With very little fanfare and slipping past many people’s notice, the Agriculture Act 2020 has passed into law. As an Act it received Royal Assent on 11 November and whilst not all of the provisions are already in force the vast majority of the Act will come into force by 11 January 2021.
There are all sorts of important changes referred to in the Act but it is worth noting that the Act itself is really quite light on detail. The detail will come later as the secondary legislation, the statutory instruments, come into force. Some of these will not be seen until next summer which presents a slight conundrum for those of us interested in interpreting the law as we simply will just have to hang on to see the greater detail.
In the meantime, the area we thought we would talk about today is the area of Agricultural Tenancies. Anyone who has listened to any other podcasts in this series will know that there really is not a huge amount of legislation governing agricultural tenancies and typically HM Government doesn’t bring out new law very frequently at all in this area. Take the Agricultural Holdings Act 1986 and its successor, the Agricultural Tenancies Act introduced in 1995. Those are the two key pieces of legislation for the last hundred years or so.
Whilst the Agriculture Act 2020 is not quite as seismic as those two earlier Acts it does introduce some important changes.
Today, I’ve asked one of my colleagues, Ed Bellamy, who is a senior associate in our Agriculture and Estates team, to sit in and to help me out. First up I will talk about what the legislation (such as it is) tells us so far. Ed is then going to talk about some of the possible practical applications of that legislation and answer some of the most likely questions to come out of the new Act and its impact on Agricultural Tenancy legislation.
The Agriculture Act 2020 deals with the changes to Agricultural Tenancies at Schedule 3 of the Act so it is a little bit tucked away if you go looking for it. A number of suggestions were made when consultations were requested by the Government and only a few of these have ended up on the statute book. The most important ones are as follows.
The way in which disputes can be dealt with is now broader (and frankly more sensible). This means that rather than just having access to an expert who is appointed by the RICS, depending on the dispute, an expert can now be appointed by the Central Association of Agricultural Valuers or the Agricultural Law Association. The result of this is that a dispute can now be heard by someone who has the right experience to come to a sensible conclusion.
There is also an addition to the current dispute resolution provision under the 1986 Act so that now tenants can apply for an arbitrator’s award to be made regarding variations to a tenancy or other issues which a tenant may have requested landlord’s consent for but which was denied them. Again, we don’t know the detail of this yet as it has been left to secondary legislation.
The next point to make is that changes have been made to the way AHA succession tenancies can be granted. The intention here is to create more flexibility for both landlord and tenant and to allow a younger generation of farmers to step up to a tenancy earlier than they might otherwise have been able to.
You might remember that a succession tenancy is possible not only on the death of the tenant (for some older, AHA tenancies, typically just those granted before 12 July 1984) but also succession tenancies are possible on the retirement of the tenant. A successor needed to satisfy an eligibility and suitability test in order to be granted a new succession tenancy. (Of course there is always the option for the parties to agree between themselves whatever arrangements they would like - here we are thinking about if the Lands Tribunal has to become involved).
The eligibility test has now changed so that the provision which required that the applicant must not be the occupier of a commercial unit of agricultural land has now been erased. This is for both successors after a death and in the event of retirement and means that the potential is there for farmers of far larger operations to take over farming tenancies where previously that would not have been possible.
The next important point to make relates to retirement under the 1986 Act. It used to be the case that once a tenant reached 65 he was entitled to serve on his landlord a retirement notice and nominate one close relative. Now, the Act has got rid of that minimum age for retirement. This will free up farming families to make decisions about succession earlier than they have been able to historically. Of course the flip side of this is that farming families may also want to be preparing for a succession earlier than before too.
One smaller point is that the suitability test will be governed by rules yet to be set by DEFRA (in England and by the relevant Welsh ministers in Wales). One point we do know will change is that the age of the applicant which used to be taken into account will no longer be part of the consideration. We can be confident that the test as to whether someone is suitable or not will be broadly the same (excluding the point about the commercial unit I just mentioned). The proposed new successor tenant will need to show that he can farm commercially to high standards of efficient production and provide care for the environment. This of course chimes with the Government’s new environmental land management scheme which you may well be aware of.
All in all there are a few changes there which should make dealing with succession tenancies a bit more flexible and a bit more suited to modern farming. We can't say too much about the detail of these changes beyond what I've outlined here until we know more. We have heard from DEFRA that the details won’t be put onto this framework of new rules until the summer of 2021 at the earliest so there is a little while to wait. In the meantime Ed is going to talk a little bit about how we think these changes (we do know about) might impact on farming practically.
Whilst the changes will have some impact in making the resolution of disputes easier and also provide more flexibility for AHA tenants to retire earlier, based on the current regulations we have seen, the biggest impact is likely to be on succession planning for AHA Tenants.
As Esther mentioned, before planning any succession of an AHA Tenancy it is important to check whether the tenancy carried succession rights and how many successions have taken place to establish whether there are any successions remaining.
The removal of the Commercial Unit Test could strengthen the position for many AHA tenants, who historically may have been concerned that their successor was unlikely to pass this test due to other areas that they farm either as freehold owners or as tenants. Previously some farmers had structured their current business structure and their estate planning so that one of their children is not in occupation of another commercial unit and would not inherit one in order that they could succeed to the AHA Tenancy. This could be very artificial and potentially quite unfair to the nominated successor to the AHA Tenancy, who may gain occupation of that land, potentially then with no further succession rights, instead of the freehold ownership of another farm.
It is also important that the other eligibility tests (the close relative and the principle source of livelihood test) will continue to apply. The key here is perhaps the livelihood test and the successor will still need to derive their only or principle source of livelihood from agricultural work on the holding, or on an agricultural unit of which the holding forms part, therefore it is important to make sure that if it is part of a larger holding the AHA tenancy is part of the same agricultural unit. Whether it is part of the same agricultural unit will be a question of fact and degree and require an individual analysis in each case and this could limit the impact of the removal of the Commercial Unit Test, particularly if the two areas are some distance apart, are managed independently etc.
Conversely this strengthening of the position for the AHA Tenant will potentially reduce the strength of the position for the AHA landlord who may have been anticipating that they would be obtaining vacant possession of the holding on the death of the current tenant having to reconsider this. If you are impacted by this it may be worth considering whether there is anything commercially that can be offered to the tenant in order to persuade them to alter the tenancy and look to put in place a fixed term FBT or similar that would give certainty to the Landlord about when it would have the option to obtain vacant possession or a renegotiation of the occupation.
Whether you are a landlord or a tenant in the event that the tenant dies or serves a retirement notice, then please do not delay in acting and taking advice as there are short time limits within which action must be taken and strict procedures that must be followed to preserve the position for the tenant and the landlord.
Finally I would say that as with the majority of changes coming under the Act, the full impact of the changes to the tenancy regimes will be subject to the content of further regulations and so it will be important to keep an eye on these as they are introduced.
For further information regarding The Agriculture Act 2020, please contact Esther Round or a member of our Agriculture and Estates Team.
Alternatively, please read our article, The Agriculture Act 2020 - tenancy changes to succession.