The landscape of agricultural tenancies is changing with significant reform upon the horizon and so it seemed a timely point for this bite-size webinar that will guide you through the various types of agricultural tenancy from the Agricultural Holding Act Tenancy, the Farm Business Tenancy and the common grazing licence.
Peter Snodgrass and Jennie Wheildon are in conversation discussing:
They conclude with a look forward to what changes we can expect from the agricultural tenancy reform.
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Webinar transcript
(Please note this is auto-generated and un-edited)
Hello, I'm Peter Snodgrass, Partner in the agricultural team in Shakespeare Martineau. Today, I'm delighted to be joined by my colleague, Jenny Wheeldon, who's a Legal Director at the fun to talk about agricultural tendencies and the recent changes to them. Now, as we go through this, you'll see there's a chat icon on the left of your screen. Please put in your questions about any of the things, which were just discussing as this seminar as the webinar progresses. Welcome, Jenny, and would you like to just do a quick scene setter?
0:46
Yes. So, we meet, today, to discuss agricultural tenancies. They come in various forms from the agricultural holding up tendency to farm business tenant says graving grazing licensees and other structures. The main reason for discussing today is following the introduction of the agriculture. At 20 20. We have seen some reform, introductions for change to that same.
1:13
And we thought we would discuss, today, what the main set, what the main changes, all the policy behind it And what else we might like to think about. Thanks very much, Jenny. Webinar will follow In the following rough order, first of all, introduction about different kinds of land occupation agreements. Then we're going to be talking about policy objectives. Then the detailed reforms and the agricultural act. the Chinese referred to. And then, finally, we'll work and what the questions in our minds about how these policy changes are going to impact on tent tenanted farms. So to begin with, land occupation agreements, there are two main kinds of tenancy, agricultural hold exotic tendency, which is governed by the aircraft to holdings at 19 86, and that traditional style of tenancy, which gives lifetime security to attend yet. That employs a lot of terms into tendency agreements.
2:08
They also can carry succession rights, and then you got farm business tendencies, which meant takeover did take over to some degree from ... tendencies in 19 95. And these were much more designed to allow freedom of contract between the parties, so that they can simply agree the terms that they want with some constraints.
2:34
Those arrangements base full tendencies where the tenant has exclusive occupation that is holding, the landlord takes to write the tenant, does his business on the holding. There was also, just to touch on them briefly, grazing license, which is shared technique, it's shared occupation between the land and the grazier sheep grazing take the crop say, that the landowner retains possession. And then very popular these days is contract farming. Under which the landowner enters into an arrangement with what you could call a farmer, but of course, you can't call it the farmer for the purposes, the agreement. But the person who provide the machinery and kit and sometimes often find the expertise to be able to bring up crop, say to fruition and harvest.
3:28
And then there's also, another possible arrangements is chatbot agreement, which is slightly different from contract farming. I'm not gonna expand this out further if anyone's got any queries about that.
3:40
We can discuss it, but it's not the main focus of today's talk.
3:42
These are just different possibilities, all of which are used in England and Wales, for checked, Shed occupation, granting occupation relates to another person.
3:55
So, Jenny, do you like to, outlines the policy objectives? Absolutely. So we looked at what we have currently as tendencies and perhaps it's worth looking at what the policy is and the, what they were looking to achieve from reform.
4:13
So we've got the requirement from the government to hit carbon 0 by 2050 and the environmental changes that would come about for us to achieve that.
4:27
efficient food production and the delivery of change to be more efficient, thoughtless, and helping also generations to retire young, new new entrants to farming to, to be able to come on to the same.
4:44
So we've in the back with that landscape of policy change, should we look now, Peter what some of those key changes are?
4:53
Hmm, hmm, hmm, hmm, hmm, hmm, hmm, hmm, well, it's quite simple in the sense that now you don't have to have a retirement age. You can just be any age, you like when you retire from a tenancy.
5:05
And just to put it in context before, if you wanted a close relative to take over your tenancy, you've had either to a routine, reached the age of 65. Or you had to have an illness or some proper that catch, which meant that you couldn't, couldn't be expected to continue as the tenant and then your close relative could make an application. Well, now, you're not going to have to have attained the grand age of 65. It can, you can make the application or your close relative to make the application at any time.
5:44
The benefits of that beta and having no age to retirement, the main benefit Jenny, is now a farm business can make decisions about when to seek a succession tendency without regard to the age of current tenant. So, that means, a tenant in his fifties or whatever, can begin to think about taking, handing over his tenancy, or tenancy to a close relative.
6:17
That is, is very helpful, because once the tendency has been handed over, then the new tenant doesn't have to consider having to comply with all conditions. So, you have to satisfy in order to gain a succession tenancy.
6:37
So, it gives you a freedom, once, you dog succession tenancy under your belt, Which, you don't have until that. Because I've had clients, for example, who have had a lot of off farm contracting income, that made it very difficult for them to, for the Sun to qualify for succession tenancy.
7:01
And so, if they had been able to secure this succession tendency earlier than the sun, would have then been free to do this off bomb contracting, as much as he liked, because he wouldn't be constrained with the need to continue to comply with those conditions.
7:19
So, it should enable additional flexibility for tenants And also helpful that there's no upper age limit, either for those that start families in later life. Absolutely.
7:33
Absolutely, look in both directions, Moving on to the that the second major change to that, to the regime. What's called a commercial unit test is typically ... what you say about this. So, traditionally, where we have a succession to an agricultural holdings, that tendency, the applicant needed to be able to show that they derived their income and livelihood from the one holding, that was the subject of that application.
8:07
The removal of the commercial unit test means that the, that farmers now have an agricultural holding, that tendency now no longer need to be concerned that the individual that's going to succeed, That only works and only has an interest in that particular holding, say, for example, there may have been families where there's more than one saw no more or more than one child. That would be a successful applicant. But in their lifespan they wanted to go off and have farm business tendencies or purchase other land that and that would have actually been detrimental to the succession application.
8:51
So, one or more of the children may have been held back fighting and obtaining another land into trust with the hope of them.
8:59
Having the agricultural, holding a tendency, which obviously came with uncertainty, and may have been considered unfair by us, by removing this layer of complexity.
9:12
It allows for much more. For farmers have much larger units take into account lots of different land holdings. And, I think has the ability to be much more flexible about what, what farmers can do and still preserve the agricultural holding our tenancy.
9:32
Yeah, yes, so, that's, That's very good, from what you're saying. It's going to be encouraged flexibility amongst people who may have a claim to a succession tendency.
9:44
And I just comments in passing.
9:46
But it also means that we don't have to go through the commercial unit assessment, which was an incredibly involved and difficult calculation sometimes, and rather, weirdly related to the average income of farm labor is. and this sort of thing, which we now would not look for when this is introduced, put, put, not have to engage with.
10:12
So, yes, and I can see how the, the abolishment of the commercial unit tests will also help to deliver these policy objectives, allowing people to be more productive, farming large areas than just within the halting, and ultimately bring about good environmental changes and reducing carbon footprint.
10:37
Hmm. Yeah, I'm sure that that's going to be the case and it'll be just so much better for the flexibility of the sector. As a whole for people not to be ruled out just because they happen to have a certain.
10:53
Other bulk of land, preventing of getting a succession.
11:00
I didn't turn to the sorts of policy objectives.
11:03
one of the other introductions, Peter, was the business capability test site I would like to tell us a bit more about about that and, and how that's going to impact hmm? hmm, hmm, hmm, hmm, hmm, hmm, hmm. Well, the traditional test for a succession was one eligibility, which had three parts to it. And then suitability, which has always been a slight a bully.
11:30
So, the one, because it's to do with things like the farming competence, the character, the financial standing, the health, I say these are wooly.
11:40
But, because, they're all slightly vague and what they're aiming at is that this is, overall, as the word says, suitable, a suitable candidate to take on the holding, because landfill shouldn't have foisted on a a tenant who is not up to standard. And, and so that was as a laudable attempt to control that. I think what people have felt for a long time though is that it's quite a low bar.
12:08
And it didn't require very much to satisfy it and also tribunal's but probably leading in the direction of the applicant for the succession more than until the landlord. I mean, they were all very neutral and so on, but that was the tendency, and the bar itself was, you know, not not not terribly high.
12:32
So, in addition to those tests, to basically repeat it, in the, in the new provision, there are going to be a requirements for highest, high standard of efficient production, and care for the environment on the part of the new applicant. So, they've got to demonstrate that they can deliver things, And it's thought that this is going to be much more like a sort of competitive tender for a tenancy, is not just by default, but he's close relative, therefore, it goes through. They've got to show that they've got ideas, that they've got plans.
13:11
They, they've got commitment in addition to all the other things, such as Financial stabbing, and character, and so forth, and farming competence, to show you that they're going to be able to make it go of this holding.
13:24
And this is a great advance, I think for landlords of HA tenant Nancy's because they will, um, be able to really put the applicant to the test in a way, which hasn't really happened.
13:40
Yeah, and also, some X, bring out some exciting challenges for the tenants, as well to really think about what the business could be, and how the how they could farm in a different way. And we see so much now with technology. And I believe the Young Farmers Association recently had a Zoom meeting about Introduction to Technology and how actually, some farmers may find themselves controlling their holding from behind the computer screen, in times to come on a distinct that sort of foresight to the future. I'm really thinking about how we can bring those different elements in to managing tenanted land. It could be really exciting for landowners and tenant actually mm. So, you're telling me that, we may have farmers who don't have the underneath their fingernails very big.
14:34
I mean, shake a farmer's hands of a certain age and their fingers are usually about twice the width. But they might struggle with actually typing on it.
14:49
Wow.
14:50
Yes, so, data, that's interesting.
14:53
And when we were discussing this before, jeni will sort of thinking maybe, of course, whenever there's a succession application that will be negotiations going on between landlords and tenants, and maybe this might be an opportunity for tenants to push that. Or prospective tenants to push to say, this is part of my program.
15:16
I want to develop the fishbone, or I want to develop an offer motor vehicle course or something, something like that.
15:26
Something not traditionally done on the farm and I think it could generate some pressure maybe, or in a healthy way on landlords be more embracing of changes to things.
15:45
Absolutely. And certainly if these capability tests are going through tribunals I'm being put to the test, you would save a bit.
15:56
It wouldn't seem to fit really if that the tenancy that they, that the successor then came out with, didn't allow them to do.
16:05
The things that we're in the business case, for example, is succeeding to an agricultural Haldane, that tendency, that required certain elements of farming to be done by hand that hop back to the 19 seventies agreement, where is the future plan? And, Cs.
16:23
Embracing new new technologies. Yeah, yeah, I think that's, that's absolutely right, and it will be very interesting to see what happens. And we must say that these meet this new suitability tests will come in through regulations which are not in stone yet, that's still being consulted on. And so, it will be important to see how that works out. That, just another thing to mention is that the suitability, the new suitability tests is going to be brought in to effect at the same time as the commercial unit test is abolished. The, to sort of go, go ahead, but it will be very interesting, because there's always been the ability for tenant to apply for a change to the terms of tenancy agreement, if circumstances have changed, since the original one was entered into. But this could really give it quite a lot of power and teeth.
17:23
And it's sort of fit with the further reform that we've seen around sort of restrictive clauses for their tendencies. And the T to now put that for dispute resolution, and the sort of ability to ask a third party, as opposed to going for arbitration say that, that it's all sorts of moving in The same direction it fails. Yes, absolutely.
17:52
So you've touched on the problem of restrictive clauses in tenancy agreements. Do you want to just say a little bit more about how the contract has changed those?
18:03
Yes. So we were seeing the agriculture has now brought in the ability for tenants to have certain clauses that are restricted. For example, those that prevent financial assistance. So the ability to go forward and make use of the new system that we're seeing coming in or for, in order to comply with statutory requirements. So those now, those restrictive clauses can now be put to dispute resolution to resolve In the event that a landowner wasn't prepared to agree a variation two days. Just sort of unpacking that. Jenny.
18:44
You've got a situation where You've got a clause in a tenancy agreement which says the tenant will not enter into any grant or subsidy or probably not subsidy, but the grant or environmental scheme without the consent of the landlord. And that's been a real constraint on a tenant in the past. And we've seen lots of tenancies like that. So what would happen in that situation?
19:12
So, traditionally, the tenant could apply for arbitration. But the Act now introduces the ability to tenant to apply to what's called a third party. And I don't define a third party in the Act. And that is an individual that is registered, either as a Rex charter to there, with the ...
19:34
or with the atom, the Agricultural law association. So, one of the individual register free bonus, those organizations could come in this third party expert to help determine the speed. And I can see how there would be some benefit to that, because we save up with lots of other contractual agreements. The sad part is best suited to determine the issue and all the intricacies of it are able to then decide on the facts presented to teeth. And I personally I can see why that would be attractive to Tibet Landlord and tenant in these circumstances. So this is going to be really important for tenants who would otherwise not be able to access these environmental schemes which are being rolled out by government. And they said the landlords are not actually going to be able to prevent bad happening.
20:32
Yeah, wouldn't know without justification. I know, and it fits, again, back to the policy objectives, Really. If we're trying to create a more efficient way of producing food, we're trying to reach carbon net zero.
20:50
We have to be able to access the government schemes and farming the ways that access those schemes, and to be prevented from doing so, because of an archaic agreement.
21:03
Just don't sit hand in hand to me. Yeah, absolutely.
21:06
Absolutely, and we'll be talking a little bit later about whether it's gone far enough.
21:12
Now, you've touched on, how does disputes can be resolved. It's a bit of a technical point, but it's actually quite quite simple. And this part of the aircraft tract is one of the only parts, which applies both to a, whole, all the exact tendencies, and, also, farm business tenancies, because, it, liberalizes It just makes it much open to third party determination.
21:42
And, as you said, Jenny, these third party, independent expert, typically decisions have become much more popular.
21:57
The, one area in which they're going to be very, very welcome is in context to rent reviews, because these have been so expensive. And, you know, both landlords and tenants have suffered under the cost of actually going to arbitration on them. So much say that the deal has to be done, really, but not necessarily on a very good principle, because people just don't want to spend the money on the arbitration.
22:28
So too, have what we hope will generally be a much cheaper way of resolving it, will. Yep.
22:40
A great advantage.
22:42
Yeah, so, Jenny, that some look at some of the things we've been mulling over and go through some of the issues which we think are very pertinent to this stage.
22:54
Yeah, so we sort of touched on Reddit regime that since we finished up on the policy, where VA.
22:59
So, do you think it is a nicer and changing tenancy landscape for agricultural holding X tendencies to, to have lowest La rance mm. I think that's a very interesting question. And it's one which has been very contested about whether, you know, how how the HA rents sit alongside farm business tenancy rents, ever since ... were brought in, really.
23:30
And.
23:33
So, what we have, we will have a still the schedule to rent review should provisions of the HA which apply to agricultural holdings tendencies.
23:46
And, at the same time an increasing pressure on landlords to liberalize the restrictions on what tenants can do. What one feels about the whole? So Director of travel is that we're going towards a more market.
24:05
Orientate. It's way of running tendencies. I don't like it just, I think it's a natural question to ask. Do we still want to have a completely separate review system, which is quite detailed and slightly difficult to construe because it's got so much to it and what takes priority over walks is not that clear. You compare it with the farm business tendencies which simply say, market rents got quite a simple formula and one could question why landlords under one should not do as well as landlords under the other.
24:44
So, I would expect there would be some pressure maybe through legislation.
24:52
Too equalize, I suppose, is the two kinds of tendency in that respect which would remove, you know, what has been seen as one of the strong benefits of an HA.
25:06
I don't know.
25:07
What do you think, Jenny, do you think B fan restaurant eta?
25:13
I can, whether it will be fairer or better. I think, I don't know the answer to that, but I can definitely see.
25:20
The question being asked again is what market ready to be fairer and agriculture into the HA tendencies and suddenly added, it would, may benefit both parties. Because we may start to see some more investment land owners into the holdings and into, into the new ventures of their tenant, if they can, still, if they can see some immediate financial rewards. That's a good point. Yeah, absolutely. And as we well know, sometimes landlords are very reluctant to invest in HA holdings.
25:57
So, interesting. Yeah, that's, that's a very personal point. Now, another thing which came up was is this idea of new entrants coming into it.
26:08
And when the agriculture was being debated, Mooted, certainly there were ideas about being able to extend the place relative definite mission, or to include people other than place relatives. What, how did you see, or how would you see that as as panning out? It hasn't been taken up by actually saw the proposals that were put forward were quite fascinating, because there's talk about allowing grandchildren to come within that pole or people outside of the family. But then with this 25 year cap, so that we weren't extending ...
26:49
tendencies in time, but we're allowing sort of family farms Where they've sort of come to the end of their farming life, the ability to move the tenancy on, or sign the tenancy without clinging on to the end. Because they didn't want to see it go go away.
27:15
And potentially it could be a mark that could have been a market for that agricultural tenancy wets. The retiring farmer could receive and payment for retiring and passing on to next generation or another individual. And not to me, quite nice to me when we have we're not touching on it today, but we're talking about and this sort of end of the basic payment scheme and the option there for farmers to perhaps take a lump sum retirement and that, to me, the two cells would have sat quite neatly together. Yes.
27:54
It would and really enable new entrants to come in.
27:58
Yeah, enough, hopefully, and affordable level, maybe, yeah, rather than having to buy land, which is really not, not not feasible.
28:11
Also, we've got some, these are the abilities of a tenant to challenge certain restrictive clauses, but it's very limited, it's only for its There's A clause which restricts them entering in to, basically, sort of environmental pavement or other grant schemes or if they're, if they need to, breach the tenancy in order to comply with statute.
28:39
But do you think that there might have been scope to go a bit further?
28:45
Absolutely, an Auto, Christie, that doesn't refer to farm business tendencies, either, that could also have those clauses him to Absolutely, because I think it the landscape that we have ahead of us could be varied and deference. And diversification could come in many forms that doesn't fit the latter, or for those of us draft in the tendencies foresee at this time.
29:13
So, I think, yeah, I could foresee that it could have gone further and it would be really great if there could have been seven probation for the challenge where we actually were justifying the policy gains. And for bringing in this change. What sort of changes would you like to saint Peter? Yes, Jenny, that's interesting.
29:39
Because when the Agriculture Act was being debated, I went to a meeting for professionals involved in agriculture organized by Defra and the ALA together to sort of get a sense from the professional community table.
29:54
We thought about some of these changes. And one of the odd years was a little bit more general, right, to challenge or a clause, which was constraining the farming of a holding. And certainly, I thought that was a very interesting idea.
30:09
It would be a bit of sort of social engineering, and in one sense, in the sense that it's just forcing, it would be forcing land as landlords to move with the times, if you like. They just wouldn't be able to sit as some of them have, on, you know, clause, which says, for example, this farm should be used for agricultural purposes only.
30:35
That means anything which is in agriculture is ruled out. Even if that could really be of benefit to the tenant. Of course, the irony is that in many cases, that would also be a benefit to the landlord.
30:47
Because, you know, they've got to diversify stream of income to the tenant, possibly more enterprising Tenon and a more secure payment of rent to covenant building repair and that sort of thing. So, I thought, is a very interesting one, and, sorry, that.
31:05
The letters, an option four.
31:09
The, for the regulations, which are yet to be made tons of farm business tenant, says that, and there's sort of an option. So, diversification and changes, is there anything that you think that could have been done to improve that?
31:26
The desire to grant longer form business tendencies to encourage longer term investment in the holdings?
31:34
Hmm, hmm, hmm, hmm, I think that's a very difficult one. I'm thinking of the Tenant Farmers Association. Food suggested a few years ago that may be tax or inheritance tax relief would apply only to farm business tendencies over a certain length. So that that would get landlords real incentive to do it.
31:57
I think, I think it's difficult, I think the one point, which we have touched on is that, if the rents will go up alongside a diversified and invested in holding. Because the tendencies, it's gonna get, he's got, or she's gotta get benefit from it. Then landlords will be encouraged maybe to let, for longer terms it will all depend on the circumstances landlord and tenant. And the objectives of the landlord. But yeah.
32:36
I can see how long, how, for some of the policy changes that the government and looking to introduce, especially around that create a carbon neutral society, that we do need to see a longer term tenancy. Suggest state, and how you can guarantee that re-investment back from from the allotted and with the ... arrangements. And whether that be some sort of flexibility around break provisions where longer tendency to go out and to try and encourage encourage that.
33:15
Yes. And so I would go back also to just the mentality of the land at the state or the landowner who's thinking about grants in a longer or shorter to see if their perspective is that they will get a decent return from granting along the tenancy with the other benefits. Because they do get tax benefits are playing as a landowner, crowd prompt tendency.
33:44
Then it's the sort of pre dex, if you'd like non inheritance tax returns are also stronger than perhaps they be perceived to be in the past.
33:54
Then, that's good to encourage landlords to let, for longer terms, but the mentality of the Lambda, it obviously, is very, very simple, because there are some who are really committed to having attended his estate. There are others who are not so committed to that way of managing things.
34:17
So, Jenny, could you leave us with a summary of your thoughts about these reforms to the tenancy law?
34:24
Yes, what it feels like It's been a whistle stop tour of the tendency reform. As much that we've touched on a much that's left further questions for answering, perhaps we will see further changes to come when the regulations that follow the act come into force.
34:44
So, I think that's one going to be watching closely, is tapped for that informed information to come through.
34:54
Great. Great. Well, thank you, Jenny.
34:57
It's been very nice to chat these things through with you to all those who've been watching or listening. The questions which you've raised will be answered individually after the program.
35:10
And I'll just take this opportunity to advertize the fact that we're doing another session. It's a webinar on the 22nd of April at 9 30. And that's to do with farm partnerships and various aspects of how they operate. Things which need to be looked up or particularly at this junction.
35:27
But in the meantime, Jenny, thanks very much for chatting these things through and goodbye to and thank you for listening.
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