It is well known that land with planning permission for development can achieve a far higher price than farmland. At the time of writing, agricultural land in England is being sold for approximately £10,000 per acre, whereas land with planning permission for development could be worth more than £2,000,000 per acre in some areas. However before development can actually begin, vacant possession of the land in question must be achieved. Whether you are a landowner wishing to diversify, or you have perhaps inherited or are interested in buying or selling agricultural land, it is important to understand the different types of agricultural tenancies and the ways they may be bought to an end. Here at BHW Solicitors our team of experienced agricultural law solicitors are able to guide you through what can be a confusing and complex area of law.
Agricultural Holding or Farm Business Tenancy?
The first step is to determine what type of tenancy you are dealing with. The old regime is an agricultural holding governed by the Agricultural Holdings Act 1986 (“AHA 1986”). If the tenancy was granted prior to 1st September 1995, it is likely to be an agricultural holding. Many agricultural tenancies are not written agreements but oral only. It therefore may be very difficult to determine when they began and the terms on which they were originally agreed may be long forgotten, therefore open to debate.
If, however, the tenancy was granted after 1st September 1995, it will be a Farm Business Tenancy (“FBT”) unless it falls into one of the exceptions under section 2 of the AHA 1986. The land must be at least partially commercially farmed throughout the term and must be granted as conditional on being an FBT and an agricultural tenancy. Therefore a grazing licence, for example, is not an FBT.
It is also important to be aware that there are other types of tenancy that may involve agricultural land that are not either agricultural holdings or FBTs. A riding school where the horses also graze on the land, for example, would be a business tenancy governed by the Landlord and Tenant Act 1954. Agricultural workers’ dwellings are also not agricultural tenancies, as the tenant cannot be employed by the landlord in an agricultural tenancy. These other types of tenancy are beyond the scope of this article, but BHW Solicitors Commercial Property team or BHW Residential can provide advice on these areas of law.
Terminating an Agricultural Holding
The first thing to mention is that this is not easy! Tenants of agricultural holdings under the AHA 1986 have the benefit of security of tenure and the circumstances under which a notice to quit can properly and effectively operate are reduced to very few. Any year to year tenancy must be terminated by a notice to quit, but note that other tenancies of more than year to year or other fixed-term tenancies, or leases for life or very early tenancies (those granted prior to 1st January 1921) may not have security.
There is also the problem of succession rights, which operates to allow close relatives to assume the tenancy under certain statutory conditions, chiefly on the death of a sole surviving tenant or the retirement of a tenant of a yearly tenancy – in both cases the successor must apply to the First Tier Tribunal (Property Chamber) formerly known as the Agricultural Land Tribunal. However succession rights are usually only confined to tenancies which were granted prior to 12th July 1984 – those granted after this date will only have succession rights if certain conditions are met as set out in Section 34 of the AHA 1986.
Generally a statutory notice period of 12 months is required to terminate an agricultural holding although there are exceptions to this general rule, notably for example if the tenant accepts a shorter period of notice and waves their statutory rights.
There are two types of notice to quit, unqualified notices and case notices. Unqualified notices do not need to state the ground on which recovery of possession is required by the landlord although they will not be effective (unless the tenant serves no counter-notice) unless the Tribunal consents to the operation of the notice. If the tenant does serve a valid counter-notice, as they are entitled to do, the notice to quit will only operate if certain conditions are met and the burden of proof lies with the landlord.
It should be noted that the Tribunal is more likely to refuse than allow a landlord’s application and the Tribunal can only permit consent where they are satisfied that one or more of the grounds relied upon by the landlord (as required to be stated in the tenant’s counter notice) are proved and section 27 (2) of the AHA 1986 is not applicable. This is a catch-all provision that essentially allows the Tribunal to refuse consent even if all the other conditions are met, if they feel the landlord would not be fair and reasonable to insist on possession.
Because unqualified notices to quit are so often prone to failure, many landlords use the approach allowed under Schedule 3 of the AHA 1986, which is to prove one of the cases for possession. There are 8 cases, labelled A to H, and landlords can rely on more than one to increase their chances. However each case has stringent tests to prove validity which are, depending on the facts of the individual tenancy, difficult to meet. They can also be contested or challenged by the tenant by arbitration or, depending on the case relied upon, in court. This article is intended to be a summary and therefore we will not expand upon each of the eight case notices here, but if you require further details, BHW Solicitors are able to advise.
Terminating a Farm Business Tenancy
In contrast to most agricultural holdings under the AHA 1986, an FBT governed by the Agricultural Tenancies Act 1995 (“ATA 1995”) has no renewal rights and no security of tenure.
The method of terminating an FBT depends on the length of the original form for which it was granted – whether for a fixed term or a periodic tenancy.
A fixed term FBT of 2 years or less will simply expire and no notice is required. However for a periodic tenancy the notice period required is determined by the length of the periods. For example if the tenancy is granted from month to month, the notice must expire at the end of a month as well as meeting any other statutory requirements that apply – for example whilst the form of notice is not prescribed, all notices must be in writing.
Other ways FBTs can be brought to an end are by way of break clauses and agreed surrenders, but note that in the case of break clauses, the break notice must comply with the statutory requirements of Section 7 of ATA 1995 and if the contractual requirements in the tenancy conflict with this, they will be void.
Compensation on Termination
Bear in mind when dealing with an agricultural holding under the AHA 1986 that the tenant will be entitled to compensation for any improvements they have made to the holding e.g. drainage works or application of fertiliser. It is also important to note that when deciding on a termination strategy, choosing an unqualified notice to quit only will, if successful for the landowner, nevertheless mean that the tenant is probably entitled to additional compensation for disturbance equivalent to four years’ rent.
This is a complex and bewildering area of agricultural law which holds traps for the unwary. By being informed and choosing the right legal advice, you can make the right decisions in the best interests of your agricultural property.