Tenancy shakeup underlines need for succession planning
Defra is consulting on options for reforming agricultural tenancy law which could affect many farm businesses and estates.
The government is concerned that total farm productivity in the UK has lagged behind our major competitors for the last 40 years and wants to review the tenanted sector to remove perceived barriers to productivity and investment.
At the moment the consultation has raised more questions than answers but landlords and tenants should be carefully monitoring what is happening as there could be significant repercussions or opportunities for both sides.
The most important message for tenant farmers is that if they haven’t already done so they should consider their succession plan now.
Draft proposals include giving tenants the option to assign their Agricultural Holdings Act tenancy subject to a right for the landlord to vet the new tenant or negotiate to buy out the existing tenant and end the tenancy. The assigned tenancy would be a fixed term of 25 years and at an open market rent.
The agreement remains under the AHA and the Notice to Quit after 25 years would be incontestable. The aim of this proposal is to help older tenants with no family successor to retire and make the land available either for a new tenant or for the landlord to take back in hand.
Another proposal would bar succession rights when the tenant reached five years past the state pension age with an eight-year warning period before the change takes place to encourage earlier succession planning. The commercial unit test might also be removed enabling relatives who already occupy a commercial farm business to succeed to an AHA tenancy. This would modernise the law and enable proven successful farmers to succeed.
The suitability test is also under scrutiny and proposals include a higher bar in terms of a more up to date “business competency” test and succession eligibility being widened to include nieces, nephews and grandchildren of the tenant who are already working as part of the family farm business.
Restrictive clauses in AHAs are also being looked at to give more opportunity for tenants to vary outdated clauses in their tenancy agreements where these clauses might be a barrier to productivity or environmental improvements.
To encourage longer term Farm Business Tenancies Defra is also suggesting new shorter notices to quit for FBTs of 10 years or more in specific circumstances such as if the tenant is not paying rent, a tenant’s death or if planning permission for non-agricultural development is obtained.
Some radical ideas are on the table which even if not fully implemented now could be back on the agenda in 10 to 15 years’ time. The reform consultation gives us an indication of current thinking so make sure you have your succession options in place in readiness for change.
Matthew Anwyl is managing partner at Berrys