Update | Agriculture: chancel repair liability, water extraction licences and rent for agricultural holdings

Simon Blackburn examines chancel repair liability, water extraction licences and rent for agricultural holdings

The subject of chancel repair liability and the 13 October 2013 makes frequent appearances in the legal press, notwithstanding that it will not actually disappear in October of this year. As the insurance gravy train comes close to the buffers and the cost of searches and insurance rises, practitioners should in certain circumstances consider an alternative to indemnity insurance.

The most basic 'chancel check' search merely identifies whether or not the property concerned is within a parish or tithe district which continues to have potential chancel repair liability, based on the provider's study of the records available. What the search does not do conclusively is prove whether or not that particular land (either in whole or in part) is subject to an obligation to contribute towards the cost of repairing the chancel of the local church.

Some landowners have begun to offer (and some churches have accepted) to compound the chancel repair liability into a one-off payment. While the properly concerned has been identified as falling within a 'catchment area', the parties may agree that the liability (whether extant or not) may be extinguished by a simple deed made between the parties, registrable against the potentially burdened title.

If the relevant parochial church council and land are correctly identified and any such documentation properly drafted, there seems to be no obvious reason why this should not stand as a satisfactory means of discharging chancel repair liability from land forever. Clearly the parties will need good advice as to the value upon which they must settle.

Solicitors acting for mortgagees either in a purchase of remortgage should satisfy themselves that such a process is acceptable to a mortgagee and to any existing indemnity insurers.

However, it is suggested that many landowner clients will view a voluntary contribution towards the preservation of a historic building at the heart of a community is likely to be preferable to an often compulsory contribution (particularly as far as concerns mortgaged land) to the coffers of an insurance company.

Where's my water?

In many modern legal practices, more than one lawyer will be dealing with the legal matters arising from the death of an individual, particularly in larger and more complex probates where separate areas of expertise are required. Farming probates generally carry more complexity than others.

Water abstraction licences are a case in point. If the 15-month time limit (counting from the date of death) for vesting of an abstraction licence in executors is not adhered to then the licence will cease to have effect. The executors, beneficiaries, or buyers of the land in question will then need to apply to the Environment Agency for a new licence, which may not necessarily be on same terms as the 'lost' licence. The Environment Agency is monitoring closely the capacity and extraction rate from the nation's aquifers and it is conceivable that any new licence granted in respect of the same extraction point could carry a right to abstract less water, leading to possible complications with farm water supplies and ultimately the ability to grow crops.

It is therefore advisable that clients, surveyors and legal practitioners co-operate to ensure that the transfer of such rights is not overlooked.

What has the Green Deal got in common with a credit card? The answer is that they are both potentially regulated by the Consumer Credit Act 1974. Where property is made subject to a green deal scheme in a void period, the recently published Department of Energy and Climate Change guide suggests that landlords ask tenants to sign a modified green deal plan which contains the Consumer Credit Act statutory protections at the same time as the tenancy agreement.

The landlord should also allow a 14-day cooling off period between the signing of the modifying agreement and the date on which the tenant is due to move into the property and become liable for the electricity bills.

Where there is a 'green deal' in the offing, the guidance suggests a number of ways for landlords to ensure that tenants be subject to the obligations under their green deal, but does not actually promise that any of these are going to be effective...

The options put forward are:

1. asking a prospective tenant to enter into the green deal plan and installing the green deal improvements prior to the date on which the tenant moves in. The tenant's responsibility for green deal repayments would then commence at the outset of the tenancy;

2. waiting until the tenant moves into the property upon which point the tenant will become liable to pay the property electricity bills and may then enter into the green deal. The tenant would then be responsible for the green deal repayments from the outset of the green deal plan;

3. entering into a green deal plan during a void period with the intention of the Landlord retaining responsibility for paying the electricity bills, and therefore the green deal charge for the lifetime of the plan; and

4. where a landlord is unable to secure a tenant, the landlord may consider entering in a green deal himself during a void period with the intention that the tenant would assume responsibility for making the green deal repayments from the property as let.

In the same way as residential tenants are now starting to look at EPCs for houses, commercial and agricultural tenants may well wish to discuss

A simple solution may be for rural landlords to go on paying for the electricity and remaining liable under the green deal scheme, with those payments being recouped in a manner similar to insurance rent or as a 'service charge', not a phrase commonly used in the same sentence as 'agricultural tenancy'.

Every circumstance will be different but practitioners should be aware when letting agricultural land with buildings that the Green Deal issues will merit every bit as much attention in an ordinary letting of commercial real estate.

When buying land, green deal obligations already in existence (whilst currently very few) are only going to become greater in number and practitioners acting for purchasers or mortgagees of farm buildings should consider raising specific enquiries in relation to green deal payments until they become more commonly available as part of CPSE's and standard agricultural enquiries.

Why should I pay more rent?

Where a landlord is obliged to accept a lower than otherwise achievable rent for his property, there will necessarily be a degree of ongoing tension between him and his tenant. Notwithstanding its laudable aims and virtues (principally providing security of tenure, succession rights and moderate rents to tenant farmers) the Agricultural Holdings Act 1986 and its predecessor legislation is widely criticised for engendering adversarial relations and pressure points on the relationship between landlord and tenant.

While the rents for land (at least arable land) under the Agricultural Holdings Act 1986 have generally increased in recent years, the general level of rent which a landlord may expect from a holding let under the 1986 Act is often scarcely above half of the rent which he may expect to achieve when letting the same land on a farm business tenancy at arm's length.

When it comes to reviewing the rent, the 1986 Act sets out stringent notice requirements with which the party seeking rent review must comply if a revised rent cannot simply be agreed between the parties, as is most often the case. The resultant appointment of an arbitrator to determine the level of rent serves to prolong and complicate the process but at least gives the parties reasonable prospects of having a fair rent determined.

The most recent case to be decided by the High Court on Agricultural Holdings Act rents received judgment barely three weeks ago and concerned an arbitration which both parties contended was defective on a number of grounds set out in the judgment. The likely cause of the arbitrator's decision in Compton Beauchamp Estates Ltd v Spence [2013] EWHC 1101 being referred to the High Court is the difference in proposed rents put forward by the professional representatives of the parties: the claimant landlord contended that the rent properly payable should be 46,000 per annum; the defendant contended for a rent of 28,500. It is interesting to note that the tenancy concerned was a succession tenancy, the current tenant having acceded to it in 2009.

The arbitrator, upon reaching his conclusion held that the correct rent for the farm should be 34,800, amounting to slightly less than halfway between the two proposed rents.

While the arbitrator concluded that the arguments advanced on behalf of landlord and tenant were to some extent biased, he substituted his own conclusions where necessary and disregarded an interesting proposal put forward by the landlord's surveyor that the rent attributable to the farmhouse ought to be based on the local housing allowance figure for Swindon, as opposed to the market rent payable for the farmhouse.

When reviewing the arbitrator's decision, Mr Justice Morgan concluded that the reasons which the arbitrator gave for determining the rent properly payable were "just enough to tell the parties why he reached the conclusions which he did reach in each respect".

In spite of Mr Justice Morgan's criticism of the arbitrator's decision, it is difficult not to have some sympathy with him on the basis that he was charged with determining the value of a holding where the landlord thought that the rent should be nearly double what the tenant thought it should be.

The general conclusion reached by the court was that the arbitrator's decision was barely sufficient to stand as a correct arbitration of the rent payable for the 605 acre farm in Berkshire subject to the proceedings but that it was nonetheless there and should stand.