The Tenancy Reform Industry Group (TRIG) has published a report with recommendations on a reform of agricultural tenancies. Following this report, Defra has launched a consultation on the proposed changes, which will run until 2 July 2019.
The plans put forward are intended to modernise agricultural tenancy legislation, remove barriers to productivity improvements and make it easier to enter and exit the industry.
The proposed reforms include the following:
Assignable Agricultural Holdings Act (AHA) Tenancies
Currently, tenants of AHA tenancies with succession rights can only assign their tenancy to a close relative on the death or retirement of the existing tenant and the incoming tenant must satisfy suitability tests. This can be extremely restrictive as the existing tenant may not have a qualifying successor.
The proposals would provide the existing tenant with the ability to assign their tenancy to a new third party tenant farmer. The new tenancy is likely to be granted for at least 25 years, with the rent being an open market rent. Succession rights would not apply to the new tenancy and the new tenant would not be able to assign the tenancy again, as the assignment is proposed to be a once only process.
This would allow the tenancy to be passed on to a wider class of people, thus potentially enabling new entrants into the industry and it would also enable the existing tenant to step back and retire and unlock the financial value of their tenancy, should they wish to do so. From the landlord’s perspective, they would have greater certainty as to when the tenancy will end (due to an incontestable notice to quit 25 years after the assignment).
Reform of Succession Rights
TRIG has supported the introduction of an upper age limit for succession. Currently, there is a right for close family relatives to apply to succeed an AHA tenancy once the current tenant reaches 5 years past the state pension age. The proposal would remove this right, so that there is an upper age limit for when succession applications can be made. Again, this could help to encourage new entrants into the industry by promoting early handovers of the AHA tenancy, although it would require current tenants to review their circumstances and potentially alter their future plans.
In addition, there is some support for changing the suitability test which an incoming tenant must satisfy. One suggestion is to remove the current “Commercial Unit Test”, so that a close family relative who already occupies a commercial farm would be eligible to succeed to an AHA holding in future if they satisfy the other eligibility provisions.
In addition to this, a “Business Competency Test” has been suggested to replace the current “Suitability Test”, in order to assess the applicant’s skills to farm commercially and efficiently.
Furthermore, the proposals suggest amending the classes of people who can apply to succeed an AHA tenancy e.g. by extending the class to children of cohabiting partners, nieces, nephews and grandchildren of the tenant.
Improved Security for Farm Business Tenancies (FBTs)
As an incentive for landlords to offer longer term FBTs (of 10 years or more), the proposals suggest shorter termination procedures in specific circumstances e.g. the non payment of rent, death of the tenant or when Landlord has planning consent.
If this is brought in, it should provide more security for a tenant and it would give more confidence in investing in the land.
However, there have also been criticisms that the reforms could go further in this regard e.g. by giving inheritance tax relief to landlords if FBTs are for 10 years or more.
At present, the proposals discussed in this article are still subject to consultation and Defra’s deadline for responses to the consultation is 2 July 2019.
If you would like to discuss how the proposals might affect your family or business, please call us and speak to a solicitor within our specialist Agricultural Law department here at Crombie Wilkinson.