Agricultural tenancy considerations: your key legal update

The last year has seen an enormous number of measures putting into effect the Agricultural Transition Plan, many of which have repercussions on the agricultural tenanted sector. We have discussed in previous articles the restrictions on tenants wishing to enter schemes and do works which are strictly outside the terms of their tenancies, either because of a blanket ban on scheme entry without consent or because of the strict definition of agriculture particularly in Agricultural Holdings Act tenancies.

Amongst other constraints were landlords’ fear of loss of management control, loss of Agricultural Property Relief for IHT purposes and, if the scheme were for example principally environmental rather than agricultural, even conversion of the tenancy itself away from agricultural to a business tenancy. Following on from the Agriculture Act 2020, Regulations were introduced to enable AHA tenants to apply for arbitration if a landlord refuses consent for entry into a public finance scheme, although there is no equivalent to this right for Farm Business Tenants. Entry into private schemes such as carbon sequestration trading would depend on the terms of the tenancy.

The Rock Review

In October last year Baroness Rock produced her Review, ‘Working Together for a Vibrant Tenanted Sector,’ with over 70 recommendations with an overall view that new public and private schemes should be accessible to tenants to enable them to deliver food security and environmental benefits. Heavily weighted in favour of tenants not landlords, the Review and its 18 headline recommendations are currently under consideration by DEFRA.

The Report does not support the collaborative route advocated in the Tenancy Reform Industry Group Code of Practice for Landlord consents and expresses concern that the average length of FBTs is around 3 years. It recommends that all ELM Schemes should be accessible and open to tenant farmers and states the basic principle that tenants should not need landlord’s consent to enter schemes, and landlords should not be able to enter land unilaterally. Where there is alignment between term length and scheme length the tenant should automatically be able to enter unilaterally.

Landlords’ concerns on the matters mentioned here are referred to but many of these are mentioned in the longer-term action plan rather than measures for immediate action. The Report requests that DEFRA should consult on legislative change on the test of unreasonableness and extending the 2021 provision for AHA tenancies referred to above to FBTs. The complex matter of the definition of agriculture, universally accepted as completely out of touch with modern farming not to mention ELMS, is suggested to be referred to the Law Commission, alongside the outdated rules of good husbandry and tax definitions for various reliefs to the Treasury.

The Treasury is invited to consider tax incentives to permit tenants entry into the various schemes, such as providing that 100% APR should only be available to Landlords for lets of 8 years plus. There has even been suggestion in subsequent industry discussion of a penalty approach to landlords who take back land to put in a scheme themselves, such as claims being frozen for a year. Unsurprisingly, many landlords are sitting on their hands at the moment and only granting short term lets whilst the detail of these recommendations emerge, DEFRA has indicated that there will be a response “soon” but there is clearly going to be a gap between rules coming into force improving the tenants’ position and legislation on what is agriculture for land tenure and tax purposes.

If landlords are considering long lets, the advice has to be to reserve to the landlord, all carbon, carbon sequestration potential, natural capital, woodland and the right to enter schemes and to bar tenants from entering schemes or land covenants (to be considered in a subsequent article) without Landlords’ consent which may be withheld reasonably in the event of alteration of the status of the tenancy for tenancy or tax purposes. The other alternative is to consider joint ventures between the landowner and farmer such as share farming where the landlord can be sure of retaining some long-term management control.

ELMS in detail

At the Oxford Farming Conference in January, Mark Spencer announced a number of measures designed to incentivise farmers to enter the Sustainable Farming Incentive scheme (the lowest tier of ELMS) sooner rather than later, which to date has had only a modest take up.

Reference was made to the new six standards which will qualify in 2023/24. These are the hedgerow standard, integrated pest control standard, nutrient management standard, arable and horticultural land standard, improves grassland standard and low input grassland standard. There has already been some criticism that arable and lowland rather than upland is favoured so far. The emphasis was on the new scheme being much less bureaucratic than BPS, inspections being collaborative and new payments for administration costs of up to £1000 as well as increased speed of payments. The Countryside Stewardship Scheme (CSS+) was expanding in scope with payments likely to increase by a median of 10%. A new round of larger Landscape Recovery projects will be awarded later in the year following on from the 22 already up and running.

These announcements were followed at the end of January by publication of DEFRA’s 123-page policy document on how they will pay for environmental goods and services. The paper is clearly written and explains the plan going further. It still leaves many questions unanswered, however, on tenancies it states that building on from the Rock Review recommendations, agreements last for 3 years with the ability to leave if management control is lost in that period . Reference is then made to further recommendations of Rock so this is clearly a case of watch this space.

How Moore Barlow can help

All in all, this is a time of massive change with farmers and landowners having to adapt to new rules, legislation issues relating to natural capital, carbon and woodland schemes, biodiversity net gain and much more.

Our rural team is happy to expand on the issues raised above. Please contact Sarah Jordan if you have queries.