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TRIG
WORKING GROUP ON THE AGRICULTURAL HOLDINGS ACT 1986
FINAL REPORT – 8TH OCTOBER 2017
Introduction and Overview: The Problem and the Answers
The Working Group focused on the issue of improving productivity for tenancies governed by
the regime of the Agricultural Holdings Act 1986 (AHA).
As elsewhere, the key questions are:
- to have the best farmers farming – the “who” of farming. The Group noted the Irish
finding that there was on average a 12 per cent gain in output from moving land into
the hands of the trained, compared with a 4 per cent gain from it moving from the over
65s.
- to give them the framework supporting improvement in productivity and innovation –
the “how” of farming. That was seen to require facilitating investment and flexibility.
By no means all the answers lie solely within changes to the 1986 Act but rather with larger
policy approaches from taxation to support, relevant to all let land and indeed all farmed land.
However, with 17 per cent of the agricultural land area occupied by 1986 Act tenancies, this is
an important sector, especially as they tend to be larger and better equipped holdings, often the
bases for bigger businesses. With several decades of life left in the system, it should not be
left to wither slowly and without care. Yet growing longevity may increasingly see successions
take place at greater ages to older successors while a lack of exit routes may encourage retention
to death, although it is possible that management has been transferred.
As these questions concern longstanding tenancies coming through from before 1995,
commonly long before that, discussion of the AHA sector concerns existing property rights
and expectations. Discussion of reform is about potential changes to the established property
and contractual rights and obligations of landlords and tenants. That need not be a zero-sum
game, especially in this context of seeking to unlock more value, but poses challenges. Issues
here can affect the confidence of landowners who might let; the future of the whole let sector,
FBT as well as AHAs, depends on the willingness of landlords to let.
Proposed Reforms - The full report of the Working Group sets out the range of measures that
it considered together with the issues and arguments attending them, with individual members’
stances recorded as appropriate. This summary focuses on those measures that:
- appear likely to make a significant change and deliver improvement
- carry substantial enough assent.
The key measures proposed to tackle the “who” of farming in the AHA sector are (with
references to the relevant parts of this report):
(i) a mechanism to convert an existing AHA to a fixed term one that can be
transferred to a third party. This require checks and balance to protect landlords’
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interests but offers a possible opportunity and exit route for all AHA tenancies and
mean of moving land into new hands. (See Item 9)
(ii) revising the rules on tenancy succession (which are still substantially as they were
set in 1976) to encourage earlier succession to better claimants by:
(a) introducing a bar on succession once the tenant is more than five years past
the earliest age for receiving the state pension. Recognising existing
expectations and plans suggests that require eight years’ forewarning which is
itself likely to bring successions forward. This should be accompanied by a
removal of the rule preventing retirement succession under 65 going to the
Tribunal. (See Item 11).
(b) repealing the Commercial Unit test that excludes progressive applicants who
have built businesses (and which also acts against the unadvised and where there
is an early death). This also removes much regulatory clutter in the Act. (See
Item 10)
(c) replacing the Suitability test for applicants with a more demanding
Business Competence test. (See Annex 1 to Theme F)
These measures would bring successions forward, be more demanding and send an
important signal as to what is expected of those who are protected by the 1986 Act.
The key measures proposed to tackle the “how” of farming in the AHA sector
(iii) the ability for either tenant or landlord to seek determination of whether an
action in breach of a term of the agreement or the variation of such a term
would be reasonable in the circumstances. This has the potential to offer a means
for significant modernisation of agreements, perhaps disruption, to open up
opportunities and value in the sector. (See Item 2)
(iv) the ring-fencing from rent review of an agreed return on a landlord’s
investment in the holding, so removing an issue for landlords investing. (See Item
1)
(v) more accessible and proportionate approaches to disputes resolution to help
the whole system work better. (See Items 8 and 8a)
These are proposed to increase flexibility and support investment.
Jeremy Moody
Secretary and Adviser, Central Association of Agricultural Valuers
Chairman, TRIG AHA Working Group 8th October 2017
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CONTENTS
Introduction and General
- The Working Group
- A View of Productivity
- The Place of the AHA Sector
- Other Matters
- Chairman’s Review
Theme A – Landlord’s Investment in Holdings
1. Agreements to Ring Fence the Return on Landlord’s Investment
Theme B – Restrictions in Tenancy Agreements
Part 1
2. A General Test of “Full and Efficient Farming” and Environmental
Management
Part 2
3. Tenancy Clauses Barring the Erection or Alteration of Buildings: To be Subject
to a Test of Reasonableness?
4. Improvements Needed to Meet Statutory Obligations: To be Subject to a Test of
Reasonableness?
5. Tenancy Clauses Barring the Economic Activity off the Holding: To be Subject
to a Test of Reasonableness?
A Common Answer to Items 3, 4 and 5
Theme C – Procedures under the Act
6. Case D – Procedures
7. Revise the Timetable for Game Damage Claims
Theme D - Dispute Resolution
8. Third Party Resolution of Disputes over Rent Review
8a. Larger Reform of Dispute Resolution?
Theme E – Conversion to a Fixed Term
9. Statutory Mechanism for Conversion to a Fixed Term Assignable AHA
Theme F - Succession
10. Succession: Repeal of the Commercial Unit Test
11. Succession: Lost for Tenants Above a Specified Age?
12. Succession: An Extra Succession Option?
13. Succession: Modernisation of Close Relative Definition
Annexes to Theme F
- A Business Competence test to replace the Suitability test
- Procedural reforms to succession
Appendix – CLA Response to the Draft of this Report on the AHA Sector
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Introduction and General
The Working Group
The Group, chaired by Jeremy Moody of the CAAV, comprised Mike Holland and Julie
Robinson (ALA), Helen Shipsey and Andrew Shirley of the CLA, Louise Staples of the
NFU, Mark Sanders (RICS) and George Dunn of the TFA.
Following the meeting of TRIG on 27th June, the AHA Working Group created by that meeting
has met twice and also continued business by e-mail. Following the discussion of the draft
report at the meeting of TRIG on 25th September, a final conference call was then held.
This work has seen the review of a series of concepts which have been explored and developed
at these meetings, each with an eye to aiding the future productivity of the let sector.
While all concepts reported here come with significant support from within the Group, some
concepts are generally agreed, and some have more confirmed support than others; that position
is summarised below and then reviewed as each is discussed. All are subject to potentially
further consideration and development.
This paper sets the concepts out by six Themes, lettered A to F, ranked more by order of
discussion than importance. Within each Theme, some concepts may be seen as freestanding,
others are more naturally (or may need to be) considered in combination.
The note on each concept has been drafted to set out the proposal, some background, thoughts
about the change it would require, and some possible questions and issues. Each section closes
with text on the relationship between the concept and productivity – returning to the benchmark
for this work.
This report also includes, as Annexes to Theme F (succession):
- a previously prepared paper on a Business Competence test (with particular relevance
to Item 10 below) – considered by TRIG in December 2013.
- the paper on more procedural reforms to succession (and approved by TRIG in
December 2013).
The proposals in that second paper interact with the larger succession proposals and so, if the
repeal of the Commercial Unit test and/or the replacement of the Suitability test were taken
forward, then some items in this paper would fall.
With a substantive CLA submission made in response to the draft of this report, it is attached
as the Appendix to the whole report.
A View of Productivity
The policy aim is to enable and support a continuing and sustained improvement in the
productivity of agriculture with consequent benefits for the rural economy and the wider food
sector.
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Productivity is understood not to be simply yield measured by gross output, but is rather the
most efficient use of resources to produce the outputs that the market will buy.
Although there have been modest gains in resource efficiency, the picture is one of general and
sustained stagnation in productivity growth in the UK for over two decades. With the prospect
of more open international markets, the UK’s position as a high cost producer in both absolute
and relative terms, perhaps especially in some of the meat-producing sectors, poses a major
issue that could drive significant change. The object of policy should be to manage and master
that change positively for the long term health of the sector and the rural economy.
Assuming that output can be produced in forms and at values that the market wishes to buy,
the requirements for improving productivity are seen to be:
- skills
- investment
- confidence
- removing barriers to change and innovation
- removing barriers to markets.
With the discussion of farm structures and length of tenancies, there seems no empirical link
between security of land occupation (once beyond the seasonal agreements) and farming
productivity. It is, for example, not obvious that tenancies with security under the 1986 Act
offer more productivity than land farmed on a 5 year farm business tenancy. Analysis of this
will be confused by the multiple factors at work. Previous studies have suggested some
advantage to mixed tenure farmers but that could easily be because better farmers become
mixed tenure ones, as growing tenants may buy some additional land as well as rent it and
owners may see rental opportunities to expand. It may also reflect a more progressive
temperament. These observations, of mixed tenure as a badge of progression not a cause of it,
point to the potential for new tenancies, also the result of contemporary choices, to be more
likely to be held by better farmers.
It is suggested that the key factor on which to focus is who is farming rather than the structures
used. In that it appears that the critical issue turns on training and education more than age.
Work in the Irish Republic by Indecon for the 2014 Agri-Taxation Review found that:
- a trained farmer had on average a 12 per cent higher output than an untrained one
- farmers over 65 typically had output that was between 4 and 7 per cent lower than
farmers under 65.
- there was an additional €1.76m of agricultural output for every €1m of retirement relief
in agriculture (which requires the disposal of assets rather than necessarily retirement).
Those figures will be subject to the usual problems of such assessments. It may be that a
younger family member is really doing the management and work on an older relative’s farm.
Simple issues of physical capacity as much as more dynamic associations between age and
farm size may be relevant to this. Nonetheless, they point in the reasonable direction that
having land farmed by trained people, who may often be younger, is likely to see better
management. The Review’s conclusion was direct:
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“The potential for Irish agriculture will in Indecon’s judgment only be unlocked if
progressive farmers with ambition have access to agricultural land.”
Current demographics point to a further issue. So far as the reported age of a farmer indicates
the age of the effective person in the business (and at least for one-man businesses without
major use of contractors it might usually be), increasing longevity now makes it more likely
that a successor on death may be in their sixties. This is perhaps more material than the often
quoted average age which can mask more complex patterns of who may really take decisions,
perhaps especially those relevant to productivity, such as timeliness.
Purely as an illustrative exercise, with a gross UK output of around £20 billion before subsidies,
an uplift of 4 per cent (allowing for the many trained people in UK farming) would add £800
million. If, as seems reasonable to assume, that would very largely passed through to Total
Income from Farming (TIFF) it would be a significant uplift on a figure that, excluding
subsidies, has been of the order of £1 to 2 billion.
While the Indecon study is reported in terms of production rather than productivity, it seems
intuitively reasonable that that same transfer of farming to trained people would see at least no
less an improvement in productivity and quite possibly a greater benefit.
The Place of the AHA Sector
NB See Appendix for a separate CLA view.
22 years after the 1995 Act, AHAs still account for towards 17 per cent of the agricultural area
of England. With a significant number being larger and equipped units, often the base for
larger farming businesses using FBTs and owned land, AHAs are, on current trends and with
remaining successions, likely to be a significant force until after 2050 with some final
successions and company tenancies running into the next century. They were not viewed as
overall inherently more or less productive than any other part of agriculture, though the CLA
has since expressed a critical view (see the Appendix to the Report) and concern was expressed
as to how that might develop as the sector moved into its closing stages. Thus, AHAs cannot
be ignored when looking at the future productivity of agriculture.
In that context for AHAs, concerns about productivity, with its key interest in who is farming
and how they do so, focus on:
- upholding standards
- encouraging justified investment
- enabling innovation
- limiting succession to the best qualifying candidates
- facilitating retirement.
As the AHA Working Group, these have been considered here in the context of the 1986 Act.
In its discussion of the concepts in this paper as so far developed, the Working Group gave
unanimous support to:
- the option to ring-fence landlord’s investment agreements from rent review (Item 1)
- the tenant’s ability, where a clause in the tenancy agreement prevent this, to take the
question of consent to make works needed to meet statutory requirements to dispute
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resolution, with the result being treated as a fixture rather than statutory compensatable
(Item 4)
- the time limit and counter-notice proposals for Case D (parts of Item 6)
- the easing of the time limit for game damage claims (Item 7)
- reform of the rules for third party determination of rent reviews (Item 8)
- further reform of dispute resolution to provide a basic framework for third party
determination as an alternative to arbitration (Item 8a)
- the principle of a statutory mechanism for the conversion of an AHA to an assignable
fixed term AHA (Item 9) though not complete agreement as to the mechanic for doing
this
- removing succession rights above a specified age (Item 11).
There is substantial but not unanimous support for
- either package of measures regarding variations of tenancy terms (either Item 2 or Items
3,4 and 5)
- the combined package of the repeal of the Commercial Unit test and the replacement of
the Suitability test with a Business Competence test (Item 10 and Annexe 1)
- modernisation of the close relative definition to cover children of cohabitees treated as
the tenant’s own.
There seems not to be sufficient support to take forward the extra succession option (Item 12).
Other Matters
Case A - In addition, the Working Party approved the amendment to Case A suggested by the
County Farms Working Group for “65” to be replaced by the earliest age for the state pension.
It did not wish to take further TRIG’s previous discussions about an election to a 5 year FBT
– this was not seen to be about productivity. The issues of suitable alternative accommodation
under Case A were noted.
Farmhouses and Rents – This point was raised but it was not directly seen either that it was
sufficiently associated with productivity or how the Act might be changed as all relevant
circumstances could already be considered. The issue of investment was thought largely
covered by the ring fencing option considered below. TRIG might wish to consider preparing
guidance on the approach to dwellings in a rent review.
Pests and Invasive/Noxious Weeds – While not an AHA question, the discussion on game
damage saw concern about managing these problems raised in our first meeting. In the event,
that concern was not taken forward.
CLA Concerns - A range of issues about the AHA sector have since been raised by the CLA,
recorded in the Appendix to this report.
Chairman’s Review
Consideration of the AHA sector is inevitably and exclusively about changing the framework
for existing agreements. In principle, no new AHA can be created without replacing one
already in existence. That means that this topic is about potential changes to the established
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property and contractual rights and obligations of parties. That need not be a zero-sum game,
especially in this context of seeking to unlock more value, but poses challenges and affects
expectations.
While that stock of AHA tenancies will slowly erode, it will still be a significant sector
throughout the Brexit process and the following post-Brexit years, with perhaps more weight
than its proportionate size with its fixed equipment and historic place for many businesses.
That makes it important to see that it plays its part in meeting the scale of challenge we face in
improving productivity. We cannot ignore 17 per cent of the industry and simply, passively,
leave it to wither without care.
Those circumstances create a particular constraint – that of making changes that are significant
to secure substantive improvements without jeopardising the confidence of parties in the legal
and other frameworks that enable letting. That is particularly important for the landowners and
current farmers who might be attracted to letting as well as current landlords considering policy
when tenancies end. Without confident landlords, there are fewer tenants and a lesser role for
this sector and the opportunities it can offer for entry and progression.
The various facets of securing better productivity can be perhaps be reduced to the two
questions of having the best farmers farm and improving how they can be enabled to do it best.
In reviewing the concepts considered by the Working Group against those comments:
- the measures that affect the who of farming look to be:
o the option for someone to retire by conversion to a fixed term AHA which can
be assigned to someone else (Item 9). That has the general interest of the
Working Group but the Group has not, partly for reasons of time, been able to
settle on an appropriate structure and required checks and balances and so that
would need more work. This measure would apply to all AHA tenancies.
o where succession is still available:
the combination of replacing the Suitability test with a higher, Business
Competence, test and repealing the Commercial Unit test can raise
standards and send a wider signal about public policy intent.
the introduction of a bar on succession applications once the tenant is
more than five year past the earliest age for the state pension.
- the measures that affect the how of farming look to be:
o the ability for either tenant and landlord to seek approval for action in breach of
a term of the agreement or the variation of such a term (Item 2) appears to have
the potential to offer a means for significant modernisation, perhaps disruption,
to open up opportunities and value in the sector
o the ring-fencing from rent review of an agreed return on a landlord’s investment,
unanimously agreed by the Group would be helpful but less of a general “game
changer.
- in the background but importantly, more acceptable approaches to disputes resolution
have an under-recognised role in making all parts of the regime work better (Item 8a).
It is generally observed that openness to potential challenge leads to better behaviour.
There is a wide view that the current system is not doing that.
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I thank all the members of the Working Group for their active involvement in this work over
the past few weeks.
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THEME 1 – LANDLORD’S INVESTMENT IN HOLDINGS
1. Agreements to Ring Fence the Return on Landlord’s Investment
There is general agreement in the Working Group on this proposal facilitating landlord’s
investment in let holdings by insulating subsequent rent reviews from any associated financial
agreement between landlord and tenant regarding the improvement.
Concept:
The landlord would be able to invest in the holding without affecting the process of statutory
rent review (in effect on terms equivalent to any other provider of finance for such work. Thus,
- the landlord agrees to provide a new investment in the holding (say, a building)
- for which there would be an annual return agreed between landlord and tenant on
whatever basis they settled
- if that agreement is reached, the matter proceeds
- that return is then deemed not to be a term of the tenancy relevant to a rent review so
that the payments by the tenant under the agreement could not be used later to reduce
the rent of the holding as a whole.
Having guaranteed the landlord’s return on his spending, the improvement in question would
then be disregarded at any rent review.
In principle, this is about landlord’s investment, not about landlord’s finance.
So far as the landlord has funded the work under this agreement, the work would be a landlord’s
improvement for the purposes of end of tenancy questions and also rent review after any end
of the agreement providing for the payments.
Background
That would avoid the outcome seen with some milk quota finance agreements. These saw a
landlord finance the purchase of milk quota for a holding, increasing the volume of milk that
the tenant could produce without penalty, with an agreed charge based on the cost to be paid
by the tenant in addition to the rent. However, as that was seen as an obligation of a tenancy,
it was then relevant as an argument for rent reductions when dairy economics deteriorated.
That approach was adopted for those milk quota transactions as the s.13 provisions for
increasing the rent after a landlord’s improvement turn on the value the item has added to the
holding which might often not reflect the cost of the work.
These outcomes could be seen to deter landlord’s investment in the holding since they threaten
the economic return for the landlord.
Not only might this change put the landlord into the same position as any other provider of
finance for such work in the market place but it puts such investment in the holding on the
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same basis as investment off the holding – as for, example, a central grain store, that would be
outside the tenancy agreement.
Required Change
This proposal would require amendment of Schedule 2 (rent review) so that the commitment
to payment would be disregarded at a rent review. That might be done by amending paragraph
3 of Schedule 2 so that it could read
3 On a reference under section 12 of this Act the arbitrator or (as the case may be)
the third party —
(a) shall disregard any effect on the rent of the fact that the tenant who is a party to
the arbitration or third party determination is in occupation of the holding, and
(b) shall not fix the rent at a lower amount by reason of any dilapidation or
deterioration of, or damage to, buildings or land caused or permitted by the
tenant,
and
(c) shall disregard any payment due from the tenant under a written agreement by
which the landlord has provided wholly or partly an improvement or all or some
of the funding for an improvement and which is stated to be so disregarded
(d) shall disregard an improvement to the extent that it was made or financed in
whole or part by the landlord under such an agreement.
With the variety of possible circumstances and agreements it seems reasonable that, for an
agreement to have this result, it should be expressly stated to have this effect, rather than risk
accidental problems by broader drafting.
The disregard in (d) would see a straight disregard of the improvement itself, not of its rental
value, so adopting a “black patch” approach for this and bypassing the analytical problems with
the wordings in Paragraph 2 of Schedule 2.
Issues
With the necessary clarification that the work is to be regarded as a landlord’s improvement at
the end of the tenancy and if and when the agreement for payments has expired, all other issues
are matters for negotiation between the parties with the results to be recorded between them.
Where the landlord’s money funds a part of a work or other matter, then the work would have
the status of a landlord’s improvement to the extent that it is funded by him.
Where the improvement replaces or improves something that was already there, the previous
state of affairs would be assumed for rent review.
If the tenant dies during the period of the agreement and the tenancy is ended, then (subject to
its terms) the agreement would lapse and the landlord would recover possession of the farm
with its improvement. The same outcome is assumed to apply where a tenancy ends for
succession, perhaps unless agreed otherwise.
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If, the proposal at Item 9 for the assignment/conversion of a tenancy ere adopted, the agreement
should go with the assigned lease. The same might potentially be the case with any succession
if the term of the old lease are carried forward.
Payments to the landlord would not be “rent” for the purposes of recovery. The circumstances
(such as insolvency or non-payment of rent) where this might be a problem would normally be
those that might give rise to repossession.
Productivity
Investment in useful equipment is seen as one of the routes to improving productivity.
Such a change in the law could give a landlord, who is willing and able to invest, the confidence
to do so knowing his return is then assured with the rent remaining assessed at review on a
status quo basis. He is then simply in the position of any other provider of finance for such
work.
It might be that the investment would need to earn its return for the tenant to agree to it. It
could though be that the work is simply seen as necessary and a willing landlord might, on
occasion, be the easiest (or, sometimes, the only possible) source of finance.
The sense from conversation is that this would remove a practical obstacle to landlord’s
investment, of particular value where the tenant might not otherwise have access to necessary
funds.
This was seen as more relevant to AHAs with their statutory rent review provisions than
FBTs with their default use of market rent.
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THEME B – RESTRICTIONS IN TENANCY AGREEMENTS
Introduction
This theme is presented in two parts as the discussion began with concerns over what are
longstanding and often (but not always) standard clauses in tenancy agreements, such as those
barring a tenant from altering or erecting a building, that, written many years ago, might now
fetter reasonable change.
The specific issue of clauses barring a tenant from altering or erecting a building was
considered alongside clauses controlling necessary investment by the tenant to meet statutory
requirements and also clauses barring the tenant from taking other land or having economic
activity off the holding. The proposal as outlined in the second part of this theme is that where
tenant’s action in these three areas would be in breach of the agreement, it would be made
subject to landlord’ consent, not to be unreasonably withheld and referable to dispute
resolution.
In the Group’s second meeting, the discussion developed to propose such flexibility more
generally for both landlord and tenant in such agreements, almost none of which have been
written completely afresh for over twenty years and often coming through from the 1970s or
1980s, if not earlier.
In the Group’s discussions, these issues naturally raise the tension between the contract as it
was agreed, in which some of these clauses may have been the result of deliberation and active
agreement, and the potential business needs for flexibility in changed circumstances.
For one member body, the statutory intervention proposed here was only clearly acceptable
where driven by the need to meet a statutory requirement (Item 4) but not otherwise. It would
want to see evidently effective checks and balances before it could have confidence in the wider
model of Item 2.
The model suggested for implementing the larger proposal uses the approach of s.14 of the
1986 Act which allows recourse to dispute resolution on proposals to plough out permanent
pasture where this would be for the “full and efficient farming” of the holding, but now also
here yoked with an environmental consideration. That is seen to provide a simpler basis, using
an existing model, than the initial proposals of notice and counter notice. This is set out in the
first part of this Theme.
While an alternative model is still suggested for the more limited proposals, the s.14 model
could equally be used for that.
It has been agreed that where works that could be tenant’s improvements are made under these
provisions they should be seen instead as tenant’s fixtures and so not be automatically the
subject of a compensation claim for tenant’s improvements on the end of the tenancy.
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THEME B – PART I
2. A General Test of “Full and Efficient Farming”
and Environmental Management
This wider proposal emerged during and has proceeded from the conversation in the second of
the Group’s meetings. For one member, concern about the primacy of an agreed contract
overrides the gains in flexibility, at least without further checks and balances.
If adopted, this would overtake the discussion of Items 3, 4 and 5.
Concept
The proposal is that where a clause in a 1986 Act tenancy imposes a restriction either landlord
or tenant could serve a notice on the other that the clause be referred to dispute resolution
(arbitration or third party) with the tests being:
- the full and efficient farming of the holding
- environmental management
- reasonableness.
with the determination making such modifications to the agreement as are determined.
In general, it is then assumed that, as with other parts of the Act, matters are then settled by
negotiation, with awareness of the longstop of dispute resolution.
Required Change
A new section of the 1986 Act on the model of s.14, here presented as a new s.14A, though it
could subsume and replace the present s.14.
In terms of drafting, subsection (1):
- uses s.14’s “expedient”
- “reasonable” has been added
- uses s.14’s “full and efficient farming of the holding”
- adds the concept of “environment advantage”.
It is phrased to allow one-off breaches as well as wider changes so that, for example, approval
could be sought to alter one building without removing or fully over-riding the term of the
agreement.
In that vein, this draft offers a restraining sub-section (4) so that the direction is to have regard
to the tenant’s quiet enjoyment, the landlord’s reversion and not doing more than needed to
meet subsection (1) and so, for example, if a simple approval would meet the request (if
reasonable) that should be given rather than revising the clause.
It preserves the fixtures point from the discussion of Part II of this theme but allows for the
direction to adopt other treatments as may seem right in the case.
The draft illustrating the proposal reads:
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14A Variation of terms of tenancies
(1) The landlord or tenant may, by notice in writing served on the other, demand a
reference to arbitration under this Act of the question whether it is expedient and
reasonable either:
(a) to vary one or more provisions of the contract of tenancy or
(b) to approve an action in breach of one or more such provisions
in order to secure either or both of the full and efficient farming of the holding or an
environmental advantage.
(2) Where the landlord or tenant has the right under subsection (1) above to demand
that the question described in that subsection shall be referred to arbitration under this
Act, the landlord and tenant may instead refer that question for third party determination
under this Act.
(3) On a reference under subsection (1) or (2) above the arbitrator or third party
may by his award or (as the case may be) his determination direct that:
(a) the provisions of the contract of tenancy be varied
(b) a provision remain unchanged but approval be given for an action in breach of
it
(c) neither variation nor action be approved
and have effect subject to such modifications of the contract of tenancy and other terms
as may be specified in the direction.
(4) The arbitrator or third party shall in making a direction have regard to:
(a) the tenant’s quiet enjoyment of the holding
(b) the landlord’s reversionary interest in the holding
(c) other relevant property of the landlord and the tenant
(d) evidence as to the settled objectives of the landlord and the tenant
(e) the desirability of making the least change to the contract of tenancy that is
reasonably necessary to give effect to such variation or approval that he may
direct under sub-section (1).
(5) No improvement that may be made as result of a direction under this section
shall, unless specifically provided in the direction, be entitled to compensation under
Part V of this Act.
Productivity
This opens the way to modernisation and liberalisation of existing, often dated, leases, allowing
challenge to barriers to economic uses and opening the way to changes that would enable more
productive use.
That poses the tension between the potential productivity gains and the importance properly
given to existing agreed contracts.
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Theme B – Part II
With these three issues discussed together, before the larger general proposal just outlined, a
portmanteau draft of a suggested amendment is offered at the end of this Part. That could
obviously be tailored to more specific purpose. Equally, the s.14 model could also be used.
Where these relate to works, they would be tenant’s fixtures, not compensatable improvements.
3. Tenancy Clauses Barring the Erection or Alteration of Buildings:
To be Subject to a Test of Reasonableness?
Concept
Many tenancy agreements have clauses barring the erection or alteration of buildings by the
tenant. The effects of such clauses are:
- to impose an express prohibition of such work
- to make landlord’s consent necessary for such works which might be withheld or may
subject to unrelated conditions or conditions felt to be excessive.
The concept is that:
- the tenant be able to serve a notice under the Act in such cases of his intention to erect
a building or alter one
- the landlord could object, invoking a test of reasonableness.
In practice, that would mean that such contractual provisions would be statutorily qualified by
the need for landlord’s consent, not to be unreasonably withheld. Obvious likely arguments in
that would include:
- those as to the reason for the original inclusion of the clause
- the impact on the landlord’s property and current management objectives
- design and siting issues
- the arguments for the work such as increased productivity/economic return
The resulting works would be tenant’s fixtures (so covered by s.10) and so the tenant would
not be entitled to enforce statutory compensation simply by following this proposed procedure.
Background
It is suggested that the present status of such clauses could serve to frustrate some
improvements that a tenant wished to make at his own cost.
It does mean using statute to override an agreed term of the tenancy. While it can be
represented as a standard conventional term adopted as a matter of form, there may be
occasions where it has been consciously intended and accepted as a limitation of the tenant’s
enjoyment of the holding justified in the context.
It could be countered that such cases might largely be handled by the proposed test of
reasonableness.
17
Such “consent not to be unreasonably withheld” clauses are common in commercial
agreements, offering a useful default protection for the landlord but ordinarily enabling the
tenant to do what is needed on the holding unless there are overriding reasons.
Required Change
This might require a new section of the Act as, perhaps s.10A or s.11A, setting out:
- the notice and counter-notice procedure
- the test. It is suggested here that this should take the people and facts of the case into
account rather than use a more hypothetical “a fair and reasonable landlord” test.
- reference of the landlord’s objection to an arbitrator or other party. Should that be at
the tenant’s cost, as the instigator of the issue?
- a reference to applying s.10.
An alternative would be to provide that such clauses would simply be subject to the test with
disputes to go to an arbitrator or other party. That would omit the formal statutory procedure.
Possible Issues and Questions
With a notice procedure, the periods could be:
- the counter-notice to be served – 3 months (or less?)
- for reference of that counter-notice to dispute resolution - 3 months (or less?).
Most thought that the costs of any dispute resolution should follow the event.
One issue raised since the meetings was whether this would override a user clause in the
agreement; for example, where the tenant wants a building for non-agricultural use on a tenancy
with an agriculture only user clause. That would seem to lie outside this proposal as it currently
stands but would lie within the concept of Item 2.
Productivity
Investment in useful fixed equipment is seen as one of the routes to improving productivity.
Such a change in the law could give tenants who are willing and able to invest in such works a
general ability to set them in hand as uses of their money in their business save where an
objection found to be reasonable was upheld.
18
4. Improvements Needed to Meet Statutory Obligations:
To be Subject to a Test of Reasonableness?
This concept has carried unanimous assent in the Working Group.
Concept
While no change was thought needed to the s.11 powers enable the tenant to seek to compel
landlord’s investment to meet statutory obligations, this would give the tenant the power to
make works required to meet statutory obligations works, subject to landlord’s consent not to
be unreasonably withheld.
This would be at the tenant’s cost. The resulting works would be tenant’s fixtures and not
compensatable improvements unless qualifying by procedures outside this process.
General
It is taken that the issues are then similar to those reviewed in the previous section applying a
reasonableness test to contractual provisions against making erecting or altering buildings.
Required Change
This could simply be delivered within the new section suggested by broadening its scope to
such works.
Alternatively, as well as using a version of s.14 it could be delivered with additional material
in s.11.
Possible Issues and Questions
It was agreed that with the statutory context here the costs of any dispute resolution should
follow the event.
How to manage the landlord’ potential interest in siting and design.
Productivity
Investment in useful equipment is seen as one of the routes to improving productivity. In this
case, the works are those required for a business to comply with statute.
Such a change in the law could give tenants who are willing and able to invest in such works a
general ability to set them in hand as uses of their money in their business save where an
objection found to be reasonable was upheld.
19
5. Tenancy Clauses Barring the Economic Activity off the Holding:
To be Subject to a Test of Reasonableness?
Concept
Some tenancy agreements have clauses barring the tenant from taking additional land or work
off the holding. The effects of such clauses are:
- to flag an express prohibition of such activity, irrespective of economic changes over
the life of the tenancy
- to make landlord’s consent necessary for such activity which might be withheld or may
be subject to unrelated conditions or conditions felt to be excessive.
- to be ignored at the tenant’s risk, with arguments about waiver of breach and potentially
devaluing the agreement
The concept is that such clauses be made subject to a test of reasonableness.
Background
It is suggested that the present status of such clauses could serve to frustrate the activity that
supports economic progress.
It does mean using statute to override an agreed term of the tenancy.
Required Change
This could simply be delivered within the new section suggested for contractual provisions
barring alteration or erection of buildings.
Possible Issues and Questions
The questions are then essentially the same as for that provision.
Are such clauses widespread enough and obeyed enough to warrant change? The weight of
sentiment in the Group was that, if the other changes were being made, then this could be
adopted with them.
Productivity
Such a provision cramps the tenant’s economic activity by limiting him to a holding he took
many years ago. He could presumably often conduct other activity through a limited
company or another family member but that might only be warranted for major endeavours.
20
A Common Answer for Items 3, 4 and 5?
As there appears to be a commonality of approach between these three items, they can be
answered by using:
- the approach suggested above based on s.14
or
- a new section 11A to the Act which could look like one of these two models:
11A (1) To the extent that the provisions of a tenancy agreement prevent the tenant
from:
(a) erecting or altering buildings
(b) making works required for an agricultural activity that has been carried out
on the holding continuously for a period of at least three years not to
contravene requirements imposed under any enactment
(c) having an interest in other farmland
(d) taking other employment or pursuing other business
such provisions are to be subject to the condition that landlord’s consent to these items
is not to be unreasonably refused.
(2) The question as to whether the landlord’s consent has been unreasonably
refused or made subject to unreasonable conditions may be referred to arbitration or if
the parties agree determination by a third party.
(3) No consent, award or determination under this section shall of itself entitle any
works so approved to compensation under Part V of this Act.
The wording of item (b) is based on that used in s.11.
(3) excludes compensation as tenant’s improvements and so leaves open the options of using
s.10 where that would apply anyway.
If a notice procedure were wanted, that could be achieved by replacing (2), perhaps along the
lines of this as an initial draft:
(2) A tenant seeking landlord’s consent for an item in (1) shall do so by serving
written notice on the landlord asking for that consent.
(3) The landlord shall have [two] months in which to
(i) refuse consent by written counter-notice served on the tenant specifying
the grounds for that refusal
(ii) give consent subject to conditions stated in a written counter-notice with
reasons for those conditions
Otherwise consent shall be deemed to have been given.
(4) The question as to whether the landlord’s consent has been unreasonably
refused or made subject to unreasonable conditions may be referred to arbitration or if
the parties agree determination by a third party.
21
Sub-section (3) in the main model, excluding compensation other than as a fixture would then
be (5) here.
22
THEME C – PROCEDURES UNDER THE ACT
6. Case D – Procedures
Note – No change is proposed here to the Notice to Pay provisions of Case D.
Agreed Points
The two points that were agreed were:
- a time limit for referring Notice to do Works counternotices to dispute resolution. At
the moment the procedure is completely open-ended.
- a counter notice procedure for other notices to remedy under Case D. That would allow
the tenant to challenge the validity of what he is required to do rather than, as now, only
be able to do that by contesting the Notice to Quit when the whole tenancy would be at
stake.
It will be seen that, while the other issues here were discussed, further work is needed to shape
any proposal to make Notices to do Works simple and effective.
Concept
That the procedures under Case D (other than Notices to Pay which is not questioned) be
reviewed and preferably simplified so that they are more effective in upholding standards.
Background
Case D provides a procedure with regard to remediable breaches of the tenancy agreement
which can ultimately lead to a notice to quit. It provides separate routes according to whether
the notice is one requiring the tenant to do works or concerns other breaches. In doing this, the
statutory provisions create a complex of rules, combining initial actions to seek compliance
and then the rules for potential notices to quit. Action to uphold standards on notices to do
works can become bogged down and fail (and so may often not be commenced) while notices
for other breaches (such as a user clause) put the tenant in jeopardy as they can only be
contested at the notice to quit stage.
The object suggested here is to secure improved compliance, rather than possession, as Case D
is a statutory and more effective alternative to forfeiture. Forfeiture offers a mechanism to
ensure compliance with re-possession as a longstop (while the process can be protracted) – see,
for example, the Court of Appeal decision in Freifeld v West Kensington Court Ltd.
Required Change – Two Models for Discussion
Notice to Do Works - This remains to be discussed but an approach put forward for review
was to separate the compliance mechanism from the issue of notices to quit, thinking that the
former might be used more effectively if not entwined with the high stakes of the latter.
The compliance mechanism could then be either:
- the present notice and counter notice procedure but perhaps with an added time limit
for its reference to determination (a counter-intuitive omission from the present rules
23
that can leave the matter in the air indefinitely). If separated from the notice to quit
provisions, might the bar on multiple notices be dropped or weakened.
- adopting the procedures under the model clauses with the potential for the landlord to
step in and do the work recovering costs. That would see a unified procedure for such
issues.
As regards the notice to quit, options could include:
- leaving this to Case C, given the increased perception of the Tribunal now being more
robust. That might allow a proportionate consideration of the issues for the holding.
Such an answer might see a change to wording of Case C so that it could read
“Not more than six months before the giving of the notice to quit, the Tribunal
granted a certificate under paragraph 9 of Part II of this Schedule that the tenant
of the holding was not fulfilling his responsibilities to farm manage the holding
in accordance with the rules of good husbandry, and that fact is stated in the
notice.”
- a single line of appeal from a resulting notice to quit under Case D as per other notices
to remedy.
As discussion developed, the Group’s preference tended to be for retaining the direct link with
a Case D notice to quit, feeling that otherwise a Case C approach would only be effective for
breaches affecting the holding as a whole.
Notices for other Breaches – Provide for a tenant’s counter-notice so that the issues can be
determined with leaving that to the notice to quit stage which might then see less contest.
The notice to quit might then be less contested as a result.
Possible Issues and Questions
The ones noted so far are essentially raised in the discussion above.
Productivity
Adherence to management and maintenance standards would more readily support the
productivity of the holding.
24
7. Revise the Timetable for Game Damage Claims
After discussion, this was agreed within the Group, recognising that until the resulting crop is
harvested it could not be known how great or little the loss might actually prove to be. The
initial notice would give the landlord a chance to consider whether the issue was potentially
large enough to prompt changes in practice.
Concept
To make the procedure for substantiated claims for economic loss to game that the tenant
cannot control simpler and more effective.
Background
Game damage claims are handled under s.20. They arise where the landlord has reserved the
right to take and kill game, whether or not he then lets the sporting rights. S.20 provides a
mechanism for the tenant to claim compensation where those animals cause economic loss.
The procedure requires:
- a notice served on the landlord within one month of first reasonably becoming aware
of the loss
- offering the opportunity to inspect it
- lodging a claim with particulars within a month of a date that is usually the 29th
September following.
There is then the need to prove loss.
Required Change
The proposal is that for the claim to be enforceable it must be made with particulars within 12
months of the original notice. The interaction of the arable farming year with sporting and the
need to show actual loss (where the crops might prove anyway to have been poor) preclude an
earlier cut off.
That would see a new s.20(2)(c)
“(c) notice in writing of the claim, together with particulars of it, within 12
months of the notice in paragraph (a)”
It would also allow the repeal of s.20(3).
Productivity
This does not add to underlying productivity but a business is hampered if its economic loss,
arising from such a legal limitation, is not properly recognised but could rather be seen as
subsidising other activities of other persons.
25
THEME D – DISPUTE RESOLUTION
8. Third Party Resolution of Disputes over Rent Review
Concept
Reform s.12 as amended by the Deregulation Act 2015 so that a third party (other than an
arbitrator) can be appointed when the parties please (ahead of the review date) rather than at
least 12 months before the review date.
This would enable the timescales to match those established under a s.12 notice when
arbitration is sought as the arbitrator is not appointed until needed unless the deadline has
passed.
This change has unanimous support in the Working Group.
Background
The 2015 Act made welcome changes to allow the reference by mutual agreement of disputes
and differences under the 1986 Act to a third party, rather than only an arbitrator.
That was applied to review by amendments to s.12. Unfortunately, the wording used requires
the parties to appoint a third party more than 12 months before the review date – when they
would not usually even know that they had a dispute. That drafting essentially makes this
option of only theoretical interest.
Enabling the parties to appoint a third party at any date prior to the review date would be much
more practical as a means of dispute resolution.
The Proposal
The changes offered here for discussion are to enable the parties to appoint a third party (such
as an expert) to determine a rent review on the same timetable as they would look to appoint
an arbitrator. That is frustrated by the drafting of the changes made in 2015, despite their
positive intention to assist dispute resolution.
That would allow an expert to be instructed when the parties know that they actually have a
dispute and want such a person to settle it.
For example, the conventional procedure might run as follows:
- the rent was last reviewed and varied for September 29th 2015
- one party serves a notice under s.12 in August 2017 enabling the possibility of
arbitration on a review
- that review is then possible for 29th September 2018
- they consider the rent in later spring and summer 2018 as the matter become more
immediate and more is known of current circumstances for the rent that is to apply from
2018 to 2021
26
- no settlement is reached in those months and so before 29th September 2018 they
appoint or one asks for the appointment of an arbitrator to keep negotiations alive or to
move to a resolution with effect for 29th September 2018.
However, if in August 2018 they wished to use an expert instead, then s.12 as revised in 2015
would only make any determination by the expert binding for 29th September 2019. If they
had wanted it to apply to 29th September 2018, the expert should have been appointed before
29th September 2017.
The changes made in 2015 require that expert to be appointed more than twelve months before
the resulting determination would be final and binding. At that point (in this example, August
2017) neither party may even necessarily intend a rent review but, in serving a s.12 notice, is
simply reserving the potential to have one. It is very unlikely that they yet know that they have
a difference or wish to have it settled in this (or any other) way.
In short, that makes the 2015 changes here of no practical effect for one of the topics for which
expert determination might be most suitable.
The changes suggested below therefore seek to break the link between the “next termination
date” and the appointment of the third party, so that the expert can be appointed on the same
timetable as an arbitrator.
The changes suggested also presume that, however the parties may ultimately wish to have the
rent settled, they will naturally follow the familiar s.12 notice procedure that has been in place
for rent review since 1948. In that, it should be noted that the 2015 change could appear to
presume that the appointment of a third party would be an alternative to the s.12 notice but that
does not feel a realistic procedure.
Required Changes
The changes taken by sub-section accordingly:
(i) leave s.12(1) unchanged with its provision for the initial notice
(ii) alter s.12(1A) to allow the express appointment of a third party under the Act after
the s.12 notice has been served. The reference to the “next termination date” here
is left unchanged as that would now be driven solely by the notice not the
appointment of the third party
(iii) in s.12(2), the opening use of “reference” appears to work as it is used in both (1)
and (1A). However, “demand ..” is replaced by “notice …”.
(iv) that change is also made in s.12(3) which also would now expressly make the
appointment of a third party an event that preserves the force of the notice after the
next termination date.
(v) the change to s.12(4) would break the link made in 2015 between the appointment
of an expert and the next termination date with the same change from “demand” to
“notice”.
No changes appear needed to Schedule 2.
Suggested Changes to the Text of S.12
27
12 Arbitration or third party determination of rent.
(1) Subject to the provisions of Schedule 2 to this Act, the landlord or tenant of an
agricultural holding may by notice in writing served on the other demand that the rent
to be payable in respect of the holding as from the next termination date shall be referred
to arbitration under this Act.
(1A) The landlord and tenant may, after the service of such a notice, instead refer for
third party determination under this Act the question of how much rent is to be payable
in respect of the holding as from the next termination date.
(2) On a reference under this section the arbitrator or third party shall determine
what rent should be properly payable in respect of the holding at the next termination
date following the date of the notice under sub-section (1) demand for arbitration or (as
the case may be) the reference for third party determination and accordingly shall, with
effect from that next termination date, increase or reduce the rent previously payable or
direct that it shall continue unchanged.
(3) A notice under sub-section (1) demand for arbitration under this section shall
cease to be effective for the purposes of this section on the next termination date
following the date of the demand unless before the said termination date—
(a) an arbitrator or third party has been appointed by agreement between the parties
to determine the rent, or
(b) an application has been made to the President of the Royal Institute of Chartered
Surveyors for the appointment of an arbitrator by him.
(4) References in this section (and in Schedule 2 to this Act) in relation to a demand
for arbitration, or reference for third party determination, with respect to the rent of any
holding, to the next termination date following the date of the notice served under
subsection (1) demand or reference are references to the next day following the date of
that notice the demand or reference on which the tenancy of the holding could have
been determined by notice to quit given at the date of the notice under subsection (1)
demand or reference.
(5) Schedule 2 to this Act shall have effect for supplementing this section.
Productivity
Appropriate, cost effective and efficient dispute resolution enables parties and their businesses
to have matters settled and move on, developing accordingly.
28
8a. Larger Reform of Dispute Resolution
General
The Working Group moved on its second meeting to a larger discussion about the costs and
efficacy of dispute resolution concerned that the costs of arbitration, possibly driven by an
overly judicial approach, remove it from practical use, leaving no accessible and proportionate
mechanism.
The joint appointment of an expert was seen as the practical way forward in many cases but
the default appointment of experts was substantively hampered by the lack of a default
framework for that process in the way that the Arbitration Act gives a framework for
arbitration. That means that an expert relie on the parties settling the contract for the
appointment.
The proposal below was then brought forward and discussed in the final conference call.
Arbitrators should be encouraged into much more active use of their powers under the
Arbitration Act to manage process and costs.
In addition, the discussion noted the Welsh consultation on allowing the option to parties to
refer tenancy issues to the Welsh ALT. The Group had no concern with offering such an
additional option (in England, to the First-tier Tribunal) albeit unconvinced that it would make
a good forum for valuations and equivalent issues, such as rent reviews. The forum was at
present free of charge but the Tribunal system is understood to be under considerable pressure.
Approaches to the Resolution of Disputes and Differences
Whatever the practical operation of arbitration in agricultural tenancy matters may have been
in previous eras, its operation has progressively become more judicial in its process and
approach as a system founded on evidence and argument tested between the parties. The
Arbitration Act does allow leeway as to how that is managed but the process is key.
Criticism of the current state of arbitration (notably of its costs) points to it not delivering a
practical business need for cost-effective decisions that settle matters and allow parties to move
on. In the real world, achieving an outcome may matter more than the process, provided it is
independent and credible.
While there are many ways that a third party can settle a dispute or difference, even by tossing
a coin or drawing straws, discussion has focused on the potential of the expert to do this with
duties are to consider the matter asked of him and reach a decision by his own inquiries and
expertise.
While the expert has a common law duty of care to the parties (e.g. Zubeida v Hargreaves), all
other matters lie in the terms of his appointment.
The Present Framework for Alternatives to Arbitration
29
The Deregulation Act 2015 inserted s.84A into the 1986 Act to provide for the parties to agree
on the use of a third party to have many disputes and differences determined under the Act.
The reference to third parties are not limited to someone acting as an expert. S.84A reads:
84A Third party determinations
(1) Parties who wish to refer a matter for third party determination under this Act
must jointly appoint a third party to determine the matter.
(2) Parties may not under subsection (1) jointly appoint a third party to determine
a matter once an arbitrator has been appointed to determine the matter under section
84(2).
(3) Any matter which by or by virtue of this Act or regulations made under this Act
may be determined by third party determination under this Act is to be treated as having
been referred for third party determination under this Act once an appointment has been
made under subsection (1).
(4) References to “third party determination under this Act” are to the determination
of a matter by the third party appointed under subsection (1) or a replacement third
party jointly appointed by the parties on a termination of the earlier appointment and
references to a “third party”, in the context of such a determination, are to the third
party so appointed.
(5) If a third party appointed under this section to determine a matter dies, or is
incapable of acting, the parties may (instead of appointing a replacement) agree to
proceed as if they had not referred the matter for third party determination under this
Act.
(6) A matter that has been referred for third party determination under this Act may
not be determined by arbitration under this Act except by virtue of subsection (5).
(7) Where by virtue of this Act compensation under an agreement is to be
substituted for compensation under this Act for improvements or for any such matters
as are specified in Part 2 of Schedule 8 to this Act, the third party must award
compensation in accordance with the agreement instead of in accordance with this Act.
That is largely concerned with:
- mutual appointment of the expert by both parties. While that does not preclude them
from adopting a mechanism for a third party to be nominated by another person or body
for them to appoint or perhaps their delegating the appointment, they must act together
jointly in the matter to ensure an appointment.
- mutual exclusion with the use of arbitration
- confirming the date of the appointment of the third party
- how to handle situations where the third party appointment runs into trouble.
S.84A does not of itself provide for the determination to be final and binding. That seems left
to the mutual appointment.
A First Step
30
Providing some essential default framework could ease the use by parties of expert
appointments for agricultural tenancies.
After a review of the framework offered by the Arbitration Act with its liberal regime, it
appeared better to have a specific provision in the 1986 Act for this providing a basic default
framework which should include the concepts of:
- the duty of fairness and impartiality (see s.33(1) of the Arbitration Act)
- the expert to determine procedure save where directed by the parties (see s.34(1))
- the outcome is final and binding (see s.58(1))
- the payment of the costs of the expert; fees are to be reasonable; there are no other
provisions on the quantum of arbitrator’s fees and costs (see .64(1)).
It was not felt necessary for basic default provisions to cover:
- power to award costs, with the default being that they follow the event (s.61)
- cost capping powers (.65(1)).
Parties would by default carry their own costs unless they agree to grant power to award costs.
The Required Change
With that analysis, a new s.84A(4A) could look like:
(4A) Save in so far as the landlord and tenant agree otherwise, the third party
appointed under sub-section (1) shall
(a) make a determination that is final binding and enforceable on the landlord and
the tenant
(b) act in the matter as an expert
(c) act fairly and impartially between the parties
(d) decide all procedural matters after his appointment
(e) recover his reasonable fees and costs from the parties as he shall determine.
The additional point in that is at (b) providing that the third party is to act an expert unless
otherwise decided by the parties – that give a clear role. With issues such as a rent under
Schedule 2 to consider, any other role might usually be problematic.
And Then?
The Working Group unanimously agreed that proposal as a desirable reform that would much
ease the mutual appointment of experts to determine disputes and differences.
Such a framework could open the way to general dispute/difference clauses in agreements
between the parties providing for the use of experts within a 1986 Act tenancy.
The Working Group did not reach agreement on changing the law to allow unilateral reference
to expert determination, which would reverse the present hierarchy in which the default
recourse is to arbitration.
31
THEME E – CONVERSION TO A FIXED TERM TENANCY
9. Statutory Mechanism for Conversion to a Fixed Term Assignable AHA
This has developed as a potential retirement mechanism by enabling a tenant to convert the
AHA into a time-limited AHA which he could assign and obtain value for it while passes into
the hands of someone likely to be more productive.
In its general form, the concept has unanimous support in the Group but the discussions, albeit
having made progress in the time available, have not fully crystallised agreed mechanics for it.
The issue essentially revolves around identifying an effective means for the landlord to be
involved if there is not to be a landlord’s veto that would seem to most members of the group
to remove the point of the proposal. The answer developed below is a landlord’s pre-emption,
buying out the tenant’s current interest, the value of which would reduce as the tenant ages.
One member has suggested that the assignee should meet the Business Competence test (if
enacted) or an equivalent procedure but most feel that this would over-complicate matters.
Concept
This would create the opportunity for a tenant to trigger a process for an AHA:
- to have a time limit of, say, 20 or 25 years after which an open notice to quit from the
landlord could be effective (an alternative could be to use an expected duration of the
current tenancy but that might prove hard to settle fairly in individual cases, so adding
a problem)
- would be assignable once to a third party (subject to landlord’ consent, not to be
unreasonably refused) but not thereafter
- with a power for landlord to pre-empt the change by buying the tenant’s remaining
interest
- with recourse to third party determination.
Such a mechanism potentially aids the tenant’s exit or business restructuring with other
members of his family or third parties providing value.
This envisages conversion to a fixed term AHA rather than an FBT mainly because of the lack
of legal infrastructure under the 1995 Act to resolve the terms and operation of such a tenancy
where the original tenancy was under the 1948 or 1986 Acts. That would leave in place the
other parts of the 1986 Act regime including resumption for development (Case B)
Background
This has arisen out of the discussion of situations where tenants can appear locked in to
tenancies under the Act with few avenues for either landlord or tenant to resolve matters. While
the situations for which this mechanism might be most apt arise anyway in the course of long
term tenancies, they may become more pressing as the 1986 Act works its way out with third
successions or situations where there is no successor and the tenant remains into old age.
32
Allowing a mechanism for AHAs to become transferable but with protection for a fixed term
offers an opportunity for the tenant to reform an existing tenancy and potentially secure value
for it. Those changes could create the flexibility that would allow land to move into the hands
of those who would make more productive use of it.
While conversion to an FBT can be achieved by agreement, the number and nature of issues
involved often do not make it feasible as a route for unilateral conversion.
Required Changes
This proposal would require a new section of the Act and a new incontestable case for a notice
to quit in Schedule 3.
Thee might read along these lines
New section – say 24A
(1) This section applies to an agricultural holding governed by this Act and to
which Case I does not apply.
(2) The tenant may serve notice in writing on the landlord of the holding
indicating that he wishes to convert the tenancy so that Case I applies to the holding
unless
(a) a notice to quit has already been served and remain enforceable
(b) the tenant is dead or insolvent.
(3) If within two months of receiving the tenant’s notice the landlord does not by
counter-notice in writing served on the tenant indicate that he wishes to buy the
tenant’ interest in the holding sub-section (4) will apply to the tenancy.
(4) A tenancy to which this subsection applies will:
(a) be subject to Case I
(b) not be subject to Part IV
(c) be assignable by the tenant who served the notice under subsection (2) subject
to the consent of the landlord which is not to be unreasonably refused withheld
or qualified
and the rent properly payable under section 12 will be determined in accordance with
section 13 of the Agricultural Tenancies Act 1995 instead of paragraphs 1 to 3 of
Schedule 2.
(5) Where the landlord serves a notice under subsection (3) he then has six
months in which to agree with the tenant on the value of the tenant’s interest in the
holding as at the date of the tenant’ notice.
(6) Either landlord or tenant may refer the question of the value of the tenant’s
interest for subsection (5) to determination by an arbitrator or if they agree third party
determination.
(7) If that value has not been agreed or referred to arbitration or third party
determination within those six months subsection (4) will apply to the tenancy.
33
(8) Where that value is so agreed or determined the tenancy will end at the next
date at which a notice to quit served on the date when the tenant’s notice would have
taken effect or such other date as may be agreed when that value hall be payable to
the tenant.
Case I in Schedule 3 Part 1
The holding is let under a tenancy to which this Case has been applied under section
24A and a notice to quit is served to take effect on a termination date at least 25 years
after the service of the tenant’s notice under that section.
Possible Issues and Questions
Procedure
- limited to tenancies with written agreement?
- once triggered, does anything interrupt the process - death? insolvency? change of
mind?...
The “New” Tenancy
Should its rent be on Schedule 2 or a market rent?
- Schedule 2 would usually create a profit rent and so more value on assignment
- with a market rent, there could still be value in the access to land given by the tenancy
to a farming business
- there is just that initial possible assignment and not thereafter
- as a continuing tenancy all existing improvements and fixtures protected
- any remaining succession rights are then lost.
34
THEME F – SUCCESSION
Note – See also these papers, now included in this report as Annexes at the end of the Theme.
- A Replacement for the Suitability Test (7th November 2013), proposing a more
demanding Business Competence test instead, which is seen by most members as sitting
alongside the potential repeal of the Commercial Unit test to make a package.
- Review of Current Succession Law (for 6th December 2013) proposing operational
reform to succession law – the Working Group affirmed these proposals.
Introduction
This Theme brings together a range of potential reforms to succession. Some proposals were
seen as likely to work in conjunction with each other, with that point tending to be put most
often for the repeal of the commercial unit test and the replacement of the suitability test with
a business competence test (see note below and the first Annexe).
These proposals were developed as answers in an AHA context to the core question of assisting
the transfer of occupation into more productive hands within the framework of property rights.
The caution has been raised that any significant extension of succession opportunities could
weaken landowners’ confidence in letting as a mechanism so warranting care to maintain that
confidence.
One member is unconvinced that the measures proposed would necessarily lead to any
productivity benefit that could not be secured by the landlord’s opportunity to re-let the
holding, once vacant, on an FBT.
It is recognised that Human Rights Act considerations may need to be considered (as in the
Supreme Court decision on the Scottish agricultural tenancy case, Salvesen v Riddell) while
noting that their application usually sees a balance of issues determining the decision. The
most recent change to succession law was the extension of eligible applicants to include civil
partners. The issues here concern:
- the property rights of landlords
- the remaining opportunities under the 1986 Act for some close relatives of tenants to
succeed to a new tenancy subject to passing certain tests
There are potential public interest issues in the productivity point, as might warrant the
Government serving a notice to quit on any tenant under Case H as well as a landlord’s notice
to quit under Case C. Cases A and B rest on matters of public policy.
That issue has influenced the drafting of Item 11 with its proposal to exclude succession where
the tenant has reached a particular stage, now linked to the state retirement age. At least one
member has questioned whether that I an effective answer the underlying age discrimination
concern – as well as wondering about its public acceptability.
The concerns in Salvesen v Riddell, as expressed in the Supreme Court’s press summary were
essentially about the way that the measure discriminated against one group of landlords,
35
affecting their right to enjoy their property, albeit with a potentially legitimate aim but not one
justifying the difference in treatment between differing landlords.
“The difference in treatment of those whose notices were served before that date has no
logical justification. It is unfair and disproportionate. It is no answer to this criticism to
say that there was an urgent need to meet the problem that had been identified. The
legislation was intended to have an effect which was permanent and irrevocable.
Section 72 does not pursue an aim that is reasonably related to the aim of the legislation
as a whole. On this reading of it, Mr Salvesen’s rights under A1P1 would have been
violated if it had still been applied to him [44].”
That illustrates the point that property can be lawfully affected where there is a legitimate aim,
the action is proportionate and there is not unjustified discrimination between people –
otherwise we could not have compulsory purchase.
Replacement of the Suitability Test with a Business Competence Test – This is outlined in
the first Annexe to this Theme prepared in earlier consideration by TRIG (including a
discussion with a member of the Tribunal). The object is to establish a hurdle for applicants
such that they would be of a quality to be shortlisted for a tenancy of the holding. The
suitability test has been seen to set a much lower bar in practice. The Working Group saw the
Tribunal has become more robust in its judgments on bad husbandry cases.
Most members see this as part of a package with the repeal of the Commercial Unit test
(“widening the gate but raising the bar) to make a useful modernisation that both allows
potentially more productive farmers to apply but sets all a higher test.
One point made in the Working Group was to reconsider the suggested draft’s wording
referring to the tenancy being “under this Act” – it being taken that the principle of the concept
does not turn on those words.
Operational Changes - Alongside the proposals canvassed in this Theme, the Working Group
did endorse the proposals made by TRIG in 2013 for operational reforms to succession (see
the second Annexe to the Theme).
The Livelihood Test – With the other changes to the succession tests being discussed, the
meetings of the Group did not open questions on the livelihood test which was seen to provide
a test linking the applicant to the holding. However, a subsequent question by a Group member
has raised two points:
- the treatment of agricultural contracting work by the applicant, counting against the
application (to an extent that as considered by s.36(6), inserted by the 2006 RRO)
- this being one of few areas today where the spouse’s income could be brought into
account when determining the applicant’s standing (NB Spouses are also considered in
the anti-avoidance provisions of the commercial unit test.).
These were not directly linked to productivity.
36
10. Succession: Repeal of the Commercial Unit Test
A number of agreed proposed improvements to the application of the Commercial Unit test are
included in the TRIG paper of 2013 annexed to this Theme (also illustrating some of its issues).
However, if the test’s repeal were agreed, then Items 5, 6 and 7 of that paper would not be
needed.
Concept
Among a variety of both larger and more technical potential changes discussed to the
succession rules, the concept here is that the commercial unit test excluding those who already
have secure occupation of other agricultural land to warrant two male agricultural workers be
repealed. The object would be to remove a penalty on business development.
Most members of the working group saw this as naturally and beneficially linked with the
suggested Business Competence test – “widening the gate but raising the bar”.
Background
The basic structure of succession and its tests was introduced in some haste in the 1976 Act
reflecting the concerns of the time.
The commercial unit test was introduced with a view to excluding those who might be thought
already provided for – if, under a complex set of rules, they had a secure interest in enough
other land to amount to a commercial unit.
While, in practice this has proved to be a test that well advised families of tenants who do not
die suddenly can generally manage, it still poses a series of traps and perverse points
(considered in the more technical papers on reforms to succession) while movements in the
Units of Production Orders (varying to reflect changing farming economics) mean that the
calculus is itself uncertain over time. It leads to a pattern of distorted economic decisions and
structures when time and resources would be better spent running a good farming business.
It is also a costly part of the succession process.
The problem of principle, especially in a productivity context, is that it may disproportionately
exclude the applicants who might be more important to the future of industry. In some cases,
there might at present be discussion between the landlord and the non-qualifying successor
about a n FBT but that would not apply universally and a qualifying, even if less productive,
successor could anyway trump that.
Required Changes
Repeal of:
- s.36(3)(b) and s.50(2)(b)
- part of s.36(5) and part of s.50(4)
- most of paragraph 1 and then paragraphs 3 to 10 and 14, 15 and 16 of Schedule 6
37
Cancellation of the Units of Production Orders.
Productivity
This repeal would remove an obstacle to succession for applicants who may tend to be better
farmers, evidenced by their expansion. Concern about the effect on succession might hold
some potential applicants back from developing their businesses.
Other tests should be used to assess their farming and business skills for succession.
38
11. Succession: Lost for Tenants Above a Specified Age?
Concept
That after a period of forewarning before introduction, succession should cease to be possible
where the tenant is above an age to be specified. That loss of succession rights would apply to
succession on death as well as by retirement.
The object is to promote the earlier devolution of land to the following generation where
succession rights still exist. This is about the transfer of the interest in the land, rather than
necessarily about retirement.
It would be a coherent part of this change to remove the threshold of 65 before a retirement
succession application can be referred to the Tribunal. That would require the repeal of s.51(30
of the Act.
For one member body, this concept was linked to the widening of potential applicants to
include:
- nephews and nieces – which some others might only see in the context of joint tenancies
between siblings where succession chances can currently turn on the sequence of
deaths.
- grandchildren – other members saw that as extending the framework of succession too
far.
Background and Productivity
There is accumulating evidence to support the anyway intuitive point that moving land into the
hands of the skilled and innovative sees improved business performance. That is consistent
with moving land down generations (though the benefit of moving land into younger hand
appears less marked, perhaps because the movement of land within families is not necessarily
associated with changes of management. If succession is left to apply on later death, modern
longevity means that the successors can themselves be aged.
Human Rights Act issues are considered in the opening note to this Theme F above. Here it is
simply noted that age limits are used to enforce retirement from the judiciary and the public
policy arguments just advanced are seen to warrant such a rule.
Required Change
The insertion into Part IV of a criterion such as an age limit for the existing tenant after which
succession would cease to be available, on both death and retirement.
Rather than use an absolute age limit, it is suggested that (as with the County Farms Working
Group’s proposed amendment for Case A) succession cease to be available five years after the
tenant reaches the earliest age for the state pension (so if that age i 67, this age oud be 72), so
that it is more clearly linked to the context of retirement.
That could see a new section 34(1A) such as:
39
“This Part shall not apply once the tenant is five years older than the earliest age at
which he could receive the state pension.”
Possible Issues and Questions
The Prior Warning Period - It is suggested that up to 8 years forewarning of the change is
needed to allow for:
o existing applications
o planned applications (including those where the tenant is not yet 65 but
considering a retirement application that may be contested)
o adjustment of disrupted assumptions – the death in two years time?
so that the livelihood test could run its full course with a margin.
Operationally
For joint tenancies, it would be linked to the age of the surviving tenant.
A Wider Class of Applicant?
This was considered (but not settled) in two ways:
- that the context of joint tenancies in which deaths and ages could occur in a perverse
order could warrant allowing nephews and nieces to be applicants (meeting all other
tests). That could be material were the law to set the age limit proposed.
- a more general recognition of nephews, nieces and grandchildren as applicants. It was
noted that few grandchildren might be able to qualify for succession where the rights
were lost on the grandparent tenant reaching say 72. Most members of Group were
concerned that this was outside the principle of the current categories in moving down
a further generation.
40
12. Succession: An Extra Succession Option?
Concept
That existing succession opportunities could also be available:
- to a further range of close relatives
- but offering an AHA with a limited term (for illustration, 30 years after which an
incontestable notice to quit could be served)
- at an open market rent
- with no subsequent succession possibility.
No new occasions for succession would be created by this.
This envisages conversion to a fixed term AHA rather than an FBT mainly because of the lack
of legal infrastructure under the 1995 Act to resolve the terms and operation of such a tenancy
where the original tenancy was under the 1948 or 1986 Acts.
One member expressly sees no merit in this that could not be achieved by a voluntary
negotiation of an FBT and sees no call for a further class of applicant to be able to make a claim
on the landowner, even at a market rent for defined term. It is sceptical that this offers
equivalent productivity gains to those achievable through an FBT.
Another member has seen this as not being an attractive option for tenant’s families.
Overall, this lacks substantive support in the Working Group.
Required Change
New provisions in Part IV along the above lines and with answers to the questions below.
Possible Issues and Questions
Defining the additional classes of persons who might be included:
- assume family and not third parties (or where part of the household?)
- assume the outcome of modernisation review in Item 13
- assume all have to pass the usual tests (however revised or not)
- children in law?
- nieces, nephews? Might that be limited to where there was a joint tenancy, so handling
the problem of deaths in the wrong order?
- grandchildren? This tenancy has a fixed protected life but this change would go beyond
the framework of the 1976 legislation.
The issues here were seen as the balance between the risk for landlords of an extension of
succession undermining confidence in letting and gains in terms of market rent and certainty
as to when the tenancy could end
41
Productivity
This could enable a wider choice of successor where succession was probable. The new classes
of application would take to a tenancy as though granted afresh for a fixed protected term at a
market rent. Those factors are consistent with land tending to move into better hands.
It was asked by one member whether allowing such wider succession opportunities to an AHA
(even with a market rent) would increase productivity any more than letting the land under an
FBT – maybe to the same successor – meeting the landlord’s management objectives, rather
than legislative criteria.
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13. Succession: Modernisation of Close Relative Definition
This might be better seen as updating succession provisions than as a productivity concern.
It has been asked if this might be tackled by the courts rather than legislative change but it can
be noted that this would require some creativity in interpretation that has not yet been achieved.
Advisers can only operate on the basis of the law as it is understood.
Concept and Background
The definition of a “close relative” was written in 1976 and has remained unchanged (save for
addition of civil partners) yet there has been significant social change in family structures.
The principle of the current definition could be retained while applied to current expectations.
In practice, this was seen to be about the children (or those treated as children) of a cohabiting
relationship of the tenant – not any current or past cohabitee themselves.
All applicants would continue to need to meet the tests as applying at the time.
Having reviewed this, one member organisation thought this best left to the court (presumably
to interpret “treated by the deceased as a child of the family in relation to that marriage) rather
than legislative change and opposes any change here.
Required Change
A recognition in the definition of “close relative” of any person who as treated by the deceased
as a child of the family in relation to a marriage, civil partnership or cohabitation to which he
was party.
Possible Issues and Questions
Co-habitation is now understood to be a well enough defined relationship in terms of pensions
and other law to be used in this way here.
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FIRST ANNEXE TO THEME F
This is the paper received by TRIG in December 2013 setting out a Business Competence test
to replace the Suitability test for succession, setting a deliberately higher standard.
Most members of the Working Group see this as naturally forming a package with the repeal
of the Commercial Unit test.
After recent decisions on Certificates of Bad Husbandry and other matters, members of the
Group had more confidence in the Tribunal taking a robust view on cases before it, so giving
confidence to such a change from the Suitability test being effective in its purpose.
The one point made on drafting was to question the words “under this Act” in the test. It was
suggested that someone might be shortlisted for an AHA but not an FBT. The intention of
those words had been to help define the asset. The validity of the concept is not seen to turn
on the wording here which can be reviewed.
If this change were approved, then Item 8 of the agreed operational changes to succession in
the next Annexe would not be needed.
Productivity – Setting a deliberately higher test of competence for applicants is seen to
support, within the framework of succession law, the goal of having land in the hands of those
better suited to the aim of productivity.
REPLACEMENT FOR THE SUITABILITY TEST
Introduction
Business Competence Test
Commentary on the Proposed Business Competence Test
Appendix
- The Present Test – “Suitability”
- Future of Farming Recommendation
Introduction
Since the last full meeting of TRIG on 14th October, the Working Group has met twice and
developed its discussions on a possible replacement for the suitability test of s.39(8) for
succession as recommended by the Future of Farming Group. Martin Rodger, Deputy
President of the Upper Tribunal (Lands Chamber) attended the second meeting by invitation.
This paper offers a draft for a new Business Competence test to replace the Suitability test
applied to applicants for succession to the 1986 Act tenancy. While approved by the Group,
this draft is submitted on a “without prejudice” basis since, as reported to the October meeting
of TRIG in the main paper on the Future of Farming Group’s recommendations, this is for
some at least an issue that is only to be considered in conjunction with the repeal of the
commercial unit test.
44
The name of the test has been changed as there is general agreement that any new test on the
basis discussed needs a new title to explain and emphasise to the Tribunal1, as well as to the
industry, what is expected by the larger change. Since the last meeting, the working title of a
Business Capability Test has been replaced by that of a Business Competence Test.
Business Competence Test - Proposed Amendments
This is dealt with by two amendments to s.39:
- changing the general provision of s.39(2) to provide for the change in the s.39(8)
test.
- a complete replacement for s.39(8), the Business Competence test.
(a) Amendment of s.39(2) – with deleted text struck out and added text in italics.
“…the Tribunal, if satisfied … [as to the applicant’s eligibility] … shall determine whether he
is in their opinion a suitable person to become the tenant of the holding in their opinion he
satisfies the business competence test [of sub-section (8)].”
(b) Complete Replacement for s.39(8)
(8) In determining whether an applicant satisfies the business competence test the Tribunal
must be satisfied that, if the applicant applied in an open competition for a tenancy of the
holding under this Act, disregarding offers as to rent and having regard to all relevant matters
including, in every case, those in sub-section 8A below, a willing landlord could reasonably be
expected to regard the applicant as among the candidates to whom he would be willing to grant
the tenancy.
(8A) The matters to which the Tribunal shall have regard shall include:
(a) the applicant’s training, experience, capability and agricultural and
business management skills
(b) the applicant’s health, financial standing and character
(c) the character and situation of the holding
(d) the terms of the current tenancy
(e) the provision and standard of the landlord’s fixed equipment
(f) the landlord’s views as to the suitability of the applicant
(g) the expectation that the holding is to be farmed commercially to a high
standard of efficient production and care for the environment while
being kept in a condition to enable such a standard to be maintained in
the future.
Commentary on the Proposed Business Competence Test
The Suitability Test has perhaps become seen as an adequacy test, perhaps only a test of bare
adequacy. The thrust of the discussion is for a higher standard. The Future of Farming Group’s
report stressed the need for economic dynamism and, in the context of tenancy succession:
“legislation modernising its procedure and tests so that it enables active progression
and the high standards we shall need to be competitive in the future”.
The proposed test focuses on the applicant showing his competitiveness such that a landlord
could reasonably be expected to shortlist him were there an open competition for the letting of
1 The Tribunal is now the First-tier Tribunal (Agricultural Land and Drainage), which succeeded to the role of
the Agricultural Land Tribunal on 1 July 2013
45
the holding. Rent offers are to be disregarded in this since the focus is to be on the applicant’s
skills and qualities rather than the rents that might be offered.
That hypothetical letting is assumed to be under the 1986 Act so it is considering the asset in
question rather than less relevant contexts that might be found with FBTs, such as single season
potato lets or fixed terms tenancies without breaks and rent reviews.
That judgment on this is to be made on the basis of a review of all relevant evidence, including
the points itemized in the new sub-section (8A).
Despite the wording of the present s.39(8) this need only refer to “the applicant” since the
position where there are multiple applicants appears to be covered generally by s.39(3).
--0---0---0--
46
SECOND ANNEXE TO THEME F
OPERATIONAL CHANGES TO SUCCESSION LEGISLATION
The AHA Working Group adopted the recommendations below in the report to the December
2013 meeting of TRIG. In setting out those recommendations, this Annexe omits that report’s
Introduction and Appendices – they are available if required.
If the repeal of the Commercial Unit test is approved, then Items 5, 6 and 7 will not be needed.
If the Suitability test is replaced, then Item 8 will not be needed.
After the recommendations, it records two points not then fully agreed. The Working Group
did not revisit these.
REVIEW OF CURRENT SUCCESSION LAW
Changes to Assist the Practical Operation of Part IV and Schedule 6 of the 1986 Act
Introduction
Recommendations
1. Agreed Successions without an Application
2. S.36(2) – Tenancies Excluded from Succession Applications
3. Joint Successions
4. S.36(4) – Widowers
5. Schedule 6 – Para 5 – Obligation on the Ministry to Report
6. Schedule 6 – Para 6 – Land Excluded from the Test
7. Schedule 6 – Para 7 - Joint Occupation
8. Suitability
9. Interaction between a Delayed Decision on an Application and End
of Tenancy Claims
Record of Points Not Fully Agreed in the 2013 Discussions
1. Agreed Successions without an Application
The reference in s.37(1)(b) to “applicant” should be reviewed so that where consenting parties
agree a succession and record it as such without an application having been made, that
event is both protected as a succession and counts as a succession.
This might best be done by a new (c) as a third option here:
“a tenancy of the holding or related holding was granted by the landlord to a close
relative of the tenant who died on that occasion by a written contract of tenancy
indicating (in whatever terms) that this part of this Act is to apply in relation to this
tenancy and no other person had made an application.”
It does not look as though any amendment is required to s.50 for retirement succession and
s.34(1)(b)(iii) looks as though it covers the protection of such an agreement – its wording has
been borrowed here.
47
Interaction with the 1995 Act - That leaves consideration of the protection of such a tenancy
under s.4 of the 1995 Act. It would be an agreed succession under s.4(2)(a) but needs under
s.4(2)(c) to meet one or other part of s.4(2A). S.4(2A)(a) concerns applicants so does not apply.
The circumstances would meet s.4(2A)(b)(i) but not apparently s.4(2A)(b)(ii) so requiring an
amendment to that – perhaps its deletion. At p.579, Scammell remarks on problems with this
sub-section. Thus, as a supplementary amendment, it is proposed that s.4(2A)(b)(ii) be
deleted.
Comment – This broadens options for parties who are in ready agreement as to a succession by
ensuring that a properly drawn, voluntary written agreement between them can count as a
succession without requiring an application to be made to the Tribunal. That will also save
some cost to the Tribunal in such cases as well as to the parties.
2. S.36(2) – Tenancies Excluded from Succession Applications
Repeal s.36(2)(b) (the Gladstone-Bower reference) as redundant.
Comment – Simple repeal of a redundant provision.
It was considered that s.36(2)(a) - a fixed term with more than 27 months to run - could still
apply to cases.
3. Joint Successions
The problems surrounding joint successions where the previous tenant (or one of the previous
joint tenants) is to be a joint tenant with the close relative should be resolved. At present,
analysis shows this may not count as a succession whatever the parties intend. This limits the
opportunities for practical arrangements between parties, as where the continuing involvement
of the previous tenant is valued and would save the administration of the ways developed
around it. Other circumstances arise where a joint tenancy is held by grandparents and children
and is now to be devolved to one of those children and grandchildren. Issues here also
surround succession by assignment.
It should be possible for the grant or assignment of the tenant to joint tenants including
the current tenant to count as one of the two possible successions and also be protected as
one.
The problems arise from the structure of s.37, particularly sub-sections (4), (5) and (8).
It is suggested that amendments be made to sub-sections 4(b) and (5) to recognise that the
previous tenant may be a joint tenant in the succession tenancy. It is also suggested that, given
the review of s.37(8) by Scammell at p.574, sub-section s.37(8) be repealed.
Comment – These changes are to remove complex and technical obstacles to practical deals
4. S.36(4) – Widowers
48
This sub-section makes express provision for the deceased wife. That has been supplemented
by subsection (4A) to benefit surviving civil partners. It is suggested that this be amended to
make clear reference to all surviving spouses and civil partners.
The proposal is that sub-sections 36(4) and (4A) be replaced by a new (4) reading:
“In the case of the deceased’s surviving spouse or civil partner the reference in
subsection (3)(a) to the relative’s agricultural work shall be read as a reference to
agricultural work carried out either by that person or the deceased (or both of them).”
While s.6 of the Interpretation Act provides that
“In any Act, unless the contrary intention appears,—
(a) words importing the masculine gender include the feminine;
(b) words importing the feminine gender include the masculine; …”
there would be merit in clarifying that any spouse or civil partner has the benefit of this so as
not to mislead the lay or casual reader. It is noted that this reading has not been picked up by
the main legal texts on agricultural holdings law.
Comment – This eases the reading of a point that might otherwise have to be clarified in arguing
relevant cases – or overlooked by the non-specialist.
5. Schedule 6 – Para 5 – Obligation on the Ministry to Report
This provides for the Minister to be required to produce a report as to the net annual income
for the commercial unit in question. As the Minister’s view is though not conclusive, this
seems an undue call on DEFRA’s resources. It will remain for the Tribunal to determine its
opinion from the evidence in front of it.
This paragraph, reflecting an approach more reminiscent of the war and immediate post-War
years, should be repealed together with paragraph 14 in Part II of the Schedule which applies
it to retirement succession applications. Paragraphs 5 and 14 of Schedule 6 should be
repealed.
Comment – This removes a burden on DEFRA which currently does not bring certainty to the
parties.
6. Schedule 6 – Para 6 – Land Excluded from the Test
This sets out those classes of land occupation by the applicant which are to be disregarded for
an assessment of the commercial unit test. All remaining land is to be assessed.
This should be radically simplified, repealing redundant provisions and making the
substantive test turn on the applicant having three years’ secure use of the land rather
than on the length of his present agreement (which may be near expiry).
A series of repeals and amendments are proposed:
- The first four sub-paras are now redundant (what did (c) ever mean) and can be
repealed. Sub para (c) appears to have referred to tenancies let for other than a fixed
term or from year to year and so outside the 1986 Act's definition of a contract of
tenancy and is considered redundant.
49
- As regards (dd) - change the exclusion so it bears on:
- the occupation of land that has more than three years secure occupation outstanding
at the time of assessment (rather than land that was let on an FBT for five years or
less). When considering agreements, that period is to be assessed by the period to
the expiry of the agreement or the use of a break clause that cannot be operated by
the applicant. In the case of a conditional break clause (as, for example, on
development or a death), it is only to be taken into account if the relevant
circumstances exist at the date of the test such that the provision could be operated
to terminate the occupation (for example, is there, at that date, an planning
permission that could support a resumption for development?).
- any occupation, whether by tenancy (not just FBT), licence or otherwise.
- That allows the deletion of (e) with its Brooks v Brown problem, putting all occupations
on a similar basis.
- It also resolves any issue that may now remain about the present sub para 1(c)
- Deleting the word “only” in the preamble
- Retaining (f) but making it subject to “only”
That is illustrated by the following re-draft in which the treatment of break clauses (discussed
below) is shown in italics – as also is the sense that the two sub-paragraphs should be shown
as separate by “or”.
Occupation to be disregarded for purposes of occupancy condition
6(1) Occupation by a close relative of the deceased of any agricultural land shall be
disregarded for the purposes of the occupancy condition if he occupies it—
(a) under a tenancy licence or other agreement for occupation with three years or
less to its expiry (including a periodic tenancy, licence or other occupation) or
the first date at which it may be terminated unilaterally by anyone other than
that close relative and where that power of termination depends upon a
condition that condition must exist at the date for which the commercial unit is
assessed for it to be relevant to this sub-paragraph; or
(b) only as an executor, administrator, trustee in bankruptcy or person otherwise
deriving title from another person by operation of law.
(2) Paragraph (a) of sub-paragraph (1) above does not apply in the case of a tenancy or
licence granted to a close relative of the deceased by his spouse or civil partner or by a
body corporate controlled by him.
(3) References in the following provisions of this Schedule to the occupation of land by
any person do not include occupation under a tenancy, or in a capacity, falling within
paragraphs (a) and (b) of that sub-paragraph.
Comment – This:
- repeals a series of provisions that are now redundant
- changes the approach for current agreements from the length for which they were
originally granted to the security remaining so more genuinely and less capriciously
reflecting the applicant’s occupation at the date of assessment and bringing the
commercial unit test one step nearer reality
- unifying the treatment of all forms of occupation including those in the devolved
territories.
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- resolves the legal uncertainty left by Brooks v Brown
- simplifies the law.
7. Schedule 6 – Para 7 - Joint Occupation
A share in a partnership should be assessed on its income fraction rather than just the
number of partners to better reflect the applicant’s substantive occupation.
Given that it does not follow that the same approach should be taken to other joint occupations,
this probably needs a specific provision for partnerships in Paragraph 7, perhaps as a new sub-
paragraph (c) with resulting amendments to (a).
(c) where he is a partner in the business farming the land in question, by allocating
to him such share of the said net annual income assessed for that land as is the
share to which he is entitled of the income of that partnership in its accounting
period which includes the date for which this is being tested.
and then amend (a) by inserting after “joint licensee” the words “other than a partner”
Comment – This brings the commercial units tests one step nearer reality.
8. Suitability
In s.39(8)(a) replace “or” with “and” in yoking training and practical experience.
Technically, the Tribunal could see these as alternatives. This change is not seen as necessarily
requiring both but directing the Tribunal to have regard to the extent of each.
Comment – This is a minor tidying, taking advantage of the possibility of legal reform.
9. Interaction between a Delayed Decision on an Application and End of Tenancy
Claims
Proposals:
- The Tribunal should have the discretion, on application, to determine a period
after its refusal of an application in which the applicant can remain on the
holding solely in order to effect an orderly departure.
- Provision should be made so that the parties can make enforceable claims in
such circumstances
- The time limits for the procedures for tenant’s fixtures be revised so that they
can still work in such circumstances.
These three points are all answered by the replacement of ss.43 and 44 with a new s.43 – the
net effect is the repeal of s.44 - giving a unified regime where there is a late Tribunal
determination.
[This draft preserves s.43(2) (as s.43(4)) even though it is difficult to understand why there
would be a Case G notice on part of a holding.]
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Proposed New S.43
43 Restriction on operation of notice to quit given by reason of death of tenant.
(1) A notice to quit the holding given to the tenant of the holding by reason of the death of
the deceased and falling within Case G shall not have effect unless—
(a) no application to become the tenant of the holding is made (or has already at the
time of the notice to quit been made) under section 39 above within the period
mentioned in subsection (1) of that section, or
(b) where one or more such applications having been made within that period none
of the applicants is determined by the Tribunal to be a suitable person to become
the tenant of the holding in which case that notice shall have effect subject to
subsection (3); or
(c) where —
(i) one or more such applications having been made within that period one or
more of the applicants is determined by the Tribunal to be a suitable person
to become the tenant of the holding and
(ii) the Tribunal consent under subsection (2) to the operation of the notice to
quit in relation to the whole or part of the holding
— that notice shall have effect subject to subsection (3).
(2) (a) Where a notice to quit to which section 43(1) above applies has been given the
Tribunal shall afford the landlord an opportunity to apply for its consent under
this section to the operation of the notice before it gives a direction under section
39(5) or (6).
(b) Section 27 shall apply to consideration of an application under paragraph (a) of
this subsection.
(c) If the Tribunal gives its consent on an application made under this subsection,
it shall dismiss the application or each of the applications made under section
39 above.
(3) Where the Tribunal determines that no applicant is suitable to be a tenant of the holding
or gives its consent under subsection (2) to the operation of a notice to quit but that
determination was made or consent was given on a date later than three months before
the date on which the notice to quit purports to terminate the tenancy (“the original
operative date”) the Tribunal may, on the application of the tenant, direct that the notice
shall have effect from a later date which must be a date not later than the end of the
period of three months beginning with—
(a) the original operative date, or
(b) the date on which the Tribunal made that determination or gave that consent.
(4) Where the Tribunal consent to the operation of a notice to quit to which subsection (1)
above applies in relation to part only of the holding, the notice shall have effect
accordingly as a notice to quit that part and shall not be invalid by reason that it relates
only to part of the holding.
(5) Where in any case—
(a) a notice to quit to which section 43(1) above applies has been given, and
(b) section 39(10) above applies,
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the Tribunal shall give its consent to the operation of the notice to quit in relation to the
part of the holding which would, in accordance with section 39(10), be excluded from
any direction given by the Tribunal with respect to the holding under section 39; and
subsection (2) shall not apply.
Record of Points Not Fully Agreed in the 2013 Discussions
Assessment of the Commercial Unit Test - Five of the six in the Working Group’s previous
meeting in September had considered that the commercial unit test need only be assessed once
(as with the other tests) rather than up to three times as now. That might be as at the date of
death or of the retirement notice. The CLA dissented. This position was reported to the
October 14th meeting of TRIG.
The legal position here was confirmed by the House of Lords in Jackson v Hall as requiring
this test alone to be satisfied not only at the date of death but also at the date of application to
the Tribunal and the date of any hearing (which could here be under different Units of
Production Orders). Scammell goes further to suggest that it might have to be satisfied at all
intervening times in this period as well (35.25 in p.581).
Were this to be changed, it might perhaps most readily be done by rewording s.36(3)(b) to
insert the date for the test so that if it were to be as at the tenant’s death it could read:
“he was not at the date of death the occupier of a commercial unit of agricultural land”.
That would follow the approach taken in s.36(3)(a) which gears the livelihood test to the date
of death only.
Treatment of Pre-1976 “Successions”
The Working Group had fully agreed to recommend to the October meeting of TRIG (at its
Item 4 of the previous version of this paper) that the opportunity be taken to exclude pre-1976
lettings from counting as successions. The potential for this was shown by Saunders v Ralph
and while apparently resolved by Kemp v Fisher that was an uncontested case.
This might be done by inserting “since 14th November 1976” into the opening words of s37(1)
after “two occasions”– so running from the date the 1976 Act took effect.
Comment – While it may only be rarely that the records of previous lettings would meet the
tests set by later law, this would take advantage of a review of legislation to being certainty.
The TRIG meeting of October 14th did not accept this proposal.
--0---0---0--
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APPENDIX TO REPORT
CLA RESPONSE TO THE DRAFT OF THIS REPORT ON THE AHA SECTOR
Content of the final report
It is important to make the link between this report and the output of the FBT working group,
which recognises that investment by the landlord and tenant is a key way to increase
productivity. Where there are low rents under AHAs that may not even be sufficiently high to
cover the cost of meeting the statutory obligations under the tenancy there will be no ability for
the landlord to invest further. The rental formula needs to move away from a restricted view
of productive capacity to an open market rent in order to encourage investment and thereby
productivity.
Productivity and Brexit
The Minister’s driver for any reform was to increase productivity across the Brexit period (by
this we assume the next 2 – 5 years).
The main problem is that the tenanted sector is only about 30% of the land area (approx. 50:50
AHA and FBT). Any gains in productivity are likely to be most notable in the 70% of owner
occupied land. It is important however to maintain a thriving tenanted sector and there is merit
in encouraging more land to be let – this will only be done if the environment is
attractive. Threats of longer term tenancies, and greater succession will not build up
confidence in the sector.
All the work done on productivity does not conclude that it is boosted by modest tenancy
reform, but through better
Research, development and better integration of the innovation chain
Adoption of new technology and practice
Supply chain integration
Market development
Risk management and resilience
Driving and managing change
This was reflected in the Defra Ministerial Round Table on productivity. It is important that
we look at increased productivity of UK agriculture and rural economy, not just focus on
productivity of each individual holding or tenant.
Brexit is one of the most important issues facing agriculture, possible since the war - it will be
a time of great change whatever the outcome. Agricultural support, trade, regulation and labour
will all be affected. If UK agriculture is to respond to these challenges it must be flexible and
market focused – such change can only be delivered by flexibly in land tenure through FBTs,
contract and share farming or other joint ventures, not through the rigid statutory regime
imposed in the mid 20th century.
Rent
This has long been a matter for discussion, but AHA rents are simply too low. Arguing
guidance is available which should mean that they are reasonable is not satisfactory. Firstly
this guidance is not always adhered to by either side, nor indeed by the arbitrator shows that
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something is lacking. To resort to arbitration on a rent review is costly and often is in excess
of the rent gained – the process is lengthy and unwieldy and costly. Some of this may be helped
by arbitration-lite, written representation or 3rd party determination, but these are all work-
arounds and do not address the real need for arbitration to be proportionate.
Low rent presents issues through-out the tenancy. It prevents the landowner investing in AHA
tenanted land and buildings, often there is insufficient money to carry out anything more than
the repairs required by statute (sometimes even insufficient to do that). Some of the alterations
within the paper are ways of getting around this problem rather than tackling the route
cause. When the tenant is looking to retire, the low rent means that it is cheaper for him to stay
on the farm in the farmhouse, rather than move to a suitable alternative house. This prevents
the successor taking over the farm, or the farm being let out to another deserving tenant on an
FBT.
One example of this might be the value of the farmhouse and any cottages. These are valuable
commodities for the landlord (who otherwise could let them out for many times the rent he gets
from agriculture) but just as importantly for the tenant (who would otherwise have to pay a full
market rent for any other another property). This situation is even more acute if the farm is
small, but the house is large and listed. There needs to be a mechanism to better challenge the
appropriateness for the farmhouse and cottages to the current management of the holding, and
separately to the value attributed to them in terms of rent – the latter to be more closely linked
to open market value.
It is important to recognise that the rent paid is an important indication of the productive
capacity of the holding and a contribution to the productivity to of UK agriculture. It is no
surprise then that the higher the rent the more efficiently the unit is being managed. High rents
are a symbol of productivity, low rents result in inactivity.
Succession
22 years ago the ATA became law, whilst some existing tenants have been persuaded, often by
new investment or more land, to convert to FBTs, there are still a lot of AHA tenants who will
remain in situ for many decades to come. Whilst these tenants hold a special place, it should
be recognised that most land coming out of an AHA is let under an FBT, often to the same
person/family – it should not be assumed that the AHA is the only way forward.
There is also a further issue that has not been dealt with here that should be, and that is the 2nd
successor. If we are limiting the retirement criteria of the successors we should also limit the
second successor’s tenancy to the same degree, or any gains for earlier succession will be lost
as the final tenant, without a successor to take over, will remain in situ.
Most landowners who let land under an AHA did so before succession rights came in, they
thought that they were letting for a life-time, by ended up with three generations. There should
not be any attempt to prolong the AHA tenancy legislation. FBTs created a blue print for
flexible market oriented tenancies which are better sorted to the environment we find ourselves
in.
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Any changes should hasten the progression to FBTs not prolong AHAs
Timing
Any reform instituted now is likely not to come in until just before Brexit takes place, but the
impact of many of these measures will not come into effect until many years later. At this point
in time it is unclear what impact of Brexit we are trying to ameliorate, this will only become
clearer later.
Introducing change at a time of uncertainty, when a need for change is not recognised across
the industry could be very damaging to agriculture in the long term, and in the short term
threaten the stability of the let sector and harm the relationships between landlords and tenants,
which would dry up any further land coming onto the market.
Conclusion
We have engaged with the TRIG discussion throughout and have maintained a positive stance,
however the timescales given are inadequate to explore all the issues in depth. The comments
that we make to the attached concepts paper are also made in the same vein and trust that our
comments will be reflected in the final report given to TRIG ahead of the meeting on 25th
September.
Having discussed these proposals with many CLA committees, as an organisation, the CLA
does not see the proposals put forward adding any greater flexibility going forward and whilst
there may be small changes to productivity on a farm by farm basis, the impact on UK
agriculture will be negligible.