Update on changes to AHA tenancy succession rules
24 January 2024
The Agriculture Act 2020 (the 2020 Act) adopted a phased approach to the changes it made to the rules on succession under the Agricultural Holdings Act 1986 (AHA) and some of the more fundamental changes take effect on 1 September 2024.
In every case, before reviewing the succession rules it must be ascertained that the tenancy in question benefits from rights to succeed. Under the AHA, such rights exist where the tenancy:
- was granted on or before 12 July 1984 (noting that tenancies pre-1 March 1948 may also be dealt with differently)
- was granted after 12 July 1984 but before 1 September 1995 (provided the tenancy contains express terms that Part IV of the AHA will apply – being the Part of the AHA relating to succession – or a tribunal ordering that it will apply)
- was granted on or after 1 September 1995 subject to one of the exceptional circumstances set out in sections 4(1)(b)-(d) of the Agricultural Tenancies Act 1995 (which in essence preserve the status of a tenancy granted pre-1 September 1995).
To succeed to an AHA tenancy, the proposed successor must show (amongst other things) that he or she is both “eligible” and “suitable” to do so and a complex array of rules and tests are employed in order to verify this. The 2020 Act has sought to simplify these requirements with the headline changes being:
- Minimum retirement age – historically, a tenant had to be aged 65 or older before an application could be made for succession on retirement. This is no longer the case as the minimum retirement age has been repealed so that an application for succession on retirement can be made when the current tenant is any age.
- Commercial unit test – historically, this test required that an applicant for succession must not be an occupant of another commercial unit of agricultural land. As of 1 September 2024, this requirement is repealed in its entirety and so will no longer prevent potential successors from having an interest in other holdings (whether owned or tenanted). However, it should be noted that other eligibility requirements (particularly the need for the applicant to be a close relative of the tenant and to derive their principal source of livelihood from the AHA holding) will likely be drawn more to the fore, as these must continue to be complied. as discussed in our previous article back in 2020.
- Suitability test – the introduction of The Agricultural Holdings (Requests for Landlord’s Consent or Variation of Terms and the Suitability Test) Regulations 2021 following the 2020 Act have brought some clarity as to what will be required in respect of suitability of a potential successor. As of 1 September 2024, a successor will need to show that they have the ability to farm ‘commercially to high standards of efficient production and care for the environment’. The assessment may also include criteria such as: experience, training and skills in agriculture or business management, health of the potential successor, their financial standing and character, the character and condition of the Holding and also whether ‘a prudent and willing landlord could reasonably be expected to regard the applicant as among the candidates to whom they would be willing to grant the tenancy’ if the tenancy was on the open market. These changes have been designed to significantly simplify the conditions to be met by the tenant and also further show the shift in emphasis within agricultural policy towards the environment.
As mentioned above, these changes will need to be viewed in the round and alongside the requirements for succession which have not been amended or repealed. Eligibility criteria such as the livelihood test will continue to apply and so each potential successor will need to give careful consideration to how their farming business is operated and organised. It is a question of fact and degree as to whether the requirements may or may not be met in each case and so professional advice should always be sought at the earliest opportunity.
From a landlord’s perspective, the changes may be less welcome as their position is potentially weakened with regards to recovery of vacant possession on the death of a current tenant. However, the statutory rules are only ever part of the story, and it is always open to a landlord to make a commercial offer to the tenant to replace an AHA tenancy with a fixed term Farm Business Tenancy or similar, which may provide the landlord with peace of mind and an improved Inheritance Tax position.
Finally, it must always be remembered that strict statutory time periods for service of notices under the AHA will continue to apply and so neither tenants nor landlords should delay in taking professional advice in the event of a death or proposed retirement.
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Adam Burden
Sectors
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 2024.