DEFRA Tenancy Consultation: An Update
Many tenant farmers have been closely following the consultation process in relation to both Agricultural Holdings Act tenancies (AHA) and Farm Business Tenancies (FBT).
Mike Bracegirdle, Head of our Agricultural Department, answers a couple of questions being frequently asked by tenant farmers.
What do the proposed changes to the succession rules mean to me?
Several proposals within the consultation relate to succession under the Agricultural Holdings Act (AHA). These proposals work towards removing barriers and widening the franchise of succession including;
- The potential to assign an AHA tenancy to a third party for a fixed term
- Abolishing the commercial unit test
- Allowing children of co-habiting partners to succeed, rather than just children of a marriage
- New succession opportunities for nieces/nephews and grandchildren
Prospective changes could make it easier for family members or third parties to take on tenancies where they would previously have had no opportunity. Previously, they would rely upon the agreement of the landlord in order to be granted any type of tenancy. The consent of the landlord is not always given.
There are also a number of proposals which seek to tighten up the succession procedures. These include removing succession rights once the tenant is five years beyond their state pension age to encourage succession earlier. This would not however come into force until 8 years after the legislation is enacted. Therefore, tenants who have already passed or are close to their state pension age would have time to adjust their succession planning accordingly.
Proposals also include strengthening the suitability test applied to the potential successor. It is not anticipated that the newly strengthened test would pose a problem for most potential successors. There will be a delay in this being implemented, with a period of 3 years being suggested.
The intention of the package of measures relating to succession is intended to be advantageous to both tenants and landlords alike. However, from a tenant’s perspective, it is intended to widen the opportunities for succession rather than to restrict them.
How do I “assign” my tenancy?
In proposal 1 of the consultation, there is a suggestion that the new legislation could give AHA tenant the opportunity to assign their tenancy to a third party, potentially in return for payment. This means that a third party would effectively be paying a tenant to take on their tenancy.
The terms of the tenancy would remain the same for the third party taking on the tenancy, except for a few changes. Firstly, under the current proposal their rent would be in line with the FBT rents rather than an AHA. Secondly, their tenancy would be for a fixed term of 25 years. There would be no succession rights attached to the assigned tenancy and no further assignments would be possible.
This proposal would assist tenants such as a first tenant under an AHA succession tenancy that had no descendants that wished to take on the tenancy. Consequently, this would assist the tenant in his retirement plans by potentially receiving a lump sum.
Under the proposals, the landlord could object to the assignment if they choose to. However, the landlord must first agree to a sum to buy the tenant out of the tenancy in order to prevent the assignment.
How this sum would be calculated, either by a third party or by the landlord, would vary on the facts of each individual case. It is expected that it will really depend upon whether it is a first or second succession and the age of the tenant.
This proposal could also offer a new route for successors or new entrants to the agricultural businesses who would have otherwise found it difficult to find a new tenancy opportunity.
At Butcher & Barlow, we have a specialist Agricultural Department based at Gadbrook Park, assisted by partners in our South Cheshire office in Sandbach and our Lancashire office in Bury. Our Legal 500 listed department are happy to offer advice to both landlords and tenants in relation to tenancy issues.
To find out more about how we can assist you, contact our Agricultural Team on 01606 334 309 or email firstname.lastname@example.org