FREE CHAPTER from ‘A Practical Guide to Agricultural Law and Tenancies’ by Christopher McNall

CHAPTER TWO

THE TWO TYPES OF
AGRICULTURAL
TENANCIES

There are two main Acts of Parliament which apply to tenanted agricultural land. The statutes are mutually exclusive. Any individual piece of tenanted land is held under the terms of one, or the other. It cannot be held under both.

The earliest is the Agricultural Holdings Act 1986 (‘the 1986 Act’). Tenancies under the 1986 Act are often called ‘AHTs’ (‘Agricultural Holding Tenancies’) or ’86 Act tenancies’.

The 1986 Act is a consolidating act, and replaces – albeit in largely identical terms – the Agricultural Holdings Act 1948 (‘the 1948 Act’). As such, reported decisions about the meaning and effect of the 1948 Act can and often are applied to disputes about the same provision in the 1986 Act. Tenancies granted as early as 1948 (but which are now subject to the 1986 Act) still exist. 1986 Act tenancies are not only common but give rise to a host of challenging technical issues.

The later statute is the Agricultural Tenancies Act 1995 (‘the 1995 Act’). Tenancies under the 1995 Act are often called ‘FBTs’ (‘Farm Business Tenancies’) or ’95 Act tenancies’.

The 1986 Act is still in force. It was not repealed by the 1995 Act.

The 1986 Act and the 1995 Act are chalk and cheese. They could not really be more different in their content or operation.

The 1948 Act was part of the suite of social reforming legislation introduced by the post-War Labour government which also created the NHS and the State education system. The Act was designed to improve the fairly miserable lot of tenant farmers, and as a thanks for keeping the country fed in 1940. The 1948 Act, and now the 1986 Act, is definitely ‘tenant friendly’, not least in conferring what often effectively amounts to lifelong security of tenure. The 1948 Act, and the 1986 Act, are self-contained, very detailed, statutory ‘Codes’. The answer to most questions about 1986 Act tenancies is to be found in the 1986 Act. There is some room, but not much, for the common law.

Tenancies under the 1995 Act are very different to 1986 Act tenancies. The 1995 Act, and FBTs created under it, are the product of libertarian ideas of freedom of contract. The 1995 Act largely leaves landlords and tenants to their own devices to strike whatever deal they want to, and the terms of their FBT embody that individual deal. Unlike the 1986 Act, the 1995 Act tenant never enjoys any security of tenure over and above the term granted. The 1995 Act is not really a detailed statutory code at all. It simply establishes some fairly basic ground rules. Beyond that, the parties are on their own.

This means that many problems which arise in relation to FBTs are best solved by looking to the tenancy agreement, and what it says. There are ‘off-the-peg’ standard form FBTs (for example, from the Royal Institute of Chartered Surveyors and the Country Landowners’ Association). These are often very lengthy and detailed with sophisticated provisions for all sorts of contingencies. However, because no tenancy agreement can ever deal with every possible eventuality, or be completely comprehensive, if you have an FBT problem and the answer is not in the tenancy agreement, then you are in the undesirable position of having to imply terms – if you can – by way of necessity or business efficacy. Going to court to imply a term into an FBT is not the most enticing prospect.


Which Act applies?

The best way of telling which Act applies is to look at the date on which the tenancy was first granted. If it was first granted on or after 1 September 1995 (the date on which the 1995 Act came into force) it cannot (except in exceptional circumstances – see below) be a tenancy under the 1986 Act.

1 September 1995. Remember the date!

If you want to stop reading here, you have already justified your outlay in the cost of this book.

If a tenancy was first granted on or after 2 September 1995, then you are most probably in 1995 Act territory and so probably do not need to trouble yourself with the intricacies of the 1986 Act.

Note the ‘probablies’. There are some wrinkles. It is possible for a tenancy to be an AHT even if granted (NB, not first granted) after 1 September 1995. A good example of this would be a 1986 Act succession tenancy granted in (say) 2000.


1995 Act Tenancies / FBTs

Tenancies under the Agricultural Tenancies Act 1995 are Farm Business Tenancies (‘FBT’s) but are often known just as ’95 Act’ tenancies.

FBTs differ from 1986 Act tenancies in a number of very important ways. An FBT gives no security of tenure beyond that provided for in the tenancy agreement, and an FBT does not give succession rights.

In order to be an FBT, the tenancy must meet certain statutory conditions. These are (1) the ‘Business Condition’ and either (2) the ‘Agriculture Condition’ or (3) the ‘Notice Condition’.

The ‘Business Condition’ is that all or part of the land is farmed for the purposes of a trade or business at the beginning of the tenancy, and some part remains so used at all times. The 1995 Act does not define ‘farming’. Farming may or may not be the same as ‘used for agriculture’.

The ‘Agriculture Condition’ is that, having regard to the terms of the tenancy, the use of the land, the nature or any commercial activities carried out on it, and any other relevant circumstances, the nature of the tenancy is wholly or primarily agricultural.

The ‘Notice Condition’ is that the parties have served on each other, at the commencement of the tenancy, written notices specifying that the tenancy shall remain an FBT even if the user of the land ceases, at some later date, to be primarily agricultural.

The Agricultural and Notice Conditions are designed to address different scenarios. The Agricultural Condition is suitable where, at the time the tenancy is granted, no substantial diversification from agricultural user is anticipated. Where the Notice Condition is met, the tenancy as granted remains an FBT, irrespective of whether the tenant changes the nature of his activity on the land from agriculture to something else. The Notice Condition therefore protects the landlord from an FBT turning into a business tenancy under the Landlord and Tenant Act 1954: that would be undesirable for a landlord since the 1954 Act would confer much greater security of tenure on the tenant than an FBT. For that very reason, in practice, the Notice Condition is almost universally complied with by prudent landlords.

Any tenancy of agricultural land first granted on or after 1st September 1995 which meets the statutory conditions for an FBT will be (and, if the Notice Condition is met, will remain) an FBT (and not a 1986 Act tenancy) unless it falls within one of the exceptions set out in section 4 of the 1995 Act.

The main exceptions are succession tenancies under the 1986 Act, and new tenancies granted over the whole or substantially the whole of land already comprised in a 1986 Act tenancy and containing a clear statement that the 1986 Act is to apply to them.

1995 Act Tenancies granted for a term of two years or less expire automatically, by effluxion of time: AHA 1995 section 5.

Tenancies for more than 2 years require service of a written notice (expiring on the term date) at least 12 months before the term date. There is no prescribed form of notice. If the FBT is granted as a fixed term of more than two years, then it can only be brought to an end by such a notice to quit. If no notice to quit is given, then the FBT will continue as a periodic tenancy (from year to year) until terminated by at least 12 months’ notice expiring on an anniversary of the term date.


1986 Act tenancies

I have already drawn attention to 1 September 1995. Anything first granted before then is likely to be an AHT.

Here, there is another very important date. 12 July 1984. Any tenancy first granted before 12 July 1984 will be a 1986 Act tenancy which will carry succession rights.

The right to succeed is not automatic. ‘Succession rights’ mean that an eligible and suitable successor can apply to succeed to the Tribunal on the death of retirement of the original tenant. This process can happen twice: from the original tenant to first successor; and from the first successor to the second successor. The 1986 Act sets out statutory tests to determine whether someone is ‘eligible’ and ‘suitable’.

Bearing in mind that the original tenant themselves may well enjoy lifelong security of tenure, then extending that prospect not only to successor 1 but also, in due course, to successor 2 could potentially mean a tenancy lasting for well over a century. I frequently encounter tenancies granted in the 1950s where the tenancy is still in the hands of the original tenant.

So, the economic impact of a 1986 Act tenancy with succession rights can be dramatic. It is generally understood that the rent of an AHT carrying succession rights is less than the rent for an FBT, and that the presence of an AHT exerts a depressing effect on open market value. In financial terms, over three generations, and decades, this can be significant.

Any 1986 Act tenancy beginning between 12 July 1984 and 31 August 1995 will be governed by the 1986 Act, but with some watering down. These tenancies are secure for the original tenant, but generally do not carry any succession rights.

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