Farm and Land Tenancies
Approximately one-third of all agricultural land in England and Wales is covered by agricultural tenancies.
Tenancies allow people to farm without being landowners. As agricultural land is expensive, and the acreage now needed to make a viable operation is large, many people would be excluded from the farming occupation without the ability to rent farms and land.
Often, farmers can no longer rely on traditional purely agricultural activities to ensure profitability. Diversification is more often than not essential for many farms to secure sustainability and prosperity.
The Old & the New Tenancies
Older agricultural tenancy legislation placed severe restrictions on both landlords and tenants resulting over time in fewer tenancies being made available. Subsequent legislation and revisions have “leveled the playing field” and brought in a more balanced and commercially viable regime.
The provisions of much of the older agricultural tenancy legislation, plus fiscal and taxation rules, placed barriers in the way of tenant farmers; in particular when they sought to take advantage of opportunities for diversification and to participate in agricultural and environmental schemes.
Under the older Agricultural Holdings Act 1986 (AHA 1986) legislation, tenants have very strong security of tenure. They also have a right to two tenancy successions (a right to pass on the tenancy to future generations) if the tenancy was created before 12 July 1984.
In practice landlords find it very difficult if not impossible to regain speedy possession of an agricultural holding tenancy created prior to 1995. Landlords wishing to regain possession would often have only one solution: to try to persuade the tenant to be “bought out” of their tenancy.
The Farm Business Tenancies (FBT) format (Agricultural Tenancies Act 1995) is considerably more benign. This reflects the increasing need for flexibility with regard to security of tenure, possession procedures and rent levels, and the need for commercial diversification in farm businesses, whilst still keeping an agricultural tenancy.
This later FBT can be for a fixed length of time, or year to year, but, in either case, can be terminated by the landlord giving 24 to 12 months’ notice. This notice must end either on the last day of the term if a fixed term or on the anniversary of the commencement date if periodic – from year to year. If no notice is served at the end of a fixed term, the tenancy will continue from year to year, but can still be terminated as above. Also, unlike the earlier tenancies, no succession rights attached to them.
These later tenancies are clearly a vast improvement from the landlord’s viewpoint, and also to some extent for tenants as well, now allowing a degree of flexibility. This is a key part of the ability of agriculture in England and Wales to respond to the economic pressures which it now faces.
Up until 1995 the landlord and tenant system in the UK had been in decline throughout the twentieth century for reasons explained above and mainly to do with an inflexible legislative framework. This situation, similar to that posed by the Rent Acts in the residential sector, discouraged land owners from releasing new land for tenancies.
Prior to 1995, all agricultural tenancies were governed by legislation which had been consolidated in the Agricultural Holdings Act 1986 (AHA 1986).
From September 1995 onwards, however, the Agricultural Tenancies Act (ATA 1995) has meant that all new agricultural tenancies are Farm Business Tenancies (FBTs). These tenancies are far less restrictive on the landowner, and give a degree of flexibility which means the tenant no longer has the extensive security of tenure he had under the 1986 legislation and rents are no longer controlled at uneconomic levels. In addition to the changes to the tenancies the change accompanied by reform of the Inheritance Tax treatment of let farms.
End of the Decline
The result has been a reversal of the hemorrhaging from the sector as new land has come forward to be let.
The 1986 Act was so onerous that let land in the UK was declining by more than 50,000 acres per year. The Act was no longer working on several levels, and in particular a loophole in the law was found that enabled landlords to avoid security of tenure (Gladstone v Bower), and by 1994 more than 70% of new agricultural tenancies were avoiding the 1986 Act provisions.
Even so, most landlords were not making land available to let, instead they were often hiring contractors to farm for them, or entering into share farming or partnerships, rather than letting to the small businessman farmer.
In February 1991, the then MAFF (Ministry of Agriculture, Fisheries and Food), which is now the Department for
Environment, Food and Rural Affairs (DEFRA), published a consultation paper with the aim of deregulating, simplifying, and generally encouraging the letting of land.
The original proposals went quit far, these being no security of tenure, allowing the Common Law on Notice to Quit to apply, and there was to be almost complete freedom of contract. One example was the contractual provisions drawn up by the parties could completely override the statutory compensation payments due to tenants for improvements to the holding.
These initial proposals were watered down in response to demand by industry groups in detailed proposals published in September 1992. In December 1993, the Tenant Farmers Association, the National Farmers Union, the Country Landowners Association and some others issued a Joint Industry Statement setting out consensus reform proposals.
This joint statement went on to form the basis of the Agricultural Tenancies Act 1995 (ATA 1995), which receiving royal assent on 9 May 1995.
The Royal Institution of Chartered Surveyors (RICS) at the time predicted it would result in 1 million extra acres becoming available for farm tenancies. Although this prediction did not fully materialise, a substantial increase was seen and the 1995 Act appears to have resulted in land being let for shorter terms and a higher rents.
Since 1995 almost all new agricultural lettings have used the Farm Business Tenancy (FBT) format.
However, similar to the situation with residential tenancies under the Rent Acts, (known as regulated or Rent Act tenancies), those tenancies originally created under the Agricultural Holdings Act 1986 (AHA 1986) remain in force and unchanged by the subsequent legislation.
Since 1995 the Agricultural Tenancies Act has been amended by the Regulatory Reform Order 2006. This amendment has further streamlined, simplified and deregulated Farm Business Tenancies (FBT) to a modest degree.
The Main Changes
According to Williams et al. 2007, the Agricultural Tenancies Act 1995 (ATA 1995) brought in the following changes:
• Very little security of tenure for the tenant.
• No minimum tenancy term.
• The tenancy will remain a Farm Business Tenancy (FTB) if the tenant diversifies away from agriculture to a considerable extent. It will not become a Commercial Tenancy.
• Contractually agreed rent reviews, but otherwise every three years by statute.
• There is a provision for compulsory compensation for any tenant’s improvements.
• Tenants are able to remove their own fixtures almost at will.
• Dispute resolution is to be handled by alternative dispute resolution (ADR) with expert arbitration as a fallback option.
The Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006 brought the following changes:
• Further relaxation of the rules on rent reviews and end of tenancy compensation.
• No strict requirement for a tenancy successor on the holding to earn a living from agricultural.
• Simplifies the restructuring of holdings under an Agricultural Holdings Act 1986 (AHA 1986) tenancy.
• Removes the requirement to apply to an Agricultural Land Tribunal under certain specific circumstances.
• Tenancy termination procedures further relaxed – once the minimum period of 12 months is complied with.
Farm Tenancy Management
Landlords should be aware that the earlier agricultural tenancy legislation, under which many agricultural tenancies still exist, demand quite onerous obligations on them. The restriction on termination and rent levels demand a certain degree of knowledge and compliance with notices etc to manage these tenancies optimally.
In all cases landlords are advised to use the services of a good land law solicitor or land management specialist surveyor.
By Tom Entwistle,
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©LandlordZONE All Rights Reserved – never rely totally on these general guidelines which apply primarily to England and Wales. They are not definitive statements of the law. Before taking action or not, always do your own research and/or seek professional advice with the full facts of your case and all documents to hand.