Farm Business Tenancies: who drafts what for whom?

When drafting a farm business tenancy, it’s easy to get confused as to which documents a solicitor prepares and which ones a land agent can prepare.

From a tenant’s point of view, generally speaking, the longer the term, the greater the need for a landlord’s title to be investigated by a solicitor – almost as if it were a purchase. It’s always important to check the covenants on the landlord’s title for any restrictions the tenant’s use and enjoyment of the land, for the existence and position of pipelines, for rights of way and other easements, and for other matters affecting the title such as mortgages of the Land-lord’s title.

Our Litigation team recently helped a tenant who’d agreed a long-term farm business tenancy (FBT) with a landlord, without legal advice. When the landlord defaulted on their mortgages, the two banks pressed possession proceedings against the tenant. Fortunately, we were able to agree a settlement with the banks for the tenant. Whether landlord or tenant, more than ever this is a time where legal review is needed.

Under the Law of Property Act 1925, leases of land for a term longer than three years must be in the form of a deed, and prepared by a solicitor. Under the Land Registration Act 2002, a lease of over seven years granted out of either an unregistered or registered title is itself registrable as a new leasehold title. The Legal Services Act 2007 makes it a criminal offence for a “reserved legal activity” to be carried out by a person neither authorised nor exempt. The six categories of reserved activities include reserved instrument activities which cover, amongst other preparation of instruments or transfers, preparation of leases and lodgin documents at the Land Registry.

For FBTs but not tenancies under the Agricultural Holdings Act 1986, there’s an exemption for Fellows of the CAAV and Fellows and Members of the RICS to draft FBTs. This authorisation would cover drafting a fixed-term FBT for over three years but not lodging it at the Land Registry or dealing with the Stamp Duty Land Tax return. It doesn’t cover deeds relating to 1986 Act tenancies, such as a deed of surrender or variation, or commercial lettings under the 1954 Act.

There are several good standard precedents for Farm Business Tenancies prepared by industry bodies, and which are used widely. Given the freedom of contract, however, for FBTs, which is part of their appeal, it’s important that any draftsman considers the individual circumstances of every case and has a sound understanding of basic common law principles such as forfeiture. Such agreements don’t have the backup of the incontestable Notices to Quit regime under the 1986 Act, including the Notice to Pay or a Notice to Remedy Procedure. It is therefore vital to have a well-drafted forfeiture clause into which there’s been legal input.

It’s also possible that some of these precedents are drafted before contemplation of the new ELMs regime and will not cover matters such as delinking and one-off capital payments, which have been discussed in other articles. Even quite short-term agreements could be impacted as the one-off capital payments to tenants are envisaged in the next couple of years.

Moreover, many of the activities envisaged as qualifying under ELMs could breach standard agricultural-user clauses and this will also need to be considered when drafting a new FBT. Whether you are a tenant or landlord, if you’re entering into a farm business tenancy agreement and would like advice, please get in touch with our rural property solicitors.