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Drawing lines in the farmland

Landlords and tenants come to blows, farms diversify and ownership changes. Setting boundaries in rental agreements will help during the fallout, says Jonathon Dixon

24 May 2013

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Farm owners or their predecessors have probably diversified over recent years and some of their buildings and/or land will be let out to commercial tenants. Lettings in the rural sector are often made on an informal basis, especially those dating back a number of years, but it is always better to have an official agreement in place.

Problems tend to come to light when a landlord has ‘pushed the boundaries of the planning system’ and collected rent in cash from the tenant. The trigger, whether from their solicitor, accountant, surveyor or planning enforcement officer, means action needs to be taken to formalise ?or terminate the agreement.

Also, relationships do change over time and can become strained between landlord and tenant, especially when the farm is beginning to move in a different direction, when there is a change in ownership of the farm business or, simply, because relationships can break down.

Trying to work out whether tenants have security under the Landlord and Tenant Act 1954, the Agricultural Holdings Act 1986 or, after 1995, the Agricultural Tenancies Act 1995, is therefore important for both parties. So, how does this work in practice?

Exceptions to rules

The first thing to establish is whether the 1954 Act applies to the particular tenancy. There must be a tenancy, not a licence – the latter is not covered by the Act. The tenant must occupy the premises for the purpose of running their business. From the perspective of tenure security, the tenancy must not be excluded from the application of the 1954 Act.

The security of tenure provisions of the 1954 Act do not apply: if both the landlord and tenant have properly excluded from the Act or if the term granted is for six months or less. The exception to the latter is where the lease provides for the renewal or extension of the term or the tenant’s (or their predecessor in the same business) total period of occupation exceeds 12 months.

Other exceptions include:

  • if the grant and continuation of ?the tenancy is connected with the tenant’s employment

  • if the tenancy falls within certain categories of agricultural tenancy

  • if the tenancy was created by a ?mining lease

  • if the premises are licensed for the sale of intoxicating liquor on the premises (with some exceptions); or

  • if the tenancy arises out of a lease of a flat granted under section 56 of the Leasehold Reform, Housing and Urban Development Act 1993, or if the tenancy relates to certain premises covered by the Dockyard Services Act 1986, the Atomic Weapons Establishment Act 1991, the Armed Forces Act 1996, the Channel ?Tunnel Act 1987, the Immigration ?and Asylum Act 1999 and the Railways Act 1993.

Agricultural tenancies agreed after ?1 September 1995 under the Agricultural Tenancies Act 1995 are known as farm business tenancies. To qualify, at least part of the tenanted land must be farmed throughout the life of the tenancy, which must also meet one of two conditions. First, the tenancy is primarily agricultural to start with, the landlord and tenant can exchange notices before the tenancy commences confirming their intention is to remain a farm business tenancy throughout. This means the tenants can diversify away from agriculture only where allowed by the terms of the tenancy agreement.

Second, if the landlord and tenant don’t exchange notices before the tenancy begins, the tenancy must be primarily agricultural to be considered a farm business tenancy.

Ending the tenancy

So assuming the tenant is protected by the Landlord and Tenant Act 1954, how can the landlord end a tenancy if desired? The landlord can serve a notice under section 25 of the Act either offering or refusing to grant a new tenancy. The termination date for the tenancy specified in the section 25 notice must be a date no less than six months or more than 12 months after it has ?been served.

Alternatively, it can be brought to an end if the tenant serves a request for a new tenancy under section 26 of the Act to start from a date no less than six months and no more than 12 months after making the request, or if they ?give three months’ notice of their intention to vacate the premises under section 27 of the Act. If the tenant vacates the premises on or before the lease termination date, the lease is therefore surrendered.

The termination date specified in the section 25 notice or start date included in the section 26 request must not terminate the existing tenancy before the expiry date stated in the lease. It can terminate the tenancy on any date after that provided that the date falls six to 12 months after the date of service of the notice or request.

If the landlord serves a section 25 notice, the tenant does not need to serve a counter notice to the landlord to inform them of their intentions about the property, but it is a good time to begin a face-to-face discussion regarding a new lease if you intend the tenant to stay.

If the tenant has served a section 26 request for a new tenancy, the landlord does not need to serve a counter notice if they are happy to issue the tenant with a new lease. Again it is useful to have a face-to-face discussion with the tenant before agreeing the terms of the new lease, which often helps to clear the air and set the relationship back onto a more friendly and professional footing.

If, however, the landlord is not going to grant a new tenancy, they must serve a counter notice on the tenant within two months of their request and give the reasons why a new tenancy is opposed.

Applying to court

Both landlords and tenants can make an application to court relating to the tenancy but not where a section 26 request has been served until two months after unless the landlord serves a counter notice. If a counter notice is served, the application can be made at any time up to the end of the statutory period, which ends on the date immediately before what is specified in the request as start of the new tenancy.

Neither party can make an application to the court after the statutory period expires and the tenancy will come to an end if no court application is made before the end of the statutory period.

In some circumstances, the deadline for the court application can be extended if both parties agree to negotiations if made before the statutory period would have otherwise ended.

If a section 25 notice or section 26 request has been served, the landlord or the tenant can apply to the court for an interim rent to be set, which is for the period before the new lease begins. This is normally the same as the rent due under the new tenancy if the landlord has served a section 25 notice or has not served a counter notice to the tenant’s section 26 request.

Also, the tenant must have occupied the whole property for the purpose of running their business and if the landlord has granted a new tenancy either as a result of negotiations or following the issue of a court order.

Given the complexity of the law surrounding any type of tenancy and tenants’ rights, it is important to ensure the farming client fully understands their position and that of anyone to whom they have chosen to rent property and or land.

Jonathon Dixon is an associate partner in the rural team at BTF Partnership