Case shows livelihood test prep crucial for tenancy succession

A recent tribunal decision highlights the importance of understanding and properly preparing an Agricultural Holdings Act tenancy succession application.

Anthony Thomas applied to succeed to the tenancy of a farm in Cornwall following the death of his father.

The farm formed part of a wider agricultural unit including parcels of land owned by members of the family, including Anthony.

See also: Advice on passing the tenancy succession livelihood test

The landlord, Countryside Solutions Ltd, objected to the application on the grounds that it did not consider the potential successor satisfied the principal source of livelihood test. 

To meet that test an applicant must satisfy the tribunal that not less than 51% of the value in money and money’s worth of his livelihood was derived from his agricultural work on the holding or relevant agricultural unit of which the holding formed part, in five years out of the seven years before the day following the late tenant’s death.

The application was heard by the First Tier Property Chamber (Agricultural Land and Drainage) which came to the firm conclusion that the holding was an essential and integrated portion of the agricultural unit.

The contention in this case was that the potential successor had both income and benefits in kind from his farm work and also from other work he had undertaken and which was not related to the farm.

TFA chief executive George Dunn sets out a complication of the case, which highlights the importance of clear record keeping regarding income sources and living expenses:

“There had been no clear allocation of those income streams as between livelihood expenditure [such as food, clothing, utility bills and hobbies] and non-livelihood expenditure [such as savings, investments and pensions].

“In view of the non-allocation, the tribunal accepted the landlord’s case that the source of income supporting the livelihood expenditure needed to be split according to the contribution to the pool of income coming from each source.

“In the view of the TFA, this is the correct approach that a tribunal should take faced with those facts.”

Tax credits issue

However, the experts appointed by both the landlord and the tenant agreed, incorrectly in the view of the TFA, that tax credits should be entirely considered as income not related to farm work on the holding.

“Given that tax credits are payable in respect of work undertaken by the applicant, the TFA contends that this income too should have been split as between the time spent on farm work and the time spent on non-farm work, with the former being attributed to income available to fund livelihood derived from farm work on the holding,” says George.

The approach of the tribunal on this aspect contributed to the finding that the applicant was only able to satisfy the test in one of the seven years with the other six years showing that less than 50% of the livelihood had been derived from income coming from farm work on the holding.

However, it was never less than 40%.

The tribunal has the scope to consider whether the applicant had satisfied the livelihood test to a material extent, even if technically the 51% earnings test is not met.

However, it concluded that this could not be the case on the basis that the applicant had passed the 50% threshold in only one of the seven years.

“This will set a helpful benchmark for other applicants seeking to use that provision,” says George.

The percentages of income found by the tribunal were: 2020 – 44.6%,  2019 – 41.2%, 2018 – 45.3%, 2017 – 57.1 %, 2016 – 44.7 %, 2015 – 41.5%, 2014 – 47.2%.