Diversification and Agricultural Tenancies

For some years, diversification has been seen as the answer to many farmers’ and landowners’ financial woes. It can provide an additional or supplemental income stream to assist with a farm’s financial stability and, in certain cases, is the solution to keeping the family together and providing a succession plan.

That said, new diversification businesses are rarely without their own challenges, from funding staffing to the costs associated with a new business structure. (The latter is essential if the existing business is to be protected – see our article in Farming Business Structures.)

Farm Business Tenancy and Agricultural Holdings Act Tenancy:

For those farmers who have expanded and taken on additional land via a Farm Business Tenancy or for those on an Agricultural Holdings Act Tenancy, there are additional issues to consider:

1) Many older tenancy agreements may not have envisaged any diversification when they were granted, or they may have provisions which would stop any diversification initiatives, such as a prohibition on alterations to buildings or applications for planning consent or via a restrictive user clause.

2) For those with land subject to an Agricultural Holding Act tenancy, gaining non-agricultural planning consent can be grounds for a landlord to serve what is known as a Case B Notice to Quit, and any such application for planning needs to be considered and agreed with the land owner before an application is submitted.

3) If a planning application is submitted without the landlord’s consent this may also give grounds for the landlord to serve notice to quit under the terms of the tenancy.

4) Income by diversification can be taken into account in the case of a succession application for a succession tenancy (livelihood test) and as such the application for a succession tenancy could fail.

5) Farm Business Tenancies, whilst not having the issues above, can also have problems with diversification. They are for a fixed period and having invested in diversification there is no guarantee they will be renewed. Some agreements exclude all activities but grazing, so grass track racing will not be permitted.

Getting your tenancy agreement reviewed should be at the forefront of any diversification consideration if it is to take place on land not in your ownership or control. If you are a tenant seeking an early agreement with your landlord and getting this documented is essential.

Additional Considerations

Diversification may well be the way forward in these challenging financial times, but it does require careful thought-out planning at the outset. From the landlord’s perspective, thought needs to be given as to whether such diversification will affect the gaining of Agricultural Property Relief from Inheritance Tax or their own plans for redevelopment. That said, some landlords may be happy to get involved in a joint project or simply assist with funding, in which case a joint venture agreement needs to be considered together with the appropriate business structure.

Both tenants and landowners should consider the Code of Good Practice for projects which require landlord consent in agricultural tenancies. This was published by the Tenancy Reform Group in 2021 and sets out the agricultural holdings (request for Landlords Consent or Variation of Terms and Suitability Test, England) regulations which came out of the Agricultural Act 2020.

Contact Us

Preparation is the key. Seek advice now from our Agricultural and Rural Affair Team, and if you have encountered issues either as a tenant or landlord from our Dispute Resolution Team. You can call us on 0161 764 4062 or fill in our online contact form.