Tenants’ compensation following a Notice to Quit

A tenant under an Agricultural Holdings Act 1986 tenancy is entitled to compensation at the end of the term of the tenancy, including on the expiry of a valid Notice to Quit served by the Landlord. The level of compensation to which a Tenant is entitled therefore needs to be taken into account when a Landlord is considering whether to seek to bring a tenancy to an end.

The heads of compensation which the Tenant may be entitled to claim on the expiry of a valid Notice to Quit are:

1. Tenant right matters

This will cover any growing /severed or harvested crops left on the land, seeds sown, cultivations made and other acts of husbandry undertaken by the Tenant.

The amount of compensation for such matters will be the value of the improvement to an incoming tenant, calculated in accordance with prescribed regulations (unless there is an express agreement otherwise).

A Landlord would therefore be wise to time any Notice to Quit so that the date of termination fell when there was not a valuable crop in the ground so as to minimise compensation under this head.

2. Long term improvements made to the Holding (provided the Landlord’s consent was given)

This includes erecting buildings, improving roads, water courses or culverts, fencing, land drainage, making osier beds, water meadows, watercress beds, hops, orchards or fruit bushes etc.

The Landlord’s consent to such improvements must have been given (either in the written tenancy agreement or separately) before the Tenant can claim compensation for such improvements.

The measure of compensation would be an amount equal to the increase attributable to the improvement in the value of the agricultural holding, having regard to the character and situation of the holding and the average requirements of tenants reasonably skilled in husbandry.

3. Short term improvements made to the Holding (no consent required)

These are generally acts of good husbandry, such as application of manure and fertiliser and the liming of land.

The Landlord need not have consented to these improvements for such compensation to be payable.

The amount of compensation would be the value of the improvement to an incoming tenant calculated in accordance with prescribed regulations.

4. Compensation for disturbance?

Additional compensation for disturbance would also be payable if the Landlord’s Notice to Quit was based on ‘Case A’ (where the land was let as a smallholding) or ‘Case B’ (i.e. the land is required for use other than agriculture for which the actual or deemed planning permission has been granted).

The amount of compensation payable may be up to six years’ rent – so potentially a very considerable sum.

Also to be considered is the Landlord’s own statutory right to compensation at the end of the tenancy. This entitles the Landlord to be compensated for any dilapidation, deterioration or damage to the holding and for anything in or on the holding caused by the Tenant’s failure to farm in accordance with the rules of good husbandry. This needs to be factored in to negotiations with the Tenant.

Depending on the value of the crop in the ground, the degree to which the Tenant has improved the Holding during the tenancy, and the grounds on which the Landlord is considering seeking possession, the Tenant’s compensation claim may be significant and so a Landlord should seek legal and surveyors’ advice at an early stage, before a Notice to Quit is served, in order to be fully aware of the potential costs.

The content of this article is for general information only. For further information, please contact Leo McMahon or a member of Birketts’ Agricultural Team.