New guidance has been published to help landlords and tenants navigate recent changes in Agricultural Holdings Act (AHA) tenancy rules, introduced to make it easier for farmers to adapt their businesses as Basic Payments are phased out.
The Tenancy Reform Industry Group (Trig) has published a Code of Good Practice for landlords and tenants who are looking to pursue projects or participate in schemes that require the other party’s consent.
New regulations came into force in England in June 2021 which give AHA tenants greater powers to challenge their landlord if they refuse to vary the tenancy terms to enable them to fulfil their statutory duties or sign up to one of the new support schemes being rolled out as part of the Agriculture Act.
Similar regulations specific to Wales are expected in autumn 2021.
The new code sets out how parties should approach the other party to present their proposals and hopefully reach an agreement.
Checking the terms of the tenancy agreement should be the first port of call, as not all proposals will need consent, depending on the terms of the tenancy.
However, where consent is required, it outlines a process involving approaching the landlord at the earliest possible opportunity to discuss the broad terms of the proposals and to agree what further information will be required to support a request for consent.
A timetable for the preparation and measured consideration of the proposal should be agreed, after which the tenant should submit a sound business case for the landlord to consider.
The code suggests the amount of information required should be proportional to the scale of the plan, so a tenant might only need to share gross margin information for a proposed change in cropping or livestock system, but should be prepared to put forward a full financial appraisal for a major non-agricultural diversification project.
Once the parties have agreed to any change, the terms should be agreed in writing by a suitably qualified professional adviser.
Where a landlord and tenant are not able to reach an agreement, and the tenant’s request is covered by the updated regulations, then tenants can refer their request to arbitration.
This will involve serving written notice on the landlord requesting the landlord’s consent to the request, or their consent to vary the relevant terms of the tenancy.
The landlord has two months within which to serve a counter-notice, which either grants consent to the request, grants consent but subject to conditions, or refuses to grant consent.
Within four months of serving the original notice to the landlord, the tenant can refer the matter to an arbitrator if the landlord doesn’t serve any counter-notice, serves a counter-notice with consent subject to conditions that are deemed unacceptable, or serves a counter-notice refusing to grant consent.
Alternatively, the landlord and tenant can jointly refer the matter to a third party for determination, within the same four-month period.
Reasonable grounds for refusal
The code sets out some examples of what might be considered reasonable grounds for consent to be refused.
This includes where the implementation of the proposal would be detrimental to the sound management of the rest of the estate, if the proposal does not seem viable, or where the proposal would cause the landlord to suffer undue hardship.
An example of the latter might be the loss of tax reliefs by the landlord in the event that a diversification proposal made valuable land non-agricultural.
Caroline Foot, senior adviser at the Tenant Farmers Association, who helped to write the code, said: “The new code provides detailed but practical advice on how to open and conduct a reasonable discussion on proposals, and what might be considered reasonable grounds for refusing consent.
“It is always hoped that formal dispute resolution can be avoided where the parties are acting reasonably, but the code helpfully sets out the formal procedures available in certain situations, if an agreement just isn’t possible.”
Ms Foot said it was disappointing that the dispute resolution provisions did not extend to tenants on farm business tenancy (FBT) agreements.
“The lack of supply of land and farms to rent, coupled with very high demand, allows landlords greater say in what terms are inserted into FBTs,” she said.
“It is not as easy for tenants to negotiate more reasonable terms as some, including Defra, might think.
“However, this code still provides advice for those who do not have arbitration to fall back on, and first and foremost it is encouraging parties to avoid getting to that stage anyway.”