Clydesdale Bank Plc v. Davidson and Others (Scotland)

Co-proprietors may make a binding contract giving one of their number exclusive occupation of their common property. Such an arrangement does not, however, create a lease or a real right of tenancy. The occupying co-proprietor already has a real right of possession over the whole property. Any purported lesser right of tenancy is absorbed into that right of ownership.

The arrangement cannot have the defining consequences of a lease. Its termination cannot end the occupier’s right to possess, and the other co-proprietors cannot remove him while his ownership continues. Their remedy is division and sale. A payment for their surrender of shared occupation is compensation, rather than rent. The occupier therefore acquires no statutory security of tenure as an agricultural tenant.

The appellant and his parents owned agricultural land as pro indiviso proprietors. They executed a deed described as a Minute of Lease, under which all three purported to let the land to the appellant. They later granted standard securities over the land to Clydesdale Bank plc.

After default, the Bank served calling-up notices and raised two actions seeking declarators of its right to possession and orders for removal. The appellant maintained that the Minute of Lease made him an agricultural tenant protected by the Agricultural Holdings (Scotland) Act 1991. The Sheriff, the Sheriff Principal and a majority of the Second Division held the purported lease to be a nullity.

The central question in the consolidated appeals was whether co-proprietors could grant a valid lease, carrying a real right of tenancy, to one of their own number.

1. The consolidated appeals were dismissed unanimously. Lord Clyde delivered the principal speech. Lord Goff and Lord Lloyd agreed with his reasons. Lord Jauncey agreed with the reasoning and conclusions of Lord Hope and Lord Clyde, and Lord Hope also agreed with Lord Clyde.

2. Per Lord Clyde and Lord Hope, co-proprietors may enter into a binding contract regulating the use and management of common property. They may agree that one of their number will enjoy exclusive occupation in return for payment. The arrangement is not invalid merely because the preferred occupier is also one of the contracting proprietors. Lord Jauncey likewise accepted that the Minute could confer personal rights between the co-proprietors.

3. Per Lord Clyde, the separate property-law question was decisive. Every pro indiviso proprietor has a real right extending over the whole common property. The appellant therefore needed no grant in order to occupy it. The other proprietors’ surrender of their own use merely removed a qualification upon his existing right; it did not create a separate right of tenancy.

4. Per Lord Hope, the principle of confusio prevented the purported real right of tenancy from co-existing with the appellant’s greater real right of ownership over the same property. The lesser right would be absorbed into the greater. The agreement consequently created only personal rights against the other co-proprietors and could not bind the Bank as heritable creditor.

5. Per Lord Clyde, Lord Hope and Lord Jauncey, the result was confirmed by considering the remedy upon termination or breach. A true landlord can remove a tenant and recover possession. The other co-proprietors could not remove the appellant altogether because his proprietary title independently entitled him to possession. Their appropriate remedy was an action of division and sale.

6. Per Lord Clyde, the stipulated payment was in substance compensation for the other proprietors’ surrender of shared use, rather than rent. The appellant obtained sole possession as an act of management and administration, but no valid lease or real right of tenancy. He could not therefore claim protection under the Agricultural Holdings (Scotland) Act 1991 against enforcement of the standard securities.

7. The House refused permission for the Bank to advance a new argument based upon sequestration, the trustee’s occupation and the absence of rent payments, because it had not been pleaded or argued below.

1. House of Lords: Dismissed both consolidated appeals unanimously and left standing the determination that the Minute of Lease created no valid lease or real right of agricultural tenancy.

2. Second Division of the Court of Session: By a majority, held the purported lease to be a nullity.

3. Sheriff Principal: Held the purported lease to be a nullity.

4. Sheriff Court: Held the purported lease to be a nullity in proceedings brought by the Bank for possession and removal.