this.

More environmental regulation

An area where there is increasing legislation is environmental regulation. This continues to ratchet up, both in the direction from which liability can come and the consequences of breach. This is as true for the agriculture sector as any other and there are two recent initiatives, and one incoming, which will impact here.

Regulatory Enforcement and Sanctions Act 2008

The Regulatory Enforcement and Sanctions Act 2008, which came into force on 1 October 2008 in England and Wales, gives ministers the power to grant regulators, including local authorities, the Environment Agency and the Health & Safety Executive, the right to use a new suite of civil sanctions to deal with cases of regulatory non-compliance.

This will cover a wide range of fields, including pollution control and health & safety. As yet, ministers have not granted this power to any regulator, but it is unlikely to be long before they do.

The initiative is part of the government's 'better regulation agenda' and is aimed at streamlining regulation and reducing the burden on businesses. The idea is that, rather than prosecuting for relatively trivial environmental breaches (remembering that most breaches of environmental liability are strict liability and have few, if any, statutory defences), regulators will have the power to impose fixed and discretionary monetary and other penalties, as well as being able to accept enforcement undertakings from businesses in breach. An offence still has to have been committed, and there will be rights of appeal, but the range of sanctions will be much wider than at present and breach will not necessarily result in a trip to court.

Given that trivial breaches tend not to be prosecuted in any event, it is unclear whether new powers will simply mean that regulators punish more offences, rather than 'letting them go'. Watch this space.

Climate Change Act 2008

The Climate Change Act 2008, which received Royal Assent on 26 November 2008, is a momentous piece of environmental legislation. One of its immediate effects is that, as from 26 January 2009, the maximum fine that magistrates are able to hand down for each breach of an environmental permit increases from £20,000 to £50,000.

Those in the agricultural sector are increasingly having to obtain and comply with environmental permits. Permits are required, for example, when certain waste activities are undertaken and where there is intensive breeding of poultry and pigs beyond certain limits.

Again, it remains to be seen how magistrates react to this increase in their maximum fining powers, but the clear impression is 'ever upward'.

Environmental Liability Directive

Finally, the Environmental Liability Directive was due to be transposed into law in England and Wales in December last year, but DEFRA is yet to confirm when, exactly, we are likely to see this legislation.

The directive aims to make the 'polluter pay' but emphasis is on not historic, but rather current and future environmental damage, primarily caused by those carrying out activities that are already regulated under European law (for example, activities that need an environmental permit).

However, where SSSIs, Special Protection Areas and Special Areas of Conservation are significantly damaged and where that damage can be proved to have occurred intentionally or negligently, the person responsible can be required to clean up. When transposed, this directive could well have an impact on the agricultural sector. It is worth keeping an eye on the progress of this legislation in the coming months.

Bypassing a highway?

Landowners might be interested in protection of another kind and take some comfort from an 'on-paper' process which allows them to prevent their land being inadvertently dedicated as a highway.

Landowners have long been faced with the problem of new highways being created through dint of 'long user' '” public use without permission for a period of 20 years or more '” and considerable resources are often spent in trying to prevent this from happening.

Typically, landowners erect signs under the Highways Act 1980 or close off access ways for one day every year by way of evidencing that use by the public for the remainder of the year is permissive. The difficulty with highways is their persistence; the oft-quoted maxim, 'once a highway, always a highway', means that if a highway can be proved through 'long user', it is very hard to then get rid of it.

Section 31(6) of the Highways Act 1980 allows landowners to make their intentions clear by first depositing with the county council a statement and map evidencing the public rights of way that already exist over their land and subsequently confirming (by way of statutory declaration) that they do not intend to dedicate any rights over that land. While not ridding the land of existing highways, it will act to prevent the creation of any new ones. The process is a relatively straightforward one and all the protection that the landowner needs is given through lodging a repeat statutory declaration every ten years; no need for signs or gates. It is perhaps unsurprising, therefore, that landowning and farming associations actively promote this procedure.

Since 1 October 2007, local authorities must keep a register of all the s.31(6) deposits made, and to make it available for inspection by the public free of charge and at all reasonable hours.

• The landowner needs to obtain a map of the entire area of land which he seeks to protect, at the largest practicable scale (and, in any event, not less than 1:10,560). The precise routes and nature of all existing and admitted public rights of way (footpaths, bridleways etc) should be marked on this plan. It is prudent prior to preparation of the plan to conduct a formal highways search for the land in question and to consider carefully any deeds held (and other relevant documents such as inclosure awards) as well as the actual position on the ground.
• A statement should then be drawn up referring to the plan and confirming the public rights of way shown on it. Draft statements are available on several county council websites. The statement and plan are then deposited with the local county council.
• The statement should be followed by a statutory declaration given by or on behalf of the landowner, confirming that the landowner has no intention of dedicating any additional public rights of way over the land identified in the plan. Again, pro forma declarations are available on several county council websites.

It is, obviously, crucial that the landowner remembers to update the statutory declaration every ten years in order to continue the protection offered by the legislation.