Tag Archive: Tenancy Succession
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 email@example.com or 07854 903631.
Although the ability to grant new secure Agricultural Holdings Act 1986 tenancies all but stopped in 1995, there are still an incredible amount of such tenancies or implied tenancies in operation, particularly in certain parts of Yorkshire with large landed estates or institutional landowners. It’s a niche area of work and very few now know the intricacies of the Act and what can and can’t be achieved on both sides of the fence.
The ability for future generations to succeed to tenancies granted pre ’84 is one of the significant benefits for the tenant and of course a downside to the landlord. For both parties, preparation is a key part, timescales are extremely tight and neither can afford to miss one.
Succession can occur on death or retirement of the current tenant. On death, the person wishing to succeed must make an application within 3 month of the date of death and if you fail to do it, you’ll miss the opportunity to succeed. I’d recommend that any tenant makes specific instructions in their will so it is not overlooked by the family. Similarly for a Landlord, they must serve a Notice To Quit (Case G) within 3 months of receiving written confirmation of the Tenants death. Don’t delay, if you are aware of the Tenants death, get the notice served straight away; failure may mean you lose the ability to serve a NTQ and the tenancy could end up being vested with the deceased Tenants estate/executors.
For a tenant, the onus is on them to prove to the Landlord and the Tribunal that they are both eligible and suitable to succeed. You need to be a close relative (you can’t skip a generation); secondly you can’t occupy another commercial unit – commercial unit means another farm in this context (there’s a calculation to work this out; if renting other land try and ensure it is for less than 5 years to avoid it being taken into account) and thirdly, your principle source of livelihood needs to come from the farm business or a business of which the holding forms a part. This last point is often overlooked until the last minute; a tenant needs to be careful of other earnings in the family, say from their partner who may have another job and could be seen to be the main earner or from other diversified income etc. It’s about planning and getting the paperwork right at least 5 years in advance. Similarly for a landlord, getting to grips with the earnings and where they come from is often the most important part of trying to challenge the application.
In reality, very few applications go to Tribunal as most tenants and landlords have a good working relationship and both plan in advance to ensure the smooth transition from one generation to the next. For me, a tenant and his son or daughter should be having those discussions early on with the landlord; most are more than amenable to a succession and would prefer to see the new younger blood come through with ideas; as they say it’s good to talk and importantly avoid conflict.
For more information or to discuss further contact Louis Fell on 07966 924345 or you can email on firstname.lastname@example.org.