Agriculture Act brings tenancy reform

Posted by LindaStenner on November 17, 2020

Agriculture Act brings tenancy reform

November 17, 2020 at 9:27 AM

Following several years work by the Tenancy Reform Industry Group and reflecting the significant shifts and anticipated shifts in the agricultural industry, the two main Acts that govern agricultural tenancies are now set to be amended in various ways from January 11, 2021 by virtue of the newly enacted Agriculture Act of 2020.

Some of these changes will take immediate effect from that date, others such as the succession provisions below will take effect once the associated new regulations (enabled by the Act) are written.

There are numerous other ramifications of the Act but here land agent and tenancy specialist Philip Meade at Davis Meade Property Consultants outlines the principle changes to farm tenancy law.

Rent reviews

Following a somewhat unsuccessful attempt to introduce third party expert determination of rent by way of the Deregulation Act of 2015, the flaws in that Act have been addressed and third party expert determination will now be a viable option allowing the expert to be appointed any time before the review date.

The new Agriculture Act also changes the way a landlord’s investment in 1986 Agricultural Holdings Act (AHA) holdings is dealt with by removing the requirement of the arbitrator/third party expert to have regard to the effect that any payments made to the landlord for those improvements (above and beyond the usual rent often by way of a separate arrangement such as a percentage of the capital cost) have on the rent.

As a quid pro quo, any benefit to the tenant from the improvement will now also be disregarded from the rent considerations while the tenant is still making payments for those improvements.

This will hopefully give landlords more certainty about not losing their return on investment at the next rent review, whilst also protecting the tenant from paying twice for the benefit of the investment.

Third party expert determination is now also supplemented by the ability of the parties to a farm tenancy agreement to choose where they apply for their arbitrator or expert, allowing the Central Association of Agricultural Valuers (CAAV) and the Agricultural Law Association (ALA) to also appoint these dispute resolvers as well as the Royal Institute of Chartered Surveyors.

Whether this will have the desired effect of broadening the range and expertise of arbitrators and third party experts remains to be seen.

This change is common to the 1986 Act and the 1995 Agricultural Tenancies Act and is in fact the only major change to the 1995 Act.

Restrictions in tenancy agreements

Many AHA tenancies contain various restrictive clauses that, whilst relevant at the time of signing the agreement which could be decades old, now prevent tenants from engaging in modern day activities that had either not been thought of or are now more acceptable.

These often include good farming practice such as allowing third party stock to clean up pastures at the end of the season as well as, amongst other things, diversifying into non-agricultural activities.

This is likely to be particularly relevant with the introduction in the Agriculture Act of ‘public goods for public money’ where farms are now likely to be looking at utilising, for example, Natural Capital. Doing this sort of thing is likely to be hindered by some current agreements.

These clauses could also prevent tenants from undertaking activities necessary to meet new regulatory requirements.

The new Act introduces an opportunity for tenants to apply through arbitration or third-party determination to resolve such a dispute if the landlord unreasonably refuses consent.

County Council Tenancies

The Act alters the current situation whereby County Councils can issue tenants a notice to quit at age 65, this is now amended to when the tenant has reached the earliest age that he/she can receive the state pension

Succession

Similarly, the age at which a tenant with succession rights under the 1986 Act can retire and nominate a successor has been changed so that applications can be made at any age in the future, allowing tenants more flexibility to decide when to retire.

Some of the conditions that someone wishing to succeed to an AHA tenancy must satisfy have also changed.

Perhaps the most significant is the removal of what is known as the commercial unit test.

Up until now, if an applicant for a tenancy can be shown to be in occupation of a commercial unit (defined by reference to statistics published by the Government) he or she would not be eligible to succeed to an AHA tenancy.

The suitability test is also going to change. Essentially this test was based on an applicant demonstrating their suitability to farm the holding, and took into account their experience and knowledge of farming as well as their health and financial standing.

The Agriculture Act seeks to modernise this process and create a new test so that a tribunal must consider certain matters when deciding if the applicant is suitable and competent to farm the holding ‘commercially to high standards of efficient production and care for the environment’.

The new test is to be set by further regulations yet to be written and may include the experience, training and skills of the applicant in agriculture as well as their health, financial standing and character.

The removal of the commercial unit test is seen as reflecting the greater need for larger modern units and whilst this will no doubt help some applicants, the focus on larger units and ‘high standards of efficient production’ can also be seen as a threat to smaller family farms.

There will need to be a carefully reviewed balance between highly efficient food production and the need for biodiversity and the maintenance of natural capital assets, ‘care for the environment’ may therefore need further qualification.

The new suitability test is likely to generally be a force for good as the current test was seen as setting the standard too low and an improved test will hopefully deliver improved productivity through better practice, although again a careful eye will need to be kept on biodiversity and natural capital assets.

Conclusion

There is still quite a bit of work to be done on the various regulations that will fill in the details of the new Agriculture Act but it is without doubt a significant piece of legislation that will change the way agricultural tenancies operate in England and Wales.

Philip Meade sits on the Tenancy Reform Industry Group which will be working on the Regulations that will add the detail to the Act next year.

For further details contact Philip at the Oswestry office of Davis Meade Property Consultants on 01691 659658 email philipmeade@dmpcuk.com

 

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