CHAPTER TWO – THE TWO TYPES OF AGRICULTURAL TENANCIES
Two main Acts of Parliament apply to tenanted agricultural land in England and Wales. The statutes are mutually exclusive. Any individual parcel of tenanted land is held under the terms of one statute, or the other. It cannot be held under both.
The first – and older – 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) do still exist.1 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 It was not repealed by the 1995 Act.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 socially progressive legislation introduced by the post-World War 2 Labour government which also created the NHS and the State education system. The 1948 Act was designed to improve the fairly miserable lot of tenant farmers, and as a thanks for keeping the country fed during the war.2
The 1986 Act (and the 1948 Act before it) 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 each self-contained, very detailed, statutory ‘Codes’. This means that 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.3
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. By and large, and as long as certain overarching conditions are met,4 the 1995 Act 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.5 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 of varying likelihoods. 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) for example by way of necessity or business efficacy.6 But, 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 certain unusual 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 financial outlay in this book.
If a tenancy was first granted on or after 2 September 1995, then you are 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) 19997 or obtained by virtue of a direction of the Tribunal.8
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 create or give rise to any succession rights.
In order to be an FBT, the tenancy must meet certain statutory conditions. These are the ‘Business Condition’ and either the ‘Agriculture Condition’ or 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 ‘changing code’ because of a diversification into non-agricultural use, capable of turning the FBT 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 (i) succession tenancies (whether on the tenant’s death or retirement) granted by the Tribunal under the 1986 Act; (ii) tenancies granted in writing on an agreed succession with the tenancy agreement indicating that the 1986 Act is to apply; and (iii) tenancies granted to an existing tenant over the whole or substantially the whole of land already comprised in the holding, already held under a tenancy in relation to which the 1986 Act applied, and containing a clear statement that the 1986 Act is to apply to them.
It is clear that it is made (deliberately) difficult to create a 1986 Act tenancy today. For better or worse, this significantly reduces the possibility of accidentally creating one.
But there is a parallel problem, which is losing rights under the 1986 Act, without realising it, when things are done which have the effect of bringing about an implied surrender and regrant (surrender by operation of law) which can ‘use up’ a succession. Examples include adding a tenant to the tenancy, and adding land to the tenancy.
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 cannot possibly be an FBT, but, if a tenancy, is likely to be an AHT.
The second very important date to remember is 12 July 1984. Any 1986 Act tenancy first granted before 12 July 1984 will be a 1986 Act tenancy which will, by default,9 carry succession rights.
Any 1986 Act tenancy first granted 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. For those tenancies which have them, the existence of succession rights does not mean that there will actually be a succession. ‘Succession rights’ simply mean that an ‘eligible’ and ‘suitable’ (each as defined) aspirant successor, on the death or retirement of the tenant, may (if the landlord agrees) be granted a succession tenancy10 or (if the landlord does not agree) apply to the Tribunal for a succession tenancy.
The succession process (ie the vesting of an existing tenancy in a successor tenant) can happen up to twice – from the original tenant to first successor (succession 1) and from the first successor to the second successor (succession 2).
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 one but also, in due course, to successor two could potentially mean a tenancy lasting for three lifetimes – perhaps well over a century. I have encountered tenancies granted in the 1950s where the tenancy is still in the hands of the original (natural person) 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 (OMV). In financial terms, over three generations, and decades, this can be significant.11
MORE INFORMATION / PURCHASE THE BOOK ONLINE
1 Although natural person tenants of this vintage are now few and far between (a 21-year old in 1948 would now be 95). More commonly, one encounters AHTs granted to companies (ie, legal persons), often as a form of planning to obtain reliefs from Inheritance Tax and its predecessor taxes. So long as a company keeps up its filing requirements and remains on the Register, it does not ‘die’. If you encounter this sort of scenario, seek professional advice from an accountant as to whether this antiquated tax planning is still going to work. It may not.
2 See the discussion on agricultural security in Mark Wonnacott, The History of the Law of Landlord and Tenant in England and Wales (2012), pp 159 and following.
3 An example: The notice period is to be found in the statute, but the rules about the validity of the notice in terms of accuracy etc are common law rules.
4 A valid FBT can only exist if the ‘business condition’ in section 1 of the 1995 Act is met (land farmed for the purpose of a trade or business), as well as either the ‘agriculture condition’ (the character of the tenancy is primarily or wholly agricultural) or the ‘notice condition’ (on or before the start of the tenancy, the parties gave each other written notice that the tenancy was to be an FBT): see, further, below.
5 An FBT for a fixed term of up to 2 years does not need to be terminated by notice.
6 See the Supreme Court’s decision in Marks and Spencer plc v BNP Paribas [2015] UKSC 72.
7 See section 4(1)(d) of the 1995 Act which permits the post 1 September 1995 creation of a 1986 Act tenancy where it ‘is granted on an agreed succession by a written contract of tenancy indicating (in whatever terms) that Part IV of the 1986 Act is to apply in relation to the tenancy’.
8 ATA 1995 Section 4(1)(b). Sections 4(1)(a)-(g) set out the full list of exceptions.
9 That is, regardless of whether a written tenancy agreement makes any reference to them.
10 Which, even though granted after 1 September 1995, will not be an FBT but will be an AHA, because one of the exceptions created by section 4 of the 1995 Act.
11 See my rough-and-ready calculation above. The obvious corollary is that an aspirant successor could, if so minded, seek to ransom the landlord, who might prefer to buy off a succession, in exchange for a long FBT, rather than risk the Tribunal directing a succession tenancy (especially if it is a first succession with a prospective second successor already on the scene).