Top ten tips for agricultural tenancies (podcast)
28 September 2020
In the fourth podcast in this series, Esther Round examines the ten most commonly asked questions about agricultural tenancies.
It’s been a little while since I’ve written a podcast and I’ve been a bit waylaid by the global pandemic we’re all experiencing. Nonetheless life – and tenancies – are going on and we’re all starting to be able to look forward more now and with positivity too I think.
I’ll start this podcast with a few comments on the current situation and then I thought it might be useful to cover ten of the most commonly asked questions about agricultural tenancies. I will only go into those answers in the briefest of ways because and as lawyers will tell you, the devil will be in the detail when answering specific questions. Hopefully though my examples will give you a bit of a steer and if you’ve got more detailed questions please do call.
This is really a reminder as we work our way towards the end, hopefully of the pandemic and as the year progresses. Unlike other commercial tenancies, agricultural tenancies were not affected by the Coronavirus Act 2020. You may have heard that business tenants are protected against their landlords peaceably re-entering their property (known as forfeiture) under the 2020 Act. This protection has not been extended to agricultural business tenancies. I say, business tenancies, because there is actually some protection for agricultural residential occupiers under the Act but that’s beyond the scope of this podcast.
Where that leaves agricultural business tenants (occupying under either the Agricultural Holdings Act 1986 or the Agricultural Tenancies Act 1995) is, potentially, in a bit of a muddle. It may be that as time wears on your tenant will need to approach you to negotiate a rent holiday or rent reduction and if relations between you and your tenant are good you may well wish to agree that to support the long-term stability of your tenant’s business. The truth is though that unless landlord and tenants have negotiated express changes to the terms of the agreements between them that tenants should make sure that they are complying with all the obligations within their agreements to ensure they are not in breach and face the consequences of being so.
The NFU has written to a number of institutional landlords, including the National Trust and the Crown Estate, to request that they apply flexibility to payment of rent in certain situations. The National Trust have stated that they will not be carrying out any rent reviews this year and Cambridgeshire County Council have already advised that they are having discussions with some of their tenants to make decisions on rents due on a case by case basis. The key point is to talk to your tenant (or your landlord) at the first sign of any difficulty with paying rents due or otherwise complying with obligations under the agreements between you to try to seek some mutually agreed solution rather than letting the situation fester.
Right, so that’s the current position and I’ll now move on to the first of the top ten tips.
- Can you surrender a tenancy granted under the AHA 1986?
The short answer to this is yes you can, of whole or of part, so long as everyone agrees. It’s not possible to force a tenant to accept a surrender and it makes sense to make sure that a tenant has independent legal advice when dealing with a surrender. There are various issues you may need to consider, for example, what compensation may be payable to the tenant and the tenant may be liable to pay Capital Gains Tax on the surrender of his asset (i.e. his tenancy) and should take advice from an accountant. Equally the landlord may be liable for some SDLT although it’s sensible to involve a lawyer to check if the deal can be structured to minimise this. You should also be very careful where there are any residential elements to the holding and you should seek advice at this stage. Finally, you should also consider whether you will need to deal with the transferring of any entitlements, water abstraction or any other licences.
- How do we convert an oral Agricultural Holdings Act tenancy into a written agreement?
Either party to an oral AHA can serve notice on the other requesting that the agreement between them be written down. The kind of notice is one referred to in section 6 of the Agricultural Holdings Act 1986. There are nine keys issues which the tenancy would be expected to contain and if the parties cannot agree what one or more of those nine issues should be then the question can be referred to arbitration. The kinds of issues are the extent of the holding, the term, the rent and whether the tenancy can be sold or shared. We are most often asked about this when there is a concern that the tenant may seek to assign the lease to a company. Once a lease is in the name of a tenant company then the tenant is automatically in a stronger position. On the basis that a company cannot die unlike a person, one of the landlord’s possible routes to recovering possession is removed and as a result the capital value of the landlord’s interest usually decreases. The strategy will often be around the timing of a section 6 notice. As soon as a section 6 notice is served a tenancy cannot then be assigned and so it is useful to do this if you want to prevent the transfer of your tenant’s oral tenancy to a third party.
- If a succession tenancy is granted by the Courts do the terms of that new tenancy have to be the same as the old tenancy?
In the case where a tenant has died and a member of his family is successful in having a new succession tenancy granted to him via the Courts then the new tenancy must be on the same terms as the old tenancy immediately before death unless varied by arbitration. This means that if a new succession tenant did not like the terms of his new tenancy then he would have to apply to an arbitrator to vary those terms. Practically though we find that, once the relevant Tribunal has determined that a potential new successor is both eligible and suitable, the parties will usually agree to readdress any terms which are not acceptable between them rather than referring the matter to arbitration.
- Under the AHA 1986, can you agree to a succession whilst the original tenant is still alive?
This is possible if all of the parties agree (bear in mind though that the situation is different if the tenant simply wants to retire). If during the tenant’s lifetime the landlord agrees then the tenant can assign his tenancy to a close relative. The issue with this for both parties is that this will count as one of the two possible successions which may be a negative for the tenant. Having said that though the party to whom the tenancy is assigned need not demonstrate either their eligibility or their suitability as they would if they had to apply to the Tribunal for a succession tenancy on the death of the current tenant. It can therefore be a useful mechanism.
- Can we agree to limit the tenant’s compensation to £1 under an FBT?
The answer to this is, with a few provisos, yes. The original compensation provisions under the Agricultural Tenancies Act 1995 were fairly unpopular because landlords broadly had the choice of either refusing his tenant’s request for consent to carry out improvements or exposing himself as landlord to potentially substantial compensation claims for same those improvements. This was tweaked in 2006 and so now it is available to the parties to agree to cap the compensation which will be payable to a tenant. The provisos are 1. the landlord cannot require a reduced amount of compensation as a condition for giving consent to the improvement and 2. there is a slight question mark in most practitioners’ minds as to how small the cap can be which is agreed between the parties. So, is £1 too little? How about £100? This hasn’t been tested by the courts and there is nothing to prevent the parties agreeing the nominal sum of £1 but it’s worth keeping in the back of your mind that this could be challenged if the motivation to do so was sufficiently great.
- I want to agree a two year fixed term FBT with my tenant – can I include a break clause?
The short answer is yes. But beware as there is a difference between a two year fixed term FBT and a rolling periodic tenancy. The difference is crucial in law. A fixed term is the length of the initial agreement between the parties. Here, if it is a FBT for two years (or less) then it would be possible to include a short form break notice (that is, a break giving less than 12 months’ notice). The break notice could be as short as you like, we have agreed break notices on a week’s notice, but it is more usual to perhaps agree notice of a month or two.
However if the FBT ever became a periodic tenancy (that is rolling on and continuing on beyond the initial term set by the FBT) then a short form break notice would not be valid. As always, the facts are critical to deciding how best to proceed.
Don’t forget that the tenant will have a right to compensation for the value of any growing crops and other such ‘routine’ matters if notice is served if applicable.
- If my tenant under an FBT has vacated the holding should I try to document this by entering into a Deed of Surrender?
The answer to this will be dependent on the specific circumstances as always but the answer is, assuming your FBT isn’t sufficiently long that it has been registered at HM Land Registry, then usually it’s unnecessary and practically isn’t typically done.
The reason why you might try to document the giving up or surrender of the tenancy is if there is some question mark over whether the tenant genuinely has properly vacated the site (perhaps he has left some materials on the property) and perhaps there’s reason to be concerned that the tenant might try to bring some claim against the landlord if the landlord treats the land as having been vacated.
If it can be clearly said that the tenant has vacated the property (perhaps by giving up any keys he may have had) and that the landlord has accepted that surrender then strictly you do not need to enter into a deed of surrender. You would say that a surrender by operation of law has happened. If there is any question at all though, or any contention between the parties then it is sensible to document the surrender by way of a deed of surrender.
- Does a farm business tenancy have succession rights?
The answer to this is a short no. You will probably be aware that older tenancies, those governed by the Agricultural Holdings Act 1986, sometimes did carry with them succession rights so that it’s common to hear about a 2nd or 3rd generation farming a particular holding.
The Agricultural Tenancies Act 1995 swept these rights away as the intention was to create an Act which allowed the parties to negotiate their own positions on a far more open and commercial basis. There are no rights of statutory succession under an FBT. The only point to be wary of is whether you genuinely do have an FBT before you or could it be a succession tenancy granted after 1995? It’s always worth just checking this point so you know exactly what kind of agreement you’re dealing with.
- I’ve got an agricultural worker and I want to grant him an Assured Shorthold Tenancy for one of my cottages. Do I have to serve a notice on him?
Yes, it is necessary and sensible to serve a notice on your tenant to make sure that you prevent the creation of an assured agricultural occupancy. This is to make sure you have the most flexibility in recovering possession of the cottage should you ever need to.
You would need to serve a kind of notice called a Form 9 Notice and it is sensible to make sure this is served properly (by a solicitor ideally) so that you don’t store up potential problems for yourself in the future when your worker could argue he had a much more secure form of tenancy.
Don’t forget also that there is a minimum rent for Assured Shorthold Tenancies – £250 per year (outside London where the minimum is £1,000 a year) and so that can be important when letting a cottage to an employee where you might otherwise be letting them use the property whilst employed, to make sure the tenancy definitely will be an AST by making sure the rent levels are set correctly.
- If in doubt, ask!
The last top tip won’t come as a huge surprise I suspect! Agricultural tenancies, whether they are commercial or residential tenancies, are governed by some of the trickiest and most eccentric provisions of English Law and genuinely need a specialist advisor to interpret these. And particularly interpret these with an eye to commerciality. If you have any tenancy questions at all please don’t hesitate to contact either me or any other member of the Agriculture and Estates Team and we’ll be happy to help.
For further information or advice on agricultural tenancies, please contact Esther Round. Law covered as at September 2020.
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 September 2020.