Tenant farmers have legal succession rights that mean their children and grandchild can potentially take up their tenancies. John Robson discusses the main considerations.
Making sure your farm business is passed on to the next generation is massively important – especially when it also includes the family home.
Despite having entered the statute book over 30 years ago, the Agricultural Holdings Act 1986 (AHA) still represents the legal framework for succession to many tenancies. Part of the qualifying criteria is under review, but the current position is, in brief, set out below.
Statistics suggest many people may be missing out
Rights under the AHA are particularly important in light of a recent survey by the Central Association of Agricultural Valuers, which revealed that only 17 per cent of AHA succession tenancies were successfully passed to the younger generation.
Although it is no doubt true that some farmers have no successor, some members of the younger generation do not want to go into agriculture. In today’s agricultural climate it may also be that the tenant is farming another ‘commercial unit’ elsewhere, which will prevent him/her on assessment of income, from qualifying as a successor. There is no doubt a substantial number of people who simply miss out.
Act means tenancies will be around for decades to come
The AHA allows two generations of the original tenant to succeed to the tenancy, and close relatives can also be included. Succession can take place on either the death or retirement of the current tenant.
The right to succession gives significant longevity to qualifying tenancies, many of which will be around for several decades. For instance, if a farmer obtained a tenancy at the age of 25 in 1980 and subsequently involved his family in the farming business, his grandson could have a right to the tenancy in 2080.
However, the implications of the legislation are convoluted, and professional advice is key to developing an effective long term succession plan.
The current succession process looks back over seven years of the farm business when determining if the applicant meets the criteria to qualify for succession. Therefore, it’s important that families have conversations around succession many years in advance and plan their farming business activities accordingly.
What happens to succession rights when the tenant dies?
People who wish to take up the tenancy on the death of a tenant must make an application to the First Tier Property Tribunal. Be aware, there can only be one application.
As an applicant you need to keep in mind a number of key issues:
- the original tenancy will have commenced prior to 12 July, 1984
- only two successions can take place
- the Tribunal must be satisfied that the applicant is “eligible, suitable, and that a ‘fair and reasonable’ landlord could not insist on possession for other reasons”
- an application has to be made within three months of the death of the tenant (this deadline is legally defined there is no flexibility)
- landlords must serve any ‘notice to quit’ within three months of being notified of the tenant’s death.
- The prospective tenant must not farm another commercial unit.
The rules on eligibility require the applicant to be be a close relative of the deceased, for example spouse, partner, sibling, or treated child.
The process regarding succession on retirement
- Tenants wishing to retire must be at least 65 years old or permanently incapacitated (physically and/or mentally)
- Must serve a Retirement Notice to the Landlord and apply to the Tribunal within one month
- Unlike the rules on death, applicants cannot ask to be treated as eligible and must meet the livelihood requirements.
- If the application fails, you cannot make another attempt when the tenant dies.
Most tenants and successors leave the succession process until the tenant’s death because the rules are easier. Having said that, elderly tenants should feel free to discuss their succession plans with their landlord. Indeed, you can reach a succession agreement without proceeding to a formal Tribunal application.
Tenancy succession is highly complex, with successors needing to meet strict criteria in a very limited timeframe to qualify; it’s imperative to seek expert advice at the earliest opportunity.