Shropshire Star

Plan ahead on tenancies, or your hands could be tied

Letting out a farm building for non-agricultural use can be a good source of additional income for a farming business and is a diversification activity that we are encountering more often.

Published
James Neame MRICS FAAV, rural chartered surveyor, Nock Deighton Agricultural

A building occupied for business and commercial purposes is governed by the Landlord and Tenant Act 1954. This is an important piece of legislation that needs to be understood prior to entering into an agreement with a potential tenant.

The reason for this is that where a tenancy of a property is created for a business or commercial use with a defined term, Part II of the Landlord and Tenant Act 1954 applies. This gives the tenant an automatic right to renew the agreement on the expiry of the initial term and the right to apply for a new agreement through the courts.

The automatic right for the tenant to renew their agreement is a matter that needs to be considered carefully and is often something landlords want to avoid.

Not being able to regain vacant possession can have detrimental impacts should you wish to sell the property, use it for another purpose or incorporate it back into the farming enterprise.

Therefore, when agreeing the terms of a new tenancy for a business or commercial premises, it is important to consider the option of “contracting out” of the security of tenure provisions of the Act that allow for the tenant to automatically renew their agreement.

To contract out of the provisions, a prescribed procedure needs to be undertaken which entails serving a notice on the tenant prior to the tenancy commencing, the tenant declaring that they understand that they are contracting out of the provisions and the lease being amended to include the appropriate wording to that effect.

If a lease that has contracted out of the Landlord and Tenant Act 1954 comes to the end of its term, both the landlord and tenant are in a position to renegotiate a new agreement should they wish. If a lease has not been contracted out of the security of tenure provisions, the only option available to the landlord is to serve a notice on the tenant to regain possession and the notice must be reliant on one of seven main grounds.

With the above in mind, it is worth considering that if you let a building or premises for commercial/business use and the agreement was verbal, it is unlikely that the security of tenure provisions for the tenant have been contracted out of.

It would always be our advice to seek professional and legal advice prior to entering into an lease governed by the Landlord and Tenant Act 1954 and, where possible, always put pen to paper when it comes to negotiating and agreeing a new tenancy.

James Neame MRICS FAAV, rural chartered surveyor, Nock Deighton Agricultural LLP