The Department for Environment, Food and Rural Affairs (DEFRA) has recently launched a paper outlining the proposals put forward by the Tenancy Reform Industry Group (TRIG).
TRIG advises on measures that assist the tenanted sector within the agricultural industry and includes representatives from various professional bodies such as the Central Association of Agricultural Valuers (CAAV), the Royal Institution of Chartered Surveyors (RICS) and National Farmers’ Union of England and Wales (NFU).
The mood from DEFRA is that agricultural productivity in England is lagging behind other countries. They want a younger, more entrepreneurial tenant base in order to drive forward new ideas and help productivity. They are keen to progress ‘structural change’ in the tenanted sector.
The proposals in respect of Agricultural Holdings Act tenancies are as follows:
1. To help older tenants realise financial value from their tenancy by allowing them to assign the tenancy for payment to a new tenant. This would be exercisable on only one occasion and subject to the right of the landlord to serve a counter-notice to negotiate to buy out the tenant’s interest.
If the tenancy is assigned, the rent would be at an open market level and the landlord can serve an incontestable Notice to Quit after 25 years. There would be no further succession rights.
If the landlord serves a counter-notice, there is 6 months for the parties to agree a figure for the landlord to buy out the tenant or the matter is referred to an arbitrator or independent expert.
2. To remove the minimum age of 65 for retirement, enabling tenants to retire and hand over to their successor at any age.
3. To remove the right for close family relatives to apply to succeed to the tenancy when the current tenant reaches 5 years past state pension age.
If this proposal were to be accepted, it would take effect 8 years after the legislation is enacted to allow tenants the ability to restructure their affairs.
4. To only allow Council landlords to serve retirement Notices to Quit where the tenant has reached the age they can receive state pension.
5. The removal of the commercial unit test, which currently prohibits those already occupying a commercial farm from being able to succeed.
6. To replace the existing suitability test with a new business competence test which takes into account a variety of different factors, including experience and business management skills.
7. An extension of the eligibility provisions to include those cohabiting with the tenant, or the children of cohabiting partners, to be treated as eligible to succeed.
8. To widen the definition of close relatives to include nephews, nieces and grandchildren of the tenant so that they would be able to succeed.
If grandchildren are able to succeed, there may be a provision that the landlord can serve an incontestable Notice to Quit after 25 years, in addition to the rent being at open market level.
9. To introduce legislation to allow either landlord or tenant to refer to dispute resolution where there are clauses within tenancies restricting activity such as diversification or environmental schemes.
10. To allow investments in fixed equipment on the holding made by the landlord to remain as a separate return on the investment capital and excluded from rent review considerations.
There are also provisions to cover some amendments to short notice in Farm Business Tenancies. The main aim is to introduce short Notices To Quit for new Farm Business Tenancies of 10 years or more, thereby encouraging landlords to offer longer term lets. The proposal details that specific circumstances, such as non-payment of rent or death of the tenant, would be subject to shorter termination procedures, leading to investment in productivity improvements and environmental outcomes in the tenanted sector.
It is important to remember that, at this stage, these are only proposals and will be subject to modification and amendments. However, if adopted they will have far-reaching consequences for landlords and tenants and they need to be fully considered when making decisions now.
For more information or to find out how our Rural Property & Business department can help you please contact 01234 352201 or email email@example.com