6 of the most common challenges for tenant farmers

The shifting nature of farm policy and tenancy legislation means tenants often benefit from support when negotiating with landlords.

Farmers Weekly asks George Dunn, chief executive of the Tenant Farmers Association, which areas are typically queries by members.

See also: Farm rents beginning to fall, says TFA

1. Rent reviews

The level of concern about rent reviews has ramped up noticeably over the past three to six months.

There seems to be a feeling among landlords that an inflationary period is a good time to try to secure a rent increase.

The advice from the Tenant Farmers Association (TFA) is that the rent review process is about looking ahead, not back.

It anticipates the financial position of most farming businesses to be somewhat precarious going forward, given cost-of-living issues and input price rises.

While there have been increases in some farmgate prices, it is not sufficient to cover the level of costs.

The financial support coming from the public sector is also falling.

Of course, landlords do deserve the right level of rent, but some are asking for increases which are too high, and the rent review process can be damaging to the landlord-tenant relationship and costly in terms of professional fees.

Tenants sometimes feel it is easier to agree an increase just to get it out of the way, but those rents settled then become precedents.

It is possible to partly mitigate against that by asking if landlords will agree to treat the agreement as confidential.

2. Arbitration

Most rent reviews will be settled through negotiation. In a typical year, there might be 30-50 arbitrations on rent among a thousand or so reviews.

This is unsurprising, given arbitration is a scary and expensive prospect.

Arbitrators are typically appointed following an application by a landlord or tenant to one of the appointing bodies (including the Royal Institution of Chartered Surveyors, the Central Association of Agricultural Valuers and the Agricultural Law Association).

However, sometimes they are appointed by agreement and this is a sensible approach given that the award they will make is legally binding and incredibly difficult to challenge.

Some arbitration awards have been badly drafted and produce unsupportable conclusions.

However, if you can agree an arbitrator with your landlord, at least you have a chance to pick one who is good at what they are doing.

3. Repairs

Issues relating to repairs are like fingerprints – each one is unique.

Repairing obligations in tenancy agreements can be written differently and, though there are fallback provisions for 1986 Act tenancies in the form of model clauses, even references to those within tenancy agreements can be nuanced in ways that mean they apply differently in certain cases.

The first question to ask is: “what does it say in your tenancy agreement?” There is a fine line between what is a repair or a replacement.

For example, if your agreement says you have to repair the farmhouse and it needs rewiring, then is the replacement of the electrical wiring system a replacement of the wiring system or a repair of that farmhouse?

There are three main regulations setting out model clauses for repairs – the 1948 regulations, the 1973 regulations (amended in the 1980s) and the 2015 regulations in England (and 2019 regulations in Wales).

Some tenancy agreements refer to the 1948 regulations. So even though there are now 2015 regulations in place, some people might still have to refer to 1948 regulations.

Where older regulations are silent on issues of repair – such as carbon monoxide detectors – then the 2015 regulations will apply.

To further complicate matters, some agreements will say the 1948 regulations apply “as amended”.

However, the 1948 regulations were never amended, they were only replaced – which means they will be covered by the 2015 regulations.

If an agreement says the 1973 regulations apply “as amended”, then tenants need to look at the amendments in the 1980s.

Tenants should not assume that the repairing obligations which apply to someone else also apply to them.

4. Landlords’ consent 

There is a growing desire among landlords to apply more control over what happens on a holding. It is the more modern agreements that tend to have restrictions applied.

For example, there are clauses which say things like “agricultural use only”, and rule out non-agricultural use, subletting, third-party livestock on the holding, or applications to government financial schemes.

In new agreements, landlords are reserving the right to claim all the natural capital aspects with regard to carbon credits, biodiversity credits and nutrient neutrality.

Sometimes clauses are included stating that tenants cannot enter an agri-environmental scheme or diversify without the landlord’s consent.

It is understandable that a landlord doesn’t want to see inappropriate development, but the balance has to be fair.

We are moving towards a much more multifunctional use of land – it is not just about food production. There are also environmental, social and energy aspects.

A Code of Good Practice is available online, produced by the Tenancy Reform Industry Group (Trig), to try to get people thinking in a more holistic way.

For 1986 Act tenants, there is also provision to object to the landlord’s unreasonable decision to prevent them from entering a government assistance scheme.

But there is no such provision in farm business tenancies (FBTs), which is where the bigger problems lie.

The Rock Review – which outlines recommendations from the Tenancy Working Group – suggests that the government should extend the provisions of the 1986 Act into FBTs to allow those tenants to have reasonable access.

Tenants should provide sufficient information to the landlord about the scheme or diversification so they can come to a reasonable view about the impact on the holding and the long-term liability.

What, for example, is the scheme you are looking to enter? What is the potential liability the landlord may need to take on once you have gone? What is going to change as a result of the scheme?

Are you going to be making lots of money from it and, therefore, be willing to give the landlord a share of that, in terms of uplift in the rent? Is there any consent you need?

Landlords and tenants need to work together more collaboratively. That applies to both sides.

If you haven’t spoken to your landlord’s agent for six years and then you suddenly say you want to go into a woodland planting scheme, don’t be surprised if they say no.

5. Developments

There have been some high-profile cases where tenants face losing half of their land to the landlord to enable a solar scheme, with the compensation on offer pitiful compared to the loss.

This is going to become an even bigger issue as landlords seek to take advantage of the new land use opportunities arising through natural capital.

Under 1986 Act agreements, there is a provision – under Case B – for a landlord to serve a notice to quit on a tenant where they are resuming land for non-agricultural use, for which planning consent has been gained.

The notice to quit is usually between 12 and 24 months, but can be shorter.

Part resumption – where the landlord takes back possession of part of the land – is not clear cut. Some agreements will not allow part resumption – the landlord has to resume the whole holding or none of it.

However, sometimes landlords get round this by doing what is known as a split reversion and will sell the land they are looking at getting planning for to a third party, who then serves the notice to quit.

So, some tenants think they are safe sitting on a farm where there is no part-resumption clause, but this may not be the case.

If a landlord gets planning for change of use and there is a settled intention to develop, it is pretty likely the tenant will lose that land.

However, there is scope for tenants to argue against this in situations where the landlord is seeking to take back the land for uses where planning is not required, such as tree planting.

The ability for landlords to take land back under an FBT will depend on the contract, but the circumstances under which this is possible tend to be wide.

Farmers need to be clear about what they are agreeing to in an FBT. Before signing, take advice about what the security is and the circumstances under which a landlord can ask for the land back.

6. Succession

Succession to 1986 Agriculture Holdings Act (AHA) tenancies is disliked by most landlords because they are losing the land for another generation.

As a consequence, tenants need to be planning for succession long in advance –  and it is never too early.

For statutory succession, there are several tests that apply.

The most difficult is the livelihood test, where the potential successor has to show they are taking their principal source of livelihood from farm work on the holding for five of the previous seven years.

Potential successors need to take into account any money their spouse or partner might be earning, so it is a very intrusive process in terms of what evidence needs to be provided to the tribunal.

Families have to be prepared for this, understand it and know what they need to provide.

Most successions take place on the death of the tenant. This makes the process particularly difficult, as applicants may not be in the right frame of mind.

However, the application for succession on death has to be made within three months of the tenant passing.

Where there is a succession tenancy, the earlier the potential successor is identified, the more can be done to ensure they are compliant and pull together the evidence that will be needed to present to the tribunal.