Almost two years ago the Tenancy Reform Industry Group (TRIG) called for changes to agricultural tenancies.
Their proposals were excluded from the Agriculture Bill but the Department for Environment, Food and Rural Affairs (DEFRA) has now called for consultation focusing on the future of tenancies. There are just two weeks to go until the consultation closes. The main focuses of the consultation are:
Enabling tenants of Agricultural Holdings Act (AHA) tenancies to assign their lease to new tenant farmers on their retirement ie to a wider succession pool, at an earlier date
A number of elderly AHA tenants without successors keep hold of their tenancy, live at the farmhouse, but engage a contractor to farm the land. To enable new entrant farmers, it is suggested that AHA tenants be given the opportunity to assign their tenancy to a third party who will pay the landlord an increased rent.
This will be facilitated in two ways. Firstly, the succession pool would be widened to allow succession from nieces, nephews and stepchildren, rather than the limited pool that currently may succeed, if they fulfil strict eligibility and suitability tests. Secondly, for AHA tenants with no successor, they will be given the opportunity to assign their tenancy to a third party who will pay the landlord an increased rent.
How this will work we don’t yet know but ideas at the moment suggest that the landlord will be given the opportunity to purchase the remainder of the AHA tenancy before it is offered to a third party. There will be a standard formula dictating the amount of compensation that the tenant will receive (the proposed formula is very complex and is likely to be replaced by a multiple of the annual rent).
However, critics say that this proposal won’t work. If AHA tenants wanted to sell the remainder of their tenancy, they could sell it back to the landlord. The majority of landlords would be more than happy to pay to release their land from the tenancy and take it back in hand, or let it for a higher rent under a Farm Business Tenancy (FBT).
Incentivising landlords to let new Farm Business Tenancies of 10 years or more, giving tenants the opportunity to build a business
Tenant farmers want the government to give tax incentives for landlords to let on longer term. Currently 85% are for 5 years or less, leaving tenants unable to plan long term diversification or environmental projects. The idea which has been recommended to DEFRA is an FBT of a minimum ten year term, where there is no ability for the landlord to serve a break notice. However, a small number of circumstances would give the landlord the ability to bring the tenancy to an end. These are:
- non-payment of rent
- a breach of a term of the tenancy
- the death of the tenant
- the removal of land for non-agricultural use
Removing barriers which may currently dis-incentivise landlords and tenants from investing and making improvements to rented holdings
Finally, DEFRA are also looking for evidence as to whether or not current restrictions on agricultural mortgages are a barrier to landowners wishing to let land. They are also questioning whether there is a need to provide additional protections against the repossession of agricultural land for those farm business borrowers who are unable to meet finance repayments under secured loans. This is a tricky one though, as the government would need to legislate on the bank’s commercial terms, which could prove difficult to do.
Taylor Vinters will be putting together a response to the consultation, which closes in under two weeks. We’d love to include your views – how will this impact you and your business? Please do get in touch with your comments. Or to respond directly to DEFRA, click here.