How do I bring my Farm Business Tenancy to an end? (podcast)
15 January 2020
This is part of the series of podcasts we’re producing which deal with tenancies in an agricultural setting. For this third podcast I am going to talk about how to bring a Farm Business Tenancy to an end.
There are lots of reasons why a landlord might want or need to bring a tenancy to an end. Typically we get involved when there is need to recover possession either for disposal or for redevelopment sometimes when a landlord is considering diversification of his estate. As well as these more benign reasons it might be because something has gone wrong, perhaps the tenant is not maintaining the holding properly, and in these cases we might need to include our colleagues in our Property Litigation Team.
There are multiple reasons why you might be considering this question and as always please let us know if you’ve got any questions – we’re happy to help.
I will talk about some of the ways that a Farm Business Tenancy (or an FBT) can be brought to an end. I won’t cover other kinds of interests in agricultural land for now. For example I won’t talk about how to bring a licence to an end, or any tenancies under the Agricultural Holdings Act 1986 (not least because that last one can be especially knotty). Nor will I talk about other kinds of commercial business tenancies being those governed by the Landlord and Tenant Act 1954. Finally, I won’t talk about any lease where there is a residential element. It’s entirely possible that an FBT might cover a residential aspect as well as other commercial property but that throws up its own slightly niche issues which I won’t deal with here.
So for now we will just think about bringing an FBT to an end.
Effluxion of time
The first way in which an FBT can come to an end is by way of what is known as effluxion of time. This rather fancy name simply means the normal expiry of a lease due to the passage of time, rather than due to a specific event that might cause the lease to end, such as the triggering of a break clause (and I’ll come to that in a bit).
The key point to remember when thinking about when an FBT might come to an end by effluxion of time is how long was the initial term of the FBT.
If the FBT was for a fixed term of two years or less than it will automatically come to an end on the final date of that term. So, say you have an FBT that is expressed to be for 18 months. On the last day of those 18 months the FBT will come to an end automatically.
It is different though if the FBT was for an initial term of more than two years. If no notice is served and the tenant remains in occupation beyond those two years then the tenancy will automatically continue to run from year to year until steps are taken to bring the tenancy to an end. This is known as an annual periodic tenancy.
From then on a notice to quit would need to be served giving at least 12 months prior to the anniversary date of the tenancy to bring it to an end.
If you decided that you wanted to bring an FBT to an end that was for a term of more two years or an FBT which had been converted into an annual periodic tenancy then I would suggest that you let us know. Notices to quit are notoriously difficult to get exactly right and the consequences of not getting a Notice right can be severe – i.e. that it won’t work and you might have to wait nearly two years to have another opportunity to bring the tenancy to an end!
Just as an aside if you ever look up on the internet the question of how to serve a notice to quit, just beware. There used to be a restriction on the maximum notice you could give (it used to be 24 months’ notice) but this restriction was removed by a set of regulations in 2006. Lots of precedents you might find lurking on the net haven’t necessarily caught up with this change (even though it was some time ago). This is another good reason frankly for coming to us if you do need to serve a notice given the information you can find online isn’t necessarily terribly reliable.
An FBT can contain what is known as a break clause. A break clause is a provision in a lease which enables either the landlord or the tenant (or both) to end the lease early. It may arise on one or more specified dates or be exercisable during any time during the term (often after a specified period of time has elapsed) on a “rolling” basis.
Again, you need to think about how long the initial term of your FBT is before deciding how (if at all) a break clause can be used.
Any length of FBT can contain a break available to either party. The key will be how much notice must one party give the other of their intention to break the lease. Where the tenancy is for two years or less than any length of notice can be given in the agreement and there is no restriction on this imposed by the relevant act of parliament.
The difference is where the FBT was initially granted for a fixed term of more than two years. Here the Agricultural Tenancies Act 1995 restricts what the parties can do. Any break must be triggered on giving at least 12 months’ notice in writing. It isn’t possible for parties to an FBT to contract out of this length of notice (always assuming a term of more than two years).
This brings us on to the next way in which an FBT can be brought to an end. This is the idea of surrendering a lease. An FBT, like other kinds of leases, is surrendered when the tenant’s interest is transferred back to the landlord and both parties accept that it will be extinguished or brought to an end.
There is also the idea of “merger” which is the flip of this idea. This is where the tenant acquires his landlord’s interest in the property that was the subject to a lease. It’s far more common to encounter a surrender than it is a merger.
Sometimes where the parties decide to bring an FBT to an end if a specific incident happens then the parties might agree to include in their FBT an agreement to surrender. This is a sort of work around we sometimes use when dealing with long term FBTs where we need to be able to bring an FBT to an end with less than 12 months’ notice. There is nothing to prevent the parties agreeing to include an agreement to surrender in their tenancy. This is true for FBTs but just be careful because it’s not so certain for tenancies granted under the older agricultural legislation.
A surrender can be achieved in a number of ways. The critical point is that the behaviour of the parties must be unequivocal. A surrender can be dealt with by way of deed but more often than not it is achieved by what is known as operation of law. This really means how the parties to the FBT conduct themselves and it can be very tricky to say for sure that a surrender has definitely happened. It’s usually best to enter into a deed of surrender if you possibly can to be able to prove the tenancy has actually come to an end.
One final point on a surrender of an FBT is to say that it is possible for a surrender to happen by accident. The classic example of this is the inadvertent surrender and regrant of a lease. A surrender and regrant occurs where variations to a lease are so inconsistent with the continuation of the existing relationship that the law deems the existing lease to have been surrendered and a completely new lease brought into being.
Usually we think of a landlord increasing the extent of the land let to the tenant as being the normal example of an accidental surrender and regrant. This can have consequences which are unwelcome. For example there might be taxation implications, for example SDLT consequences which can be unwelcome for a tenant and it’s worth bearing in mind taking advice before altering either the term or the area let under any FBT.
The next way in which an FBT could be brought to an end is the rather archaic sounding forfeiture.
A landlord will usually have included within an FBT the right to forfeit the tenancy in the event that a tenant breaches its covenants (or promises) under the FBT. It is possible to exercise a right to forfeit a lease where there is no express right allowing a landlord to do this but it is very rarely done and really quite risky and I would definitely advise you talking to us before doing that.
A right to forfeit will mean the landlord has the right to re-enter the property following a breach of the FBT by the tenant and by doing so bring the FBT to an end. Whether this can be done with immediate effect or with some notice given will depend on the nature of the breach. Typically when the market is poor the usual breach relied upon would be a failure to pay rent. You should be very careful here. Often an FBT (like other leases) will contain a provision which will say that the rent is due irrespective of whether or not it has been demanded. It is only this kind of breach which allows a landlord to re-enter the property without notice and this needs to be carried out very carefully. It’s entirely possible that you can waive a breach and got rid of your right to forfeit.
For all other breaches you would need to serve a notice on the tenant providing (where possible) that a tenant should make good the issue you’re complaining of. It is only following the service of this notice, and a subsequent failure by the tenant to remedy the breach, that a landlord can exercise its right to forfeit. As I say you should be very careful with forfeiture but I just wanted to highlight for you that it is a possible way to bring an FBT to an end.
Finally, I will just say that the parties to an FBT cannot contract out of the statutory compensation provisions there are within the 1995 Act. This means that the tenant is entitled at the end of the tenancy to compensation for either “routine” matters – such as the value of any growing crops at the end of the tenancy and “non routine” matters, such as any qualifying improvements they made during the term that remain on the holding at the end of the FBT.
A tenant’s improvement is defined in the 1995 Act as either of the following that is obtained for the holding, either by the tenant’s own effort, or wholly or partly at the tenant’s own expense:
- A physical improvement made to the property.
- An intangible advantage which becomes attached to the property.
Intangible advantages are benefits that are capable of passing with the land and enhancing the value of the land, such as water abstraction licences, planning permissions or quotas.
That was a very quick run through the ways in which an FBT could be brought to an end. Your specific set of circumstances might clearly fall into one of the examples above or it might be a bit less certain. Hopefully this all helps steer you a little but as always do call if you have any questions on this or if you have any ideas for what you would like me to talk about next.
For further information or advice on how to bring your Farm Business Tenancy to an end, please contact Esther Round.
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 January 2020.