Clydesdale Bank Plc v. Davidson and Others (Scotland)

The House of Lords held that a "Minute of Lease" executed by three pro indiviso co-proprietors in favour of one of their number did not create a lease capable of conferring on that individual a separate real right of tenancy protected by the Agricultural Holdings (Scotland) Act 1991. The court distinguished contractual arrangements between co-proprietors (which can regulate their mutual rights) from the creation of a real right in rem: the right of a co-proprietor to possession derives from ownership pro indiviso and, by the principle of confusio, a lesser real right of tenancy cannot exist separately from that ownership. The Minute created only personal contractual obligations (and a compensatory payment rather than rent) and therefore did not prevent the heritable creditor from enforcing its standard security.

The appellant, Alexander George Davidson, and his parents were pro indiviso proprietors of certain farms. On 11 January 1977 they executed a document described as a Minute of Lease, by which the parents and son purported to let the lands to the son for three years at a stated rent. The parents and son later granted standard securities to Clydesdale Bank. When the appellant defaulted and his estate was sequestrated, the bank sought declarators of its right to enter into possession and orders for removal. The appellant relied on the Minute of Lease and claimed protection as an agricultural tenant under the Agricultural Holdings (Scotland) Act 1991.

The courts below (Sheriff, Sheriff Principal and a majority of the Second Division) held the purported lease to be a nullity. The appellant appealed to the House of Lords.

The key legal issue was whether co-proprietors holding land pro indiviso can create a valid lease in favour of one of their number that confers a separate real right of tenancy enforceable against third parties (in particular a heritable creditor). The House of Lords examined both contract law and property law. It accepted that co-proprietors may enter contractual arrangements among themselves permitting one to occupy exclusively and that such a contract may create enforceable personal obligations. However, the court concluded that, as a matter of property law, a co-proprietor cannot acquire a separate real right of tenancy in the same subjects while retaining his ownership pro indiviso: confusio causes any lesser real right to be absorbed into the greater right of ownership. The Minute therefore created only personal rights and compensatory payments, not a real right of tenancy. The House of Lords refused leave to entertain a new argument (not pleaded below) about the effect of sequestration and absence of rent payments. Appeal dismissed.

Appeal dismissed. The House of Lords concluded that the Minute of Lease between co-proprietors in favour of one of their number did not create a real right of tenancy under the Agricultural Holdings (Scotland) Act 1991 but merely contractual personal rights; a co-proprietor's existing real right of ownership pro indiviso cannot be converted into a separate real right of tenancy capable of subsisting against third parties.

The Bank raised actions in the Sheriff Court craving declarators of its right to enter into possession and for removal; the Sheriff and the Sheriff Principal heard the matters and the Second Division (majority) held the purported lease to be a nullity. The appellant then appealed to the House of Lords ([1997] UKHL 55).