The Agriculture Act 2020 – tenancy changes to succession
4 December 2020
The Agriculture Act 2020 (the Act) introduces significant changes to succession for Agricultural Holdings Act Tenants.
One of the changes introduced by the Act that has not received too much press coverage is that there are a number of changes to Agricultural Holdings Act (AHA) tenancies and to farm business tenancies (FBTs), which follow recommendations from the Tenancy Reform Industry Group last year.
Whilst these changes are not as significant as the introduction of FBTs in 1995, they are perhaps on a par with the TRIG reforms in 2006 and could have a significant impact for AHA Tenants looking to pass their tenancy on to the next generation and of course equally to their Landlords.
There are minor changes to increase options on how disputes can be resolved in both FBTs and AHA tenancies, but, perhaps the largest change is to succession rights for AHA tenancies which are simplified.
- There will be no minimum age to serve a retirement notice (previously the tenant needed to be 65 or older).
- The Commercial Unit Test is removed from the Eligibility Criteria, previously you could not succeed to the Tenancy if you farmed another Commercial Unit.
- The Suitability Test is simplified so that the main attribute the successor will need to show is that they have the ability to farm “commercially to high standards of efficient production and care for the environment”. Although the current tests around health, training and finance are likely apply in a subsidiary status. The Act provides for further regulations to be introduced to confirm how this will operate in practice and we are waiting for details of these regulations.
These changes will make it much easier for successor tenants to be successful and give the option for tenants to retire earlier, with more comfort that their successor will be successful.
Based on the information that we currently have the key considerations for estate planning are likely to revolve around the removal of the retirement age and the removal of the Commercial Unit Test.
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 therefore 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.
Of course in relation to succession it is always necessary to consider whether there are any succession available and in considering this it is necessary to establish:
- whether the tenancy initially had succession rights (typically tenancies commencing prior to 12 July 1984 will have two potential successions, with most tenancies being made up to two successions on 14 November 1976); and
- how many of those successions are left?
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 principle source of 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 whether that is now likely. 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.
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, which Defra have said may be during Summer 2021, although the Act is largely in force from 11 January 2021.
If you are an AHA Tenant or Landlord and would like advice about the potential for succession then please do not hesitate to call us for further information and in particular if a Tenant dies or serves a retirement notice then please do this without any delay as there are strict short time limits within which specific action must be taken to preserve the position for the Tenant and the Landlord.
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 December 2020.