Down on the farm
It is essential that local authorities understand the legal framework of security of tenure that their agricultural tenants enjoy, writes Rob Phillips.
County Farm Portfolios
County Farm portfolios were acquired to enable authorities to support the agricultural sector and, in turn, the rural economy by letting small farms to new entrants into the industry. Indeed by section 39 of the Agriculture Act 1970 local authorities must make it their general aim as small holding authorities to provide opportunities for persons to be farmers on their own account by letting holdings to them.
It was the intention that as the new entrants developed their own expertise and farm businesses they would move on to larger farms either by raising their own capital or by renting in the private sector. There has been criticism over the years that County Farms have failed to achieve this objective. Many tenants of County Farms have occupied their holdings for the duration of their careers in agriculture.
In difficult financial times there is ongoing debate as to whether it is appropriate to allow an authority’s capital to remain tied up in these assets, particularly given the liabilities faced by local authorities as farm landlords and whether the state should be supporting a particular industry in this way. Whatever the resolution to the political questions, local authorities should fully understand the legal framework of security of tenure which their tenants will enjoy.
There have been numerous pieces of legislation since 1945 relating to agricultural tenancies, not all of which apply retrospectively. The key change in the law occurred on 1 September 1995. All tenancies granted by local authorities before this date will be Agricultural Holdings Act Tenancies, provided the relevant conditions are met. After that date (with a few exceptions) tenancies meeting the relevant conditions will be Farm Business Tenancies.
Agricultural Holdings Act Tenancies
Where the applicable tenancy is an Agricultural Holdings Act Tenancy it will not come to an end at the end of the fixed term. Instead the tenancy will automatically continue from year to year until terminated by a Notice to Quit. The legislation then places restrictions upon the operation of Notices to Quit. Parties cannot contract out of these provisions and any attempts to do so are invalid.
The restrictions placed upon Notices to Quit include a requirement to give at least 12 months' notice. In addition it may be necessary to serve a notice which quotes a statutory case or ground for possession which is set out in the legislation. The tenant can challenge these cases or grounds at the Agricultural Lands Tribunal.
Case A, which is set out in the Agricultural Holdings Act, allows for a notice to be served on a tenant of a County Farm upon them attaining the age of 65. Case E, which alleges an irremediable breach of covenant, has a modified set of rules which allows the effect upon the arrangements made by the landlord for the letting and conduct of smallholdings to be taken into account. The other cases for possession follow the usual position in relation to Agricultural Holdings Act Tenancies. The rules in relation to succession and rent are two further important examples of areas where the rules for County Farms vary from the standard provisions for Agricultural Holdings Act Tenancies.
Compensation will be payable to an outgoing tenant. Compensation for disturbance can be up to six times the annual rent. Further compensation is available for improvements, and tenant right matters (which include such things as the cost of seed sown in the land and the cost of land left fallow). Where a tenant has used farming techniques which improve the land beyond the condition required by the tenancy agreement the farmer may claim a further sum as compensation for “High Farming”.
Farm Business Tenancies
1 September 1995 saw a radical change of approach in relation to the regulation of agricultural tenancies with freedom of contract between the parties replacing the old restrictive regime. These types of tenancy have no security of tenure. Where they are granted for a fixed term of two years or less they will expire on the fixed term date. Where the tenancy is granted for a period of more than two years it will continue on a year to year basis until terminated by a Notice to Quit. There are no restrictions placed upon the operation of the Notice to Quit, save that it must give at least 12 months' notice ending on the end of a period of the tenancy.
Compensation can be more limited than in the case of pre 1 September 1995 tenancies. However the ethos remains to ensure the tenant is compensated for his investment in the farm business. Accordingly the tenant is entitled to remove any improvements made to the land. This can include buildings (such as silage clamps and storage sheds) constructed on the land. Alternatively if the improvement has been done with written consent of the landlord, and it adds to the letting value of the holding, the tenant may claim compensation in respect of the improvement. If consent is not given, the tenant may challenge the refusal by arbitration. The amount of a successful compensation claim will be equal to the increase in the value of the holding at the termination of the tenancy attributable to the improvement.
Conclusion
Whatever the political dimension it is important that County Farm portfolios are carefully managed to ensure land retained as County Farm land is utilised to best achieve the aims of supporting the agricultural sector and the wider rural economy and to ensure that no more compensation is payable than is necessary at the end of any tenancy. Good management includes identifying land which could and should be recovered for disposal, regardless of whether the intention is to use the proceeds to reinvest in the portfolio or to apply elsewhere in an authority’s budget.
Rob Phillips in an Associate in the Real Estate Litigation team at Eversheds.
