Agricultural Tenancy Reform – What you need to know
A consultation process by the Department for Environment, Food and Rural Affairs (DEFRA) closed on 2nd July, which sought opinions on a wide-ranging set of proposals to reform agricultural tenancy law in England.
With around a third of all agricultural land being held under tenancy agreements, the impact of these proposals will be felt by many rural-sector businesses.
The main aims of the reform are to:
- Change the tenancy succession procedure which should ease the entry and exit process for tenants
- Remove existing barriers and encourage landlords and tenants to make improvements to rented holdings
- Encourage investment in long term diversification and environmental projects by incentivising the granting of tenancies of 10 years or more
In order to achieve these aims, the proposed reforms will focus on the following key areas:
AHA Succession Procedure Reform
Under the present system, the passing on of Agricultural Holdings Act (AHA) tenancies is governed by a set of restrictive eligibility tests and rules which dictate they can only be assigned to a limited pool of successors, namely immediate family members.
The proposed reforms will facilitate the passing on of AHA tenancies by relaxing the criteria governing succession. The succession pool will be widened by updating the definition of ‘close family relative’ to include children treated as such through cohabitation and civil marriage, as well as nieces, nephews and grandchildren.
In addition to changes in the rules governing succession rights, it will also be possible to retire at an earlier age than was previously allowed.
It is also proposed that the Commercial Unit Test (which prevents succession by direct family members who have a commercial unit elsewhere) be removed, in order to allow farm businesses to grow. There would also be changes to the Suitability Test with the introduction of a Business Competence Test which would set the minimum standards prospective tenants should meet in order to succeed and places greater emphasis on business acumen.
Assignable AHA Tenancies
Under the proposals, it will be possible for holders of AHA tenancies to assign their tenancy to an unconnected third party, with the landlord receiving an increased rent. Only a single assignment will be permitted, and landlords will have the option to buy out the tenant before assignment takes place. Landlords would also be able to buy back the tenancy or serve an incontestable notice to quit any time after the 25th anniversary of the assignment.
Succession rights would not apply to assigned tenancies and landlords may have the right to refuse proposed tenants on the grounds of suitability.
It is hoped that by reforming the system, new land will be unlocked for prospective and existing tenants.
The reforms will also aim to incentivise landlords to grant Farm Business Tenancies (FBT) of 10 years or more in order to give tenants greater security and more scope to invest in a unit. More than 85% of current FBTs are held for a term of 5 years or less and do not offer holders sufficient scope to plan for the long term.
In order to encourage landlords to offer agreements of 10 years or more, landlords will be able to serve short notices to quit under specific circumstances such as:
- Non-payment of rent
- Death of the tenant
- Landlord has planning consent for non-agricultural use.
There are relatively few new entrants into the sector and it is hoped that the proposed changes will attract greater numbers and encourage investment and innovation.
The consultation period closed on 2nd July and a summary analysis of the responses received will be given 12 weeks after this date, around mid-September 2019.