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.
Simon Britton, Partner at George F. White, explains the importance of knowledge sharing in farming and discusses their upcoming seminar at the National Sheep Associate (NSA) North Sheep event.
It’s becoming increasingly difficult to predict the future impact that our potential exit from the EU will have on the economy. As we’ve discussed before, in order to minimise the impact of a potential reduction in direct subsidy payments and disruption of our free trade agreements; farmers need to review their businesses and endeavour to become a top performing farm business. There’re a number of characteristics of a top performing farm business, including budgeting, knowledge sharing, benchmarking and most importantly, a clear direction of travel; changing 100 things by 1% rather than one thing by 100%.
On Wednesday 5th June, the bi-annual NSA North Sheep event will take place at New Hall Farm in Settle, North Yorkshire. Over the years, their seminar programme has become one of the most prestigious in the calendar of summer events; challenging, inspiring and educating the sheep farming community whilst promoting knowledge sharing around, sometimes, more difficult subjects. We’re extremely proud to be sponsoring the seminar programme again this year; in times of uncertainty it’s vital that we take every opportunity to discuss the safeguarding of our farming businesses by improving their performance.
Managing Partner, Robyn Peat, and myself, will be kicking off proceedings at 10am in the Seminar Marquee, discussing Share Farming Agreements (SFA), Contract Farming Agreements (CFA) as well as obtaining a Farm Business Tenancy (FBT).
Over the last two to three years, our dedicated team of 14 farm business consultants have seen a significant increase in opportunities for joint venture agreements and land being let on farms across the north of England. This increase is, in part, due to retiring farmers but also businesses that are scaling down due to a significant increase in machinery costs. Agreements can be structured that’ll allow the farmer to still reside in the farm house, continuing to farm the land, yet not having to employ all the labour and machinery that’s required in modern farming. The uncertainty, namely Brexit, hasn’t helped and we feel that this has accelerated a number of retirements and exits from agriculture; however, this offers opportunity for others. It’s important to give farmers a better understanding of the opportunities open to them through joint venture agreements and structured applications for farm business opportunities.
Our talks will give attendees a much better understanding of how and when to use a SFA or CFA and how to get to the top of the list when applying for a FBT.
In order for some farming businesses to expand, their only opportunity could be applying for a FBT. The seminar will give the attendees clear instruction as to how to apply and what to include in the initial application in order to get you to the interview stage. We’ve been incredibly successful in obtaining FBTs for our clients and know what goes into making a credible application.
The attendees will gain valuable knowledge that’ll help them make decisions and assess opportunities that may come their way. We’ll clearly outline how to best take advantage of these opportunities and make sure that when you submit an application, or for that matter establish a SFA or a CFA, it’s for the right reasons and it’s going to fulfil your business objectives.
In the current market, as a team of farm business consultants, we think that there’ll be a number of opportunities arising in the future and it’s imperative that farmers understand these opportunities and how best to take advantage of them. We know that our industry has to change and farm businesses must consider how much they know about their existing business, how change will affect their business, how they’re preparing for change, and also opportunities that will arise in the future.
As we mentioned, knowledge sharing is imperative, I can guarantee that when you come to NSA North Sheep, and attend one of the seminars, you will learn something new and you’ll and benefit from it.