When a landlord, after granting a tenancy of his land, sells part of his land subject to a tenancy to a third party, this third party becomes, in relation to the transferred land, a landlord of the tenant under one tenancy.
Under that single tenancy, the This is known as a “split reversion”. As a result of the transfer, the tenant will find himself with two landlords, each with an entitlement to the reversion of part of the holding.
Split reversions are relatively common, particularly in relation to farmland that is subject to agricultural tenancies.
The ability to review and increase the rent is an important right that all landlords will want to retain. Unfortunately, implementing a rent review of a tenancy that is subject to a split reversion is not entirely straight forward.
Consider the following circumstances:
Simon has an Agricultural Holdings Act 1986 (“AHA”) tenancy of 300 acres of farmland known as “Hill Farm” on the outskirts of a village in Hertfordshire. Simon’s tenancy is recorded in a very simple written document.
Derek was the original landlord holds the reversion of 200 acres of Hill Farm; the Church holds the reversion of the remaining 100 acres of Hill Farm.
Derek has a long term ambition to recover possession and develop his 200 acres of Hill Farm. The Church objective is to recover the best rent possible from Simon.
The Church would like to increase Simon’s rent of Hill Farm. The Church is aware that Derek wants to keep the rent low to minimise any future compensation due to Simon.
The Church requires advice on their ability to increase Simon’s rent of the 100 acres.
A split reversion does not in any way sever the tenancy itself. The tenancy continues under its existing terms, although the landlords retain the right to claim rent and to enforce covenants affecting their part of the reversion.
Enforcement of covenants
Prior to the Law of Property Act 1925 (“the 1925 Act”), landlords of a severed reversion had to act in unison, when enforcing the terms of a tenancy. This created logistical difficulties since it was common for the landlords of a severed reversion to have competing and often conflicting interests. Section 140 of the 1925 Act resolved this by allowing each landlord of a severed reversion the right to forfeit and to serve a notice to quit in respect of their part of the demise, without the agreement of the other landlord(s). However, the effect of section 140 only goes so far in enabling a landlord to forfeit a tenancy for breach of covenant.
The case of Stiles v Farrow concerned a farm subject to a split reversion. The tenant of the farm had been served by each of his landlords with a separate notice requesting a rent review and an arbitrator had been appointed. The arbitrator sought guidance from the Court on whether the notices served separately by the landlords were valid and effective and whether the arbitrator had jurisdiction to determine the rent of the whole or for each reversion separately. The central issue was whether a rent review notice could be served by a landlord of part of a holding let under a tenancy.
Despite the landlords’ arguments to the contrary, the Court could not ignore the practical difficulties a tenant would face if the rent of parts of the demise was reviewed independently. The Court considered the example of a farm made up on the one part of farm buildings and arable land, and the other comprising mainly of pasture. The Court agreed the rent of the farm buildings and arable land would be greater than the pasture land, and would therefore make a review of the original rent very difficult, if not impossible. The Court held the view that, if the rent of each part was independently reviewed, the tenant would inevitably suffer an injustice.
The Court in Stiles v Farrow reached the view that the farm comprised of one tenancy of one agricultural holding. It was not possible for the two notices to be treated as anything other than two separate notices which, for the purpose of the AHA, were invalid. The Court held that a valid rent review notice could only be given by all landlords with a reversionary interest.
There have been very few cases before the Courts which have considered the issues in Stiles v Farrow and the decision, whilst not ground breaking, is considered by many as good law.
Returning to the case study, the church should be advised that, without the cooperation of Derek, the church cannot serve a valid rent review notice and increase Simon’s rent. It may need to be explained to Derek that, sooner or later, Derek may require the church’s cooperation to enable Derek to realise the full development value of Hill Farm. The parties should be encouraged to work together on issues of management arising from Simon’s tenancy.