Huge proposed changes to farm business tenancy, explained, by James Leyland

Significant changes to the Agricultural Holdings Act 1986 (AHA86) farm business tenancy regime may be on the horizon – and while tenants will probably welcome these changes, it may well not be greeted by landlords with the same degree of enthusiasm. This article discusses the controversial situation, and why it’s causing so much uncertainty for agricultural landlords.

How does the AHA86 affect farm business tenancy?

The AHA86 is famous within the farming community – or infamous, depending on who you talk to – for the high level of security it offers to tenant farmers. Essentially, it is almost impossible for an agricultural landlord to terminate a farm business tenancy agreement, other than in a limited set of circumstances.

The tenant will retain that protection until retirement or death, even with possibilities to pass the tenancy on to a successor; the end result is that the tenancy may endure for several generations before a landlord can take the holding back in hand themselves.

Why might AHA86 be changed?

Whilst the level of protection the AHA86 affords may on the face of it appear to be great for tenants, it would appear that the Government and in particular the Tenancy Reform Industry Group (TRIG) are concerned that this may inadvertently stifle productivity in the agricultural sector.

Take the example of an AHA86 tenant who has reached the time of life at which he or she would prefer to retire. With no eligible successor, they face the difficult decision as to whether they can actually afford to retire. If they do so, it will mean the loss of the farm business tenancy, which might include their home, as well as the loss of income from the holding, when they might in fact have no alternative means or funds to retire.

The suggestion by TRIG is that tenants who find themselves in this situation are ‘trapped’ on their holdings, when they would prefer to retire. TRIG goes on to suggest that such tenants may be less productive than a younger farmer might be, if succession were available instead.

What are the proposed changes?

While there are a number of reforms to the AHA86 that TRIG have suggested, one stands out as potentially the most contentious; a suggestion that an AHA86 protected tenant should be able, if they wish, to convert their lifetime interest to a 25-year farm business tenancy agreement (FBT).

The rationale is that this FBT can be sold or assigned to another (perhaps younger) tenant. This reform is intended to assist the agricultural sector by:

1/  Promoting retirement in circumstances where a tenant might otherwise be ‘trapped’ on a holding, by providing a potential pot of money from which they can fund their retirement.

2/  Encourage growth in new entrants and other younger generations within the agricultural sector.

3/  Encourage new investment in agricultural holdings.

As things stand, the only suggested mechanism for the landlord to be able to prevent such a tenancy conversion, and associated assignment, is for the landlord to buy the tenant’s farm business tenancy themselves.

The consultation also covers a number of other potential changes to the AHA86 regime. These include:

1/  Allowing landlords and tenants to seek to vary any term in the Lease which is considered to restrict the tenant’s activities. As that is likely to be a very subjective question, TRIG have suggested an associated dispute resolution process.

2/  Preventing succession on retirement if the retiring tenant is more than 5 years over the state retirement age. This may well encourage earlier retirement and/or conversion of tenancies to FBTs and assist with TRIG’s stated goals.

The consultation period closed on 2 July 2019. Details of the consultation document can still be found at DEFRA’s website. We now await the outcome of that process with keen interest.

These proposed changes are likely to leave many agricultural landlords with further questions about the future of their properties, and what their rights are. If you have such concerns, the Agricultural Law experts at Thomson & Bancks Solicitors are ready to hear your call; call your nearest office or simply fill out the form below.

James Leyland

James is a Solicitor, specialising in commercial and agricultural property law, undertaking a wide range of work, including sales and purchases of commercial and agricultural properties as well as Landlord and Tenant Act 1954, Agricultural Holdings Act and farm business tenancies. James has experience of negotiating complex land transaction documents including option and promotion agreements, easements, and overage / uplift deeds.

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