What is a farm business tenancy?
Qualifying conditions that must be met in order for a tenancy to come within the scope of the Act:
- At least part of the tenanted land must be "farmed for the purposes of a trade or business" throughout the life of the tenancy;
And either:
- provided that the tenancy is primarily agricultural to start with, the parties can exchange notices, before the tenancy begins, confirming their intention that the tenancy will remain a farm business tenancy throughout. This will allow tenants to diversify away from agriculture - provided that the tenancy agreement permits this - without calling into question the nature of the tenancy. Exchanging notices before the tenancy begins will help to ensure that the tenancy remains a farm business tenancy, even if during the course of the agreement the main use made of the holding ceases to be agricultural.
or:
- If notices are not exchanged before the start of the tenancy, the question of whether it is a farm business tenancy will depend on whether the character of the tenancy is "primarily or wholly agricultural".
Note that the Act does not make clear how far diversification may go. In many cases it will be a matter of opinion as to whether the land continues to be farmed. However, it has now become clear that peripheral or additional business operations will not prevent a tenancy from being an agricultural tenancy. Examples might be; the operation of a farm shop or a 26 day caravan site.
Note: any business (or other) activity than farming will require the consent of the landlord in any event. Show what happens if the tenancy drops out of the qualification criteria?
The World does not exactly fall in, for either party. The tenancy becomes governed by the Landlord and Tenant Act 1954, just like all other business tenancies. The main possible areas of difficulty will be those which the agreement has not covered - because it was never intended to be a lease under the 1954 Act. Problems might arise in connection with: rent review; notices to quit; occupation of the farm house, and others. Now back to the 1995 Act... Term of agreement and noticies to quit
Where either party wishes to end a tenancy for a fixed term of more than two years on the agreed termination date, written notice must be given. At least one year's notice (but less than two years) is required. If such notice is not given by either party, the tenancy will continue as a tenancy from year to year until ended by the giving of a notice. This tenancy from year to year must also be ended by giving at least one year's notice.
Note that the time period requiring the one year's notice is more than two years. To be on the safe side, a landlord might be well advised to agree to a term of one day less than two years - or some altogether shorter period. A tenant will either require a longer period if a large holding is involved, or be willing to accept a shorter period if he is looking for a seasonal occupation.
The parties may decide to include a break clauses in their agreement giving either or both of them the option to “break” after a specified time. If they decide to do so, then at least 12 months' notice must be given before the break clause can be operated. Alternatively, the parties may negotiate a surrender of the tenancy by mutual agreement, but there are no statutory provisions to deal with this.
There is nothing to prevent a landlord from obtaining possession for breach of a term of the lease, such as failure to pay the rent. But see below for resolution of disputes. Rent and review
Parties may negotiate rent and decide whether or not they want to have rent reviews. As with any other business lease, the requirement for a review arises as a result of the term of the lease being overtaken by increasing market rents. The landlord will therefore require a review provision in a longer lease but not in a short lease of say six to 36 months.
There is nothing in the Act to prevent the parties from agreeing their own provisions for review or for some othe device to increase the rent. But in any such case it is important that the agreement should specify that the deal agreed excludes the statutory rent review. If not, the statutory review will apply in addition (but not to give a higher figure for the rent payable!)
Even if the parties do not make specific arrangements to contract out of the Act's provisions on rent reviews, they will still be able to choose for themselves how often rent reviews are to take place. If they do not do so then either landlord or tenant will be able to demand a rent review every three years, as under the Agricultural Holdings Act 1986.
Because the Act gives considerable flexibility over rent reviews, the Net Lawman template provides simply for compliance with the provisions of the Act, which call for arbitration in the absence of agreement. The arbitrator must set the rent on the basis of the open market value. Compensation for tenant's improvements
The Act entitles a tenant to compensation at the end of a tenancy for physical improvements made to a holding and for intangible advantages which increase the value of the holding, provided they are left behind by the departing tenant. Intangible advantages include, for example, planning permission, which was not taken advantage of before the tenancy ended, or milk quota acquired during the course of a tenancy.
However, in all cases no compensation will be payable unless the landlord has given consent to the improvement. Where parties cannot reach agreement over this, or a tenant is unhappy about conditions attached to a consent, the Act gives the tenant the right to demand arbitration - provided that the tenant has not already begun the improvement. Routine improvements - that is, physical improvements which are made in the normal course of farming the holding - can be carried out before seeking consent, and without losing the right to seek arbitration if consent is later withheld. These would include most of the items formerly known as tenant-right matters.
Compensation must be paid at the current value of an improvement to the holding when the tenancy ends, although any financial contribution from the landlord or from any Government grant scheme will be taken into account. Parties cannot make any valid agreement to the contrary. The question of valuation can also be referred to an arbitrator. In other words, the tenant has the benefit of the increase in capital value over time. The landlord has to pay out full current value. The landlord should consider this future obligation, before giving permission. The parties cannot contract out of this. The landlord may prefer to undertake the work himself, so that he has the benefit of its future value and the issue of compensation does not arise.
The amount of compensation may be settled when a tenant actually quits a holding, rather than when a fixed term during which improvements have been made comes to an end. If the parties enter a further farm business tenancy, compensation may be 'rolled over' by agreement.
Disputes procedure
Either side may alone apply the arbitration provisions of the Act on virtually any dispute under the agreement. Arbitration is time consuming and expensive, but unfortunately an application to court is likely to be referred to arbitration as a matter of routine. Net Lawman advise that the most efficient way to comply with the Act is to agree the identity of an arbitrator. At least there will then be no delay in choosing that person. Mediation may take place by agreement, but either party may still insist on arbitration. Note that the arbitrator must be qualified so that he is able to give a decision which is binding at law. Yes, you can appeal his decision, but your appeal is unlikely to succeed unless the arbitrator has really, er . . . . failed!
The Net Lawman agricultural agreements, including model tenancy agreements are here.
Note: Net lawman will not answer questions as to the correct usage or appropriate form unless formally instructed after payment in advance. | 
