Agricultural tenancy review: the key to a productive future

A consultation into reforms to agricultural tenancy law is seeking to remove some of the barriers into the industry currently triggered by legacy agreements under the outdated Agricultural Holdings Act 1986. With around a third of agricultural land in England currently let under a wide number of different agreements, widespread tenancy reform is believed to be pivotal to attracting the next generation of farmers.

The Agricultural Tenancy Reform has been designed to revitalise the farming industry and address some of the factors that have resulted in the UK’s agricultural productivity falling behind that of its European counterparts. The reform aims to provide an enabling environment for improvements and investment, support new entrants and next-generation farmers and provide tenant farmers with access to new agricultural and land management schemes.

While there are a number of key issues within the reform, the need to encourage new entrants into the industry, while allowing current tenant farmers a way to retire, is expected to take precedence. Historically, legacy agreements under the Agricultural Holdings Act 1986 have presented several significant issues for tenants looking to exit the farming business.

If granted before 12 July 1984, the Act carries statutory succession rights, meaning that a close relative can apply to take over the tenancy. While this does provide advantages for those who wish for the farm to remain within the family, this ‘default mode’ does create issues for those tenants who do not have a suitable family member.
 
Moreover, the lifetime security of tenure provided by the Act can be a drawback for farmers who no longer wish to run the farm or find that they can no longer farm positively. The idea of handing over the farm can be extremely emotional and is often further intensified by a lack of finances, as often tenant farmers do not have pensions.

Additionally, most tenancies also include a tenant’s covenant that the farm can only be used for agricultural purposes. This can be one of the main obstacles to diversification for existing and incoming tenants.

While the consultation is likely to provide a number of recommendations, one of the key areas of expected change is the removal of the minimum ‘retirement’ age for a lifetime succession. This is intended to encourage early succession planning and unlock potential productivity through the new skills brought in by younger successors.
However, with this comes another barrier, the issue of where farmers can move to after leaving the industry. The farm may well have been their home for the last 25 years, if not longer, and the other housing options are often unsuitable for households who no longer wish to farm yet wish to remain in a rural setting.

With this in mind, one of the key proposals within the consultation is to provide the existing tenant with the ability to assign their tenancy to a new tenant farmer from outside the family. This would provide an opportunity for older tenants, with no suitable successor, to reassign their tenancy for a one-off payment, unlocking land for incoming tenants and opening up the opportunities for new entrants to the industry. Yet, with other housing options being so expensive, it remains to be seen as to whether the payment will give the outgoing farmer enough capital to relocate with, and, if so, whether the government will be willing to step in to support these outgoing tenants.

In the meantime, charities such as the Addington Fund are working to provide homes for farming families who have had to leave the industry, and in turn their homes. Such organisations operate affordable rural housing schemes to provide properties, mostly in the locality of farms, which are then rented out at an ‘affordable rent’ level.

While the ability for existing tenants to reassign their tenancy presents a huge opportunity for the industry, it is likely to be met with some resistance from landlords who will be unable to object to an incoming tenant, as long as the proposed tenant has sufficient expertise and vision for the business. However, should the landlord wish to take on the tenancy themselves, there may be an option to buy out the tenant before the assignment takes place.

The introduction of a section on agricultural business competence to the suitability test that successors must pass in order to take on the tenancy of a farm could ensure that only skilled, commercially-minded individuals can succeed.  This would raise the bar for those applying for a tenancy.

Furthermore, changes to taxation policies to encourage longer tenancies and diversification (which at present can give landlords a huge tax problem) would encourage better long-term relationships between tenants and landlords.

It is no secret that the farming industry is notoriously difficult to get into, with vastly fluctuating income and returns. However, changes to the tenancy succession process and the removal of some of the barriers which currently discourage tenants from making improvements to farms have the potential to have a positive and long-lasting impact on the future productivity of the UK farming industry.
 
Article writtern by Peter Snodgrass, partner and head of agriculture at the law firm, Shakespeare Martineau.