Tag Archive: Agricultural Holdings Act
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.
Tenancy succession planning is a growing issue for farmers that hold a traditional Agricultural Holdings Act tenancy. I know most of you will be aware of it and the role it plays in ensuring your tenancy has the maximum chance of being left in the right hands however, the importance of getting it right is often missed with long-lasting consequences for future generations.
Under a large number of 1986 Agricultural Holdings Act tenancies, tenant farmers can be within their rights to seek to secure succession of their tenancy, as long as the successor meets the relevant eligibility criteria. This is what makes succession planning – in a timely manner – so vital. Succession is not automatic, or a given.
First things first
It is never too early to start the succession planning process because the criteria that the potential successor needs to meet is strict. A lot of preparation can be needed to ensure the person that you want to succeed can do so.
Many farmers fail to plan effectively, or at the right time – rather they wait and deal with it when they’re ready to retire or the next of kin has to handle it in case of an unexpected death. Without preparation, in many cases the successor can fail to meet the criteria to succeed. If the process is started earlier and managed properly, this can be prevented.
Seek the right advice
Tenancy succession planning involves many issues including income, livelihood, diversification, land outside the tenancy, financial position and experience, over many years. Therefore it’s crucial that you receive the right advice from the start.
It is also important to remember that in certain situations, succession can be an advantage for landlords and can be negotiated by agreement rather than through the First Tier Tribunal.
Actions that make good business sense at the time can have a detrimental effect upon the chances of succeeding. The law governing succession is complex. There is potential for disclosure and analysis of farm accounts and bank statements for seven years before succession, among other information.
In addition, ensuring fair treatment of other family members is important and should be considered alongside succession planning. This should involve taking advice from your solicitor and accountant to ensure all assets are passed in the most efficient manner possible.
From my experience, it really is better to act sooner rather than later. This reduces risk and when succession is secured, the business can plan for the future with certainty.
For more information about succession planning and how to plan well please contact Matthew Brown on firstname.lastname@example.org or 07854 903631.
If you are a tenant of an agricultural holding, you may already have a notice served upon you for a rent review and be awaiting your landlord approaching you or may be expecting a notice to arrive for a rent review in 2018.
There is a lot to consider before you finalise agreement to a rent review proposal. This article assumes the notice served by the other party to review the rent is valid and the terms of the tenancy checked to see if there is a mechanism or trigger to review the rent at the proposed date.
First, how the rent review is assessed depends upon the legislation your tenancy agreement falls under.
Agricultural tenancies fall under two different acts. Either the Agricultural Holdings Act or the Agricultural Tenancies Act. The formulas and basis of assessing rent are different in each act. Under the Agricultural Tenancies Act that governs Farm Business Tenancies the statutory basis is that the rent should reflect market rent with the focus being on assessing rent using the current levels of rent for comparable lettings as the primary evidence. Other procedures and formulas can however be adopted for the assessment of rent as the parties are free to contract to the terms they wish. Under the Agricultural Holdings Act comparable market evidence is to be taken into account however the key difference to the assessment of rent under the Agricultural Holdings Act to other agricultural tenancies is the fact that both parties need to be assumed to be prudent so it can be supposed that the landlord for example might discount extravagant rent bids and the tenant whilst not overly cautious would be prudent to the risks and returns from the farm.
In assessing rent on agricultural holdings, you are to disregard various matters. These include the following:
- Tenant’s occupation
When assessing rent, consideration is to be given to a hypothetical tenant rather than the actual tenant who is in occupation. This means matters personal to the tenant, for example a contract with a supermarket or a planning permission limited to the tenant, should be disregarded.
- Tenant’s improvements and fixtures
Any improvements made or provision of fixed equipment by the tenant should be disregarded. This may for example include a building provided by the tenant at their cost, with or without consent. The reason being that the landlord should not be benefiting from a rental return on a part of the farm to which they have made no investment or have any obligation to invest in.
- Tenant’s dilapidations
The rent should not be lower by reason of the tenant dilapidating or damaging the holding. Conversely where the landlord has not fulfilled their obligations and as a consequence the holding has deteriorated this can be taken into account in the assessment of rent and might be expected to lead to a lower rent.
Another factor to consider when faced with a rent review is any non-agricultural use on the farm and in particular where that use does not have consent by the landlord. Most agricultural tenancies restrict the tenant to using the holding wholly for agricultural use. By way of example, let’s assume a tenant diversified several years ago by operating a bed and breakfast from the farmhouse and had no consent from the landlord to use the farm for non-agricultural use. In diversifying, let’s assume the tenant at their cost made improvements to the farmhouse to be able to operate a bed and breakfast and that without those improvements the farmhouse would not be compliant with the legal regulations and standards for a bed and breakfast to be operated. Finally let’s assume that the landlord was fully aware that the bed and breakfast was in operation and they had not ever asked the tenant to stop the use. In such an instance there is no written consent to use the holding for non-agricultural use and the landlord would not necessarily be able to argue there had been a variation of the terms of the tenancy as a result of them never preventing the bed and breakfast. Of further consideration is that the bed and breakfast could only be operated as a result of the tenant’s improvements to the farmhouse which are required to be disregarded for the purpose of the rent review. In such an instance the likelihood is that the tenant would have a strong argument that the value of the bed and breakfast use could not be brought into the assessment of rent.
Finally many of us will be giving consideration to the likely implications of Brexit on rent. Brexit is certainly a relevant factor that can be taken into account at a rent review for several reasons. EU farm subsidies currently make up to around 50-60% of UK farm income and it is not yet clear on what levels of support the UK Government will be willing to provide beyond this, or whether it will target subsidies in a different way. There is uncertainty about the level of funding for agri-environment schemes. Brexit will have an effect on our ability to access the single market, trade relations, labour rules and exchange rates. All of these are relevant factors especially when considering budgets for the assessment of rent under the Agricultural Holdings Act 1986. The practical issue with carrying out rent reviews in the early stages of coming out of the EU will be the time it takes for market perceptions and evidence to become clear to inform rent review negotiations. At this stage, careful consideration should be given to the profitability and risk going forward and how this should be taken into account in the assessment of rent.
As with all tenancy matters, there are plenty of factors to consider when faced with a rent review and before an agreement is reached on the rent. Analysing all of the relevant factors is important and there should be certainly no obligation to instantly accept a rental figure proposed by the other side. A tenant should also be aware that they also have the right to serve a notice and instigate a rent review and also use a notice served by their landlord to proceed with a rent review. This is especially important where there are grounds for a rent reduction.
Jonathan Wallis is a Partner at the Wolsingham office of George F White and specialises in providing advice to clients on landlord and tenant matters, valuation and compensation and compulsory purchase matters. Jonathan is also a Tenant Farmers Association Recommended Professional.