Negotiating a farm business tenancy – what to consider

Posted:

Julie Liddle, director at Robson & Liddle Chartered Surveyors, offers advice on how farmers should approach negotiating a Farm Business Tenancy and how to avoid future surprises.

Knowing the type of tenancy you hold, or even that there is one, is the first step in successfully negotiating a new one. If you do not have a written tenancy, all I will say at this point is seek advice from a rural surveyor.

If you were on the land prior to 1 September 1995 you may have an Agricultural Holdings Act 1986 Tenancy (“AHA”) which means you have a right to remain on the land for at least your lifetime. If you had occupation prior to 12 July 1984, you and two successors in title (for example a child and grandchild) may have security of tenure. If you have an AHA, there are limited circumstances where possession can be obtained by a landlord.

If the land has been occupied from a date after 1 September 1995, it will likely mean you have a Farm Business Tenancy under the Agricultural Tenancies Act 1995.

Get familiar with duration and termination

To qualify as a Farm Business Tenancy, the land must be farmed throughout the tenancy as a trade or business. The landlord and tenant must also have exchanged notice before the tenancy began confirming their intention for the tenancy to remain a Farm Business Tenancy throughout its duration. Alternatively, the tenancy must be primarily agricultural.

There are clear rules around termination. For example, if the tenancy is granted for a fixed term of two years or less, it will end automatically at the end of the fixed term without notice from either party. If the tenancy is a yearly tenancy, or a fixed term longer than two years, notice of a minimum of 12 months must be given by either party to expire on an anniversary of the start of tenancy.

So, a minimum of 12 months’ notice means planning the termination of the lease is vital. Other periodic tenancies need a full period’s notice, so one month for a monthly tenancy, and so on.

Get to know everything about the land

Before agreeing a lease and signing any tenancy agreement, you should ensure all the benefits and conditions associated with the land and property are known. What are the access arrangements, what third party easements exist, is the land within any schemes, are there any land designations, are there an outstanding planning permissions? There is much to consider.

Avoid surprises on rent reviews

When negotiating a farm business tenancy, it’s up to the parties involved to agree the frequency of rent review, or to agree that there will be no rent review. If there is to be a review then both parties can agree a formula for calculating rent. If nothing is agreed, either party can demand a rent review every three years. Making rent review arrangements part of the tenancy wording will help avoid nasty surprises or difficult conversations further down the line.

Consider the tax issues

This is often overlooked when tenancies are agreed, but depending on the length and value of the lease, the tenant will be responsible for paying Stamp Duty Land Tax. Furthermore, if the lease is for longer than seven years it needs to be registered at the Land Registry against landlord’s title.

Understand compensation arrangements

Tenants are entitled to receive compensation at the end of the tenancy for physical improvements made to the farm, providing such improvements were made with the landlord’s consent.

Tenants can also be entitled to compensation for any other improvements which increase the value of the holding, for example the obtaining of planning permission, providing such improvements remain with the farm when the tenant leaves. Landlords and tenants are free to agree an upper limit on the amount of any compensation payable and this must be in writing.

Seek the right advice

Entering into a Farm Business Tenancy is not something you should do without taking professional advice. There are just too many variables that can be overlooked. A rural surveyor is best placed to help you draw up your tenancy as they understand the nuances of agricultural tenancies.

For advice on any rural land and property issues, call Julie on 01768 254 354.