Proposals for agricultural tenancy reform

Moore Blatch has recently responded to the Defra Consultation paper on proposed reform of agricultural tenancy legislation, based on our wide experience of tenanted agricultural land, acting both for landlords and tenants.

With Brexit, the UK farming industry is potentially facing its biggest change since 1948. Since the introduction of farm business tenancies by the Agricultural Tenancies Act in 1995, the system whereby new lettings fall under that legislation (other than old-style succession tenancies) has basically worked well. The greater freedom of contract introduced in 1995 has enabled greater diversification without loss of agricultural status. This, coupled with 100% Agricultural Property Relief for tenancies granted post-1995, has encouraged landlords to let more land.

AHA tenancies

When rights of succession were abolished for new tenancies post-July 1984, it was anticipated that these old-style tenancies, governed by the cumbersome procedure of the 1986 Act, would eventually wither on the vine. Indeed, the figures quoted in the Consultation Paper bear this out. It is surprising, therefore, to find several provisions in the Paper which would substantially extend their life. Perhaps the most controversial of these is that tenants who still have a right to further successions, but have no eligible relatives, may be permitted to assign their tenancy to an independent third party at a premium, for a fixed term of 25 years. The rent for this assigned tenancy, it is proposed, would be akin to an FBT rental, but in other respects the tenancy would remain governed by the AHA 1986. As proposed, this assignment would not be a new tenancy granted post-1995, and therefore would not qualify (as a new 25-year FBT would) for 100% APR without substantive reform to the tax regime. Given that proposals for reform of capital taxes are seemingly being addressed completely separately, this is concerning. A landlord faced with such an assignment would have a right to buy out the tenant (the basis of the value is not considered) or to control suitability of the incoming tenant, but that suitability test is not as stringent as currently prevails on a succession application. In addition, many farms and estates have made plans on the assumption that certain tenancies will be coming to an end when the current tenant dies or retires. The practical advice to a landlord at the moment, where a tenant with no successions is nearing retirement, appears, therefore, to be to negotiate termination sooner rather than later, in case this provision is enacted. The Paper states that such a measure would facilitate more new entrants into the industry, but arguably the assignees who could afford the level of premium a tenant giving up a farmhouse would likely require are unlikely to be new tenants. There is also a surprising proposal to allow grandchildren as eligible successors; this effectively prolongs the succession tenancy by a third generation and was beyond the concept even of the 1976 Act.

There are proposals to abolish tight restrictions on use of the holding, standard in most 1986 Act tenancies. Care needs to be taken here as, unlike FBTs where greater non-agricultural use can be permitted without loss of agricultural status, it is clauses like these in AHA tenancies which stop the tenancy falling under the Landlord and Tenant Act 1954 and business tenancies. Perhaps a complete rethink is needed with regard to the definition of agriculture suited to modern practices and consistent for tenancy tax, planning and rating legislation.

FBT reform

Some of the procedural reforms suggested in the Consultation Paper (e.g. enabling agreed successions without an application to the tribunal) are uncontroversial and desirable. There is insufficient space in this article to cover them all, but one further suggested amendment to note is the proposal to abolish restrictions on short-notice provisions in long-term FBTs in certain circumstances. Normally, periodic FBTs over two years cannot be terminated in whole or in part without service of a notice to terminate of more than one year and less than two, ending on the term date of the tenancy. This is often frustrating to landlords intending to develop part of a holding. What is proposed is a relaxation of this provision in new FBTs of ten years or more. Why this cannot be brought in for other FBTs is unclear. It would certainly encourage greater use of tenancies over two years, as would the suggested provisions for short-notice termination on non-payment of rent, death, insolvency and breach of tenancy terms. This would be a great improvement on the current unwieldy remedy of forfeiture.

The results of the consultation exercise will be published later in the year. Although some reform may be desirable, it is hoped the Government might pause for breath and ascertain the effect of any new post-Brexit subsidy regime prior to legislating on tenancies.