This podcast sets out a beginner’s guide to tenancy agreements.
What sort of tenancy agreement have I got?
I’ll assume for the purpose of this podcast that you’re listening in with a base of knowledge in property law and that you are dealing with land in an agricultural setting. I’ll keep it pretty basic to begin with so apologies if you feel as though I’m teaching you how to suck eggs!
All and any feedback is always gratefully received and so if you think that the next podcast would be better at a different level then drop me an email. Also if you’ve got any other ideas for future podcasts, shout. I have set out a series of podcasts to be released over the next few months but I can always tweak these depending on how you think we’re doing.
This first talk will consider the situation where you are sat at your desk and you are handed a written agreement. It probably will be not just one agreement but lots of different pieces of paper which all together form the agreement. You might have rent review memoranda and maybe some paper relating to surrendering parts of the property or maybe some pieces of paper which you simply don’t know what they are! Probably the agreement itself will look like an agreement between you (or your organisation) and someone else. The agreement will be drafted so as to allow that someone else to be in occupation of some land which might, or might not, include some buildings. The question you’re most likely to ask yourself first is what sort of agreement is this?
It is super important to make sure you have got all the pieces of paper relating to this agreement when you do try to decide what sort of agreement it is. The reason I say this is because other documents may well impact on the kind of agreement it is or on important parts of that agreement (e.g. how much land is caught by the agreement).
The reason you would ask what sort of agreement you have is (and as you will probably know) the sort of agreement you have will control what and how you can deal with your occupier.
You should also be aware that it is entirely possible that there can be an oral agreement between your organisation and a third party which could be one of the sorts of agreements I’ll talk about. I won’t cover the oddities of oral agreements here but you should bear in mind that just because an agreement isn’t written down doesn’t mean it isn’t binding. It usually means it is just that more difficult to prove what the terms of the agreement are.
I’m also not going to be talking about any agreement which covers any buildings where anyone is actually living. I’ll deal with that kind of residential agreement in a separate podcast.
There are three main kinds of agreement you are likely to come across. Before I get into those three sorts of agreement and as an aside, I should say that there is another sort of agreement which is called, rather confusingly, a profit a prendre. This is an agreement which simply allows someone to take something, like fish or grass, from land belonging to another person. I’m going to assume we’re not looking at that sort of agreement because they are really quite rare. Let me know though if you are worried what you have in front of you is a profit a prendre.
So, as I say, there are three kinds of agreement which govern how a person might be in occupation of a property.
The first is a licence. A licence is actually a personal agreement between two people and by that I mean it can’t be transferred to anyone else. If an agreement is a licence then it will mean that the licencee (that’s the person who is in occupation of the land) is not allowed exclusive possession. This is the critical question – is someone in exclusive possession? And you would rather hope that there is a very easy way to tell if someone is or is not in exclusive occupation. But unfortunately there isn’t and each case is very particular to its own facts.
Usually though a good rule of thumb is to ask yourself can the landowner access the land the occupier is in freely and without asking permission first? If yes, you’re probably dealing with a licence rather than the other kind of agreement – a tenancy.
The second kind of agreement is a kind of tenancy. A tenancy is different to a licence in that it grants a party the right to the exclusive possession of land for a set term. Again, you’ll see we need to deal with the idea of exclusive possession and this is a running thread throughout trying to work out what kind of agreement you’ve got. Here, you will probably want to think about exclusive possession as being the situation where a person can exercise the rights of the landowner and can generally exclude both the landlord and third parties from the land.
The second kind of agreement then is a tenancy which was created and governed by the Agricultural Holdings acts. There are a number of different Agricultural Holdings acts but the most important one for you to know about is the 1986 Agricultural Holdings Act. We call this the AHA and it has retrospective effect which means it governs tenancies created before 1986.
The tenancies which the AHA creates are remarkable for lots of reasons but the main reason for you to be aware of is how very tenant-friendly they are. They were created just after the second world war in an attempt to promote the stability of agriculture. The AHA massively improved the right of tenants to remain on the land until their own death and then stepped that right up to allow family members of the deceased tenant to remain on the land.
You will need to bear in mind the key date of 1 September 1995. Agricultural tenancies entered into before this date will be tenancies governed by the AHA. I’ll deal with agreements entered after that date in a second.
If an agreement was an agricultural tenancy entered into before 1 September 1995 then you will need to think about what impact the AHA has. The AHA is a complicated piece of legislation and you may want to think about taking specialist advice once you’ve identified the kind of tenancy you think you’re dealing with. There are all sorts of succession, assignment and repairing peculiarities you might need to be thinking about depending on how you’re managing the property.
If you have an agreement which is a tenancy and was entered into on or after 1 September 1995 then you very probably have an agreement which is usually called a Farm Business Tenancy or an FBT. FBTs were created by the Agricultural Tenancies Act 1995 and were a big departure away from AHAs.
I say you very probably have an FBT as there are some circumstances where an agreement made after September 1995 could be an AHA. One very typical case is where there is a succession tenancy granted to a family member following the death of a former tenant under an AHA tenancy. These can be really quite tricky to spot though.
An FBT will be entered into and will sometimes have with them a kind of notice which be called a s1(4) notice. An FBT must relate to an agricultural use of the property and that use should be ongoing throughout the entire time the tenancy exists. Often the parties will serve section 1(4) notices on each other. This insures against the property being used in a way that would fall outside the 1995 act (which can cause problems later down the line). You would probably be looking for a notice like this to be with your agreement which would help you (although I would say that these two documents will quite regularly end up in separate places!).
An FBT is very different to an AHA and FBTs are usually much more flexible for both the tenant and the landlord. One of the key differences you might need to know about would be that there are no succession rights under an FBT. This means that if a tenant of an FBT dies then their close family members will have no right to remain in occupation of the property. The value of a landlord’s interest in land will be higher where there is an FBT than where there is an AHA. This is in part because of how (relatively) easy it is to remove a tenant under an FBT than under an AHA.
So in short then we can say that it is important to know what sort of agreement you’ve got on your desk in front of you. It will be important as it will control what rent you can charge, how frequently you can review that rent, what the occupier can and can’t do on the land, what happens when something goes wrong and what happens when the tenant wants to leave or dies. There are all sorts of other implications to think about and some of those implications will be more important than others.
Once you have got an idea about what sort of agreement you’ve got – maybe a licence? Maybe a tenancy? Probably an FBT? and depending on what you need to do now with that agreement sat looking at you on your desk you might want to ask us to have a double check too. And we might be able to help with your next steps too and we’re always happy to help.
Right, now you’ve heard the very broadest of definitions of what sort of agreement you have, you might want to listen to our next podcast. Next up and coming in November we’ll be talking about working out who your tenant actually is. And finally as I explained before if you’ve got any specific ideas about what you’d like us to cover – get in touch.
This article is designed to highlight a number of potential tenancies that you may wish to explore. The rules can be complicated and professional advice may need to be sought. For further information or advice on agricultural properties, please contact Esther Round. Law covered as at October 2019.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at October 2019.