Analysis
The parties, who were brothers, held two periodic tenancies as joint tenants: an agricultural tenancy and a commercial tenancy of land at Fir Tree Farm protected respectively under the Agricultural Holdings Act 1986 and the Landlord and Tenant Act 1954. The appellant and a company of which he and his wife were sole directors and shareholders, F N Pile and Sons Ltd, entered into an agreement with the landlord (the agreement) under which he would serve a notice to quit the agricultural tenancy, the landlord would serve a notice to terminate the commercial tenancy in respect of which he agreed not to serve a counter-notice, and the landlord would grant the company new tenancies of the agricultural land and commercial land on expiry of the respective notices.
The respondent brought a claim that the entry by his brother into the agreement constituted a breach of trust in that he sought to profit at his brother’s expense by obtaining a new lease of the agricultural and commercial land. He also contended that his brother had placed himself in a position of conflict of interest between himself and his duties as trustee, that he had sought to profit from his trusteeship and that he had breached the rule in Keech v Sandford [1796]. The particulars of claim did not identify any basis for the trust relationship other than the fact of co-ownership of the tenancies.
The judge concluded that there was a serious issue to be tried as to whether the appellant would be acting in breach of trust if he unilaterally entered into an agreement with the landlord, and granted an injunction. He held that, while the appellant was free to serve a notice to quit in respect of the agricultural tenancy and free to agree not to service a counter-notice in respect of the commercial tenancy, he was using the extinguishment of the periodic tenancies, in respect of which he owed duties as trustee to his brother, as the consideration for obtaining a personal benefit to the detriment of the trust. Further, given the rule in Keech, it would be strange if he were not taken to be acting in breach of trust by deliberately obtaining a personal benefit for himself. Distinguishing obiter comments by Lord Browne-Wilkinson in Hammersmith and Fulham LBC v Monk [1991] (who had expressed doubt about whether the service of a notice by a council flat tenant might constitute a breach of trust), the judge concluded that the appellant’s efforts to negotiate away trust assets in order to obtain a personal benefit for himself was a breach of trust.
The appellant appealed on two grounds: first, that Monk provided binding authority to the effect that one of two or more joint tenants of a periodic tenancy that served a notice to quit would not be acting in breach of trust if they did so in return for a personal benefit and, second, that there was no authority on that issue, and the position was uncertain so that it was appropriate to grant permission to appeal.
Held (allowing the appeal):
The recent decision in Procter v Procter [2022] was authority for the proposition that a notice given by one of two or more joint tenants of a periodic tenancy was effective to terminate that tenancy:
- First, whereas in general co-owners of a tenancy must act unanimously in order to carry out an effective positive act in relation to the tenancy, in the case of a periodic tenancy the estate only continues so long as it remains the will of both parties that it should so continue and, therefore, a notice given by one of them was effective to terminate the tenancy.
- Second, the fact that joint tenants of a periodic tenancy were, by reason of their co-ownership of the tenancy at law, trustees for sale under the Law of Property Act 1925 (LPA 1925) did not alter the position; the service of a notice to quit was not the exercise of a statutory or other power vested in trustees for sale and, therefore, it was not a breach of trust for a co-owner of a periodic tenancy to fail to consult the beneficiaries before serving a notice to quit.
- Third, the same was true where the only basis for the trust relationship was a trust of land in cases of co-ownership under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA), it having been held that the service of a notice to quit by one joint tenant of a periodic tenancy was not the exercise of a function of a trustee and, therefore, it was not a breach of trust for a co-owner of a periodic tenancy to fail to consult the other co-owner.
- Fourth, while there were circumstances in which a joint tenant of a periodic tenancy might owe trust duties which would preclude them from serving a notice to quit, that depended on the existence of factors (such an agreement between the tenants that the property would be used for a particular purpose, or that the property is held on trust for a partnership) that gave rise to trust duties going beyond those of the bare trust under LPA 1925 or TOLATA.
The rule in Keech could have no application as it depended on the existence of a trust obligation, an obligation to take a renewal for the benefit of the other co-owners of the property falling outside the scope of the trust imposed by LPA 1925 or TOLATA. It followed, therefore, that in a case where a party was a trustee only by reason of their co-ownership with another joint tenant under a periodic tenancy, being merely a bare trust for sale or trust of land, then the trustee is neither precluded from serving a notice to quit on the landlord nor precluded from doing so for the purpose of acquiring a new lease of the property for themselves. This was not a case where the trust contained fiduciary obligations beyond those of a bare trust for sale or trust of land and neither on the pleadings nor on the evidence was there a basis for the imposition of additional duties that precluded the trustee from serving a notice to quit, whether or not that was done for the purpose of acquiring a new lease of the agricultural land and/or commercial land.
As regards the first ground of appeal, Monk was not a binding authority for the proposition that one of two or more joint tenants would not be acting in breach of trust in serving a notice to quit even if done to obtain a personal benefit. However, as regards the second ground of appeal, while there is no authority directly in point, existing authority that included Procter compelled the conclusion that in the case of a bare trust for sale or trust of land, one of two or more joint tenants would not be acting in breach of trust in serving a notice to quit, even if done to obtain a personal benefit. Accordingly, the order of the judge should be set aside and replaced with an order dismissing the application for an injunction.
JUDGMENT ZACAROLI J: [1] This appeal raises the question whether one of two brothers, being joint tenants of a periodic tenancy, can be restrained from serving a notice to quit, in order to acquire a new lease for himself, on the basis that to do so would constitute a breach of trust (as between the …Continue reading "Pile v Pile [2022] WTLR 1445"