When to use an agricultural lease and when to use a licence

Article reference: UK-IA-AGR04
Last updated: September 2022 | 8 min read

The difference between a licence and a lease

The words 'tenancy' and 'lease' mean approximately the same thing. Parliament generally uses 'tenancy' when referring to residential leases and 'lease' when referring to business leases.

With agricultural lettings, where the property is used for agricultural business (i.e. farming), leases are known in the legislation as 'farm tenancies' or 'farm business tenancy agreements'.

A licence grants the licensee the right to do something specific on the land. You could use a licence to give someone the right to fish in a pond, or hold a fair. It can be thought of as permission, without which the licensee would be trespassing. It does not confer any interest in the land nor any right to occupy it exclusively.

A lease gives the tenant exclusive possession of the land for a fixed period of time with the intention to create an 'estate in land' - an interest in the land, that can be transferred, sold or licensed. Leases are usually identified by having certain characteristics, such as paying rent. They give the tenant more rights than a licence.

There is no escape for a landlord from their obligations

For historical reasons, tenants have considerable protection from landlords. Parliament has intervened so many times, modifying the rights of tenants and obligations of landlords, that lease law is now complicated and most lease documents are incredibly long.

Any loopholes that landowners have used in the past to bypass the tenancy laws are now closed. A common example was the use of a licence to let land without conceding the rights of tenants. Current law is drawn in such a way as to make it almost impossible to take money from an occupier of your land or real property without creating a lease.

Avoid an accidental tenancy or lease

What matters in judging whether an agreement is a licence or a tenancy is not the title of the document or the words within, but what really happens on the ground.

If you use a licence agreement, but try to include some of the matters a landlord needs to protect your interest, you risk a judge saying it is a lease. But because you have not drawn it as a lease, you may not have included the correct provision for ending the tenancy, and you may be stuck with a problem tenant for a long time.

On the other hand if you leave out all the 'lease clauses' from your licence agreement, you may indeed have successfully created a licence, but at the price of losing control of how the licensee looks after your land, fences and gates. The best course is to use a lease and be done with it. Then you can include all the provisions you want.

Applying the law

To be protected by statute law, a tenant must either live on the property or conduct business from it.

If your tenant does not do either, you can let your land under any terms you like. Net Lawman does not sell a lease agreement for these circumstances because the risk is that your tenant will turn round and tell you that they are running a business from your land.

But if your tenant puts a caravan on your land and lives in it, or sells the mushrooms that grow on it, or fattens a pig for sale, or sells the hay in the barn, or repairs cars in the shed, then tenant protection law applies. In some places, the line to draw is very fine. A letting to a horse owner to use a stable and enjoy their horse is not protected, but if they put her in foal, they are breeding horses and that is a protected agricultural use that could create a farm business tenancy.

So it is safer to use a grazing agreement or a proper agricultural land lease.

Grazing agreements

Many grazing agreements are agricultural leases that limit the tenant to one use - grazing. You can use a lease for this but that involves formality and notices and time conditions that you would prefer to avoid. We have an easier way.

There is a second type of grazing agreement that goes under the ancient Norman name of a profit à prendre. A profit à prendre is an agreement to buy a crop and a grant of access to take it (it gives a 'right of herbage'). Since the buyer does not have any rights to occupy the land, they are not a tenant, even if they spend most of the year taking the crop. So you can sell your grass for £300 a month and allow the buyer to put ten cows on the land to eat it for them. You can also go further. You can specify how their cows must behave and how they must keep the land. But it would be a mistake to dress up the arrangement like a lease.

To qualify as a profit à prendre, your arrangement must be limited to a single crop (grass) for less than one year. If the arrangement is for some reason other than the taking of a crop, it cannot be a profit à prendre agreement. If the buyer stores a tractor on the land, or uses the land to breed livestock, then a tenancy is created. Likewise with time - if the buyer is given a year or more to collect, then they could claim to be a tenant.

A period of 364 days, just less than a year, is common, but you take a small risk of the licence being interpreted as a lease. We prefer nine or ten months. If you also lock the gate at the end of the period, you can allow time for your land to recover!

If you want to let your land from year to year for grazing, the normal rules apply. You can either use a simple grazing licence agreement (with absolutely no business or agricultural use) or better, a lease.

Some lawyers and surveyors suggest that a licence will not be interpreted as a tenancy as long as it runs for no more than 364 days. In our opinion, that is not good law. The reference to 364 days applies only as a marker to the proposition that a grazing agreement for up to 364 days is in fact a profit à prendre agreement.

Interestingly, for tax purposes only, HMRC have made their own rule. They say: 'Less than 365 days, we accept that it is a grazing agreement. Over 364 days, we say it's a tenancy.'

What is a Farm Tenancy?

The Agricultural Tenancies Act 1995 (and the Agricultural Tenancies Order 2006) makes it a little easier for a land owner to control what happens on his agricultural land and in particular to regain possession at the end of the term. The provisions have the same effect, in the round, as the Landlord and Tenant Act 1954 has in respect of tenancies for other industries.

Farm business tenancies only apply when the land is being used for agricultural business purposes.

Which agreement do you want?

If your 'letting' is actually the sale of a crop, most usually grass, for less than a year then you should use a profit à prendre agreement such as a grazing agreement.

If the land will be used for (non-agricultural) business purposes (for example, to store equipment owned by a business) then a standard land lease, regulated by the Landlord and Tenant Act 1954, should be right.

If your occupier might just start to use the land at some time for some business use, use an agricultural lease, rather than risking problems in future. A good marker here is whether any building is included in the occupancy. If there is, keep an eye open from time to time to make sure your licensee is not using it to repair tractors of store a product for sale.

If your occupier is in business in agriculture, (including breeding any animal) use a farm business tenancy agreement.

If the occupation is for a short period and for a specific use, then an agricultural licence might be appropriate. For example, a licence may be appropriate for a four week letting for a summer event, or for ten Sundays in the summer for an organiser of a car boot sale.

The longer your occupier has possession of your land, the more likely it is that he will find some reason to stay even longer. So we advise that no matter what the circumstances keep any licence agreement to no more than one year (preferably much less) and renew as necessary.

If you are still not sure which document is most suitable, contact us and ask.

© 2000 - 2024 Net Lawman Limited.
All rights reserved