Advice on passing the tenancy succession livelihood test

Many think, wrongly, that succession to an appropriate tenancy is an entitlement or an automatic process.

Only Agricultural Holdings Act (AHA) tenancies granted before 12 July 1984 will automatically carry succession rights, otherwise the written terms of the tenancy have to allow for succession. 

An application to succeed must be made to the First Tier Tribunal Property Chamber (Agricultural Land and Drainage) in England, (the Agricultural Land Tribunal in Wales), using the correct processes and notices. Alternatively, succession can be dealt with informally. For either route, professional help is advised.

While the potential AHA successor must pass several tests, the livelihood test is frequently the most challenging aspect, says the Tenant Farmers Association (TFA).  

For this, the applicant must show that in at least five of the preceding seven years, more than half of their household living expenses have been paid for with earnings or benefits in kind on the farming unit which includes the holding to which they are applying to succeed.

See also: End of farm tenancy – tips on what to watch out for

“It’s important that this is about the applicant’s share in covering household living costs, not about what anyone earns in absolute terms,” says Adriana Vaux-Chan, TFA adviser and rural surveyor.

“Far too often we have prospective successors approach us who have not done their homework, a lot come a cropper on this test.

“We get some very messy cases, often advised by those not qualified to do so – you need a rural surveyor or solicitor experienced in succession matters.

“We have one very sad case of someone who has paid £30,000 [in professional fees] for nothing.

“If you just aim for 51% of living expenses being covered by the applicant’s relevant earnings, there is a risk that the tribunal, having looked at the evidence, will disagree and not allow the succession.

“You’re better aiming for at least 60% or higher.”

Changes mean challenges

Changes in economic circumstances and to farming profits over the years have made it increasingly challenging to pass the livelihood test, as more spouses and relationship partners often earn more than the farming individual within a couple.

Also, alternative enterprises have grown and landlords are increasingly likely to challenge a succession application, says Adriana.

People wanting to succeed to a tenancy are often unaware of the implications of a spouse, civil partner or long-term co-habitee contributing a substantial proportion of the living expenses.

However, action can be taken to legitimately organise things.

“People do have to change things around to meet the criteria and it takes some thought and organising. It’s not easy for a farmer with a spouse or partner and children to do this.

“They may not be paid a great deal or may have decided to limit their drawings to leave part of their partnership profit in the business, but many really need to take all or more than their profit share to prove their succession case.”

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In preparing over the years leading up to a succession application, where the cash is coming from and where it is going to needs managing, says Adriana.

For example, it can be organised for a suitable portion of a spouse or partner’s income to go towards pension investment and savings, which are not counted as household living costs.

“You need a clear paper trail, or it can get very messy and time consuming to find and calculate all the costs and where the cash came from to cover them.”

What about diversification and contracting income?

An applicant’s earnings from working in a farm’s diversified enterprises can only count in making a contribution to living expenses if there has been landlord’s written consent.

This applies only to landlord’s written consent given from 19 October 2006, under Tenancy Reform Industry Group changes.

Every case has to be judged on its particular circumstances.

Some contracting income could be allowed in paying towards living expenses, but it has to be less than 50% or the applicant must prove that they did not personally carry out that work.

Benefits in kind

Benefits in kind such as a farm cottage or accommodation in the farmhouse, vehicles, council tax and utility bill payments must be assessed in the livelihood test preparation and a value attributed to these, says Adriana.

An applicant may find that while their farm work may not pay for over half of their living expenses in monetary terms, it does when benefits in kind arising from that work are taken into consideration.

Benefits in kind are a valuable and perfectly acceptable way of meeting the livelihood criteria and should be considered when forward planning for succession.

What’s the succession process?

An application to succeed must be made to the First Tier Tribunal Property Chamber (Agricultural Land and Drainage) in England, (the Agricultural Land Tribunal in Wales), using the correct processes and notices.

Alternatively, succession can be dealt with informally. For either route, professional help is advised.

Succession can be on retirement, when the retiring tenant serves a notice of retirement and nominates a successor who in turn must make an application for succession within one month.

Alternatively it can be on the death of the tenant. In the latter case, applications must be made within three months of the date of death.

Both Adriana and Ellie Allwood, a divisional partner land agent at Brown & Co, advise that a retirement application has benefits, including the possibility of withdrawing an application if, in the face of landlord opposition, it looks likely that it will not succeed. 

Withdrawing an application allows the applicant to regroup and return with a further application either on retirement or death of the current tenant.

However, if a retirement succession application fails at tribunal, a further application on retirement is not possible and although an application can be made on the death of the existing tenant, the applicant who failed to achieve the succession on retirement is barred from making an application on death.

Planning for a succession on retirement can also be less stressful than an application on death when the applicant will be grieving and dealing with the formal demands and processes following a death.