Rural Outlook - The Agricultural Tenancy Reform 2019

Why the need for reform?

The UK’s agricultural productivity rate is substantially lower than other developed countries.

Compared to other sectors there is a lack of innovation and entrepreneurial drive in the agricultural industry which has translated into reduced productivity. This is largely due to the limited numbers of new entrants into the sector who can bring with them new skills, ideas and innovation.

Direct payments to farmers are being phased out by 2027. Tenancy legislation needs to be amended to encourage farming businesses to invest and diversify to generate additional income and to drive productivity.

What does the reform aim to achieve?

• To create an environment that favours sustainable productivity and investment in farming
• To remove barriers of entry and exit within the industry
• To facilitate and encourage structural change in the tenant farming sector and to encourage new entrants and the next generation to remain in the industry and to thrive in the future.
• To enable tenant farmers to enter new land management and agricultural schemes

What are the proposals?

Assignable Tenancies

• A single assignment permitted
• Landlord option to buy out the tenant before assignment takes place
• Landlord to serve an incontestable notice to quit at any time after the 25th anniversary of the assignment
• The rent payable for the assigned tenancy would be open market rent
• Succession rights would not apply to the assigned tenancy
• The landlord may have the right to review the proposed tenant and to refuse on grounds of suitability

Succession Procedure Reforms

• Amend the minimum age of 65 for a succession on retirement under the Agricultural Holdings Act 1986 – giving the tenants the option to decide when to retire and hand over their tenancy at any time
• Remove succession rights when the tenant reaches five years past the state pension age and replace with ‘current state pension age’
• Remove the ‘Commercial Unit Test’ – to encourage farm businesses to grow
• Replace ‘Suitability Test’ with ‘Business Competence Test’ in line with objectives to increase productivity and improve competitiveness.
• Update the definition of ‘close relative’ to reflect modern day family structures, to include children or those treated as children by the tenant in relation to cohabitation and to extend the definition to include nieces, nephews and grandchildren of the tenant in relation to marriage, civil partnership and cohabitation.

Amendments To Current Tenancy Legislation

• Provide landlords and tenants with a new mechanism to challenge and vary restrictive clauses in their agreements on a case by case basis e.g. restrictions on sub-letting. This will include the ability to serve notice on one another to refer the matter to an arbitrator for consideration.
• Amend legislation to allow landlords to see a return on investment for improvements made to the holding immediately rather than wait for the three-year statutory rent review to come around.
• Short notices to quit for Farm Business Tenancies (FBT) of 10 years or more in specific circumstances such as non-payment of rent, death of the tenant, or when the landlord has planning consent on the holding for non-agricultural use. This is to encourage landlords to grant longer term agreements and tenants to invest in the holdings.

Procedural Reforms, Improving And Updating The Operation Of The Agricultural Holding Act

• Remove requirement that a third party expert must be appointed 12 months ahead of the review and replace with a third-party expert to be appointed to resolve a rent review dispute at any time ahead of the review date.
• Update the RICS fee for appointing an arbitrator to its true cost of £195 and include a provision to review this every five years so the legislation does not become outdated.

Call For Evidence

• S.31 Agricultural Tenancies Act 1995 restricts ability of landowner to grant a tenancy over the land without seeking permission from the bank or lender. DEFRA would like to know of evidence or examples of where this might be important or has had an impact on a landlord’s ability to grant a tenancy.
• Call for examples or evidence of how farmers are vulnerable to repossession on their land if they fail to meet repayments for loans. Many other industries have a layer of protection before a property is repossessed, DEFRA is considering whether this should be the same with agricultural businesses.