Alex Jackson, Associate at George F. White, explains the pitfalls of the Agricultural Holdings Act 1986 tenancies, what we can expect for tenancy succession law in the future and what you need to know, and do, in advance as a potential successor.
Changes to the Agricultural Holdings Act 1986?
The DEFRA Consultation on Tenancy Reform, which closed last month, included a number of proposals as to how the law surrounding tenancy succession for Agricultural Holdings Act tenancies might be varied to increase the mobility of tenants and promote a shift towards younger farmers. These proposals included, amongst others, introducing the ability for a tenant to assign their agreement to a third party, or for succession to take place with a relative other than someone considered to be a ‘close relative’. Whilst it is unlikely that either of these suggestions will proceed in their current form any further than the consultation document; one very apparent theme from the proposals was that any of the proposed new assignment or succession mechanisms would operate to create a new tenancy at the current market rent, and not at the lower rent levels generated by the rental formula within the Agricultural Holdings Act (which ignores scarcity in the market).
It therefore follows that the only way now, or in the future, to achieve tenancy succession at Agricultural Holdings Act rent levels, other than by agreement, will be via the existing mechanism; and as such, it remains of paramount importance that tenants do not delay in reviewing their position with regard to tenancy succession, and in particular, considering how an intended successor would demonstrate that they are eligible and suitable. Equally, landlords must ensure that they ask for, and are provided with sufficient information to adequately assess any application.
In summary, the present system requires that an Applicant demonstrates that they are suitable in terms of training and/or experience, age, physical health and financial standing, and also that they meet the following eligibility criteria: they must be a close relative of the tenant (a close relative is defined as a spouse, partner, brother, sister, father of the tenant or someone treated as a child of the family by the tenant); they cannot be in occupation of another commercial unit; and they must show that for five of the previous seven years their principle source of livelihood was the farm business, or a business of which the holding forms part.
Pitfalls of the Agricultural Holdings Act
The livelihood test is often problematic, and a prospective successor must be careful to ensure that they can demonstrate that their principle source livelihood has been the farm business. Common pitfalls include where a partner working off the farm contributes significantly to the household, where there has been a substantial amount of contracting work carried out off the holding, or depending upon the circumstances, where there is income from diversification.
The key for a potential successor is getting their paperwork right at least five years in advance, and understanding that the onus will be on them to prove their case to the landlord and if necessary the tribunal. Similarly, for a Landlord, gaining a proper understanding of the relevant earnings or benefits in kind and where they are derived from is often the most critical part of assessing a succession application.
If you have questions about your succession plan, please get in touch with Alex Jackson.