Tenancy succession – advice on meeting the suitability test
© Adobe Stock The suitability test is one of three hurdles to clear in tenancy succession, and the bar was raised in September 2024 alongside other changes to the requirements in England and Wales.
Applicants must be able to show that they have sufficient training, experience and business management skills to take on the tenancy and run the farm, as well as suitable health and financial standing.
See also: Advice on passing the tenancy succession livelihood test
Their capability and capacity to farm the holding commercially, with or without other land, is assessed, taking into account the need for high standards of efficient production and care for the environment in relation to managing that holding.
The elements of business competency and protection of the environment are new, but there is no definition of “protection of the environment”, nor is there any guidance.
It is also not clear what evidence will be needed regarding high standards of efficient production and care for the environment.
The person’s character, alongside the character, situation and condition of the holding, also form part of the assessment.
Adriana Vaux-Chan, an adviser and rural surveyor with the Tenant Farmers Association (TFA), says the change to the suitability criteria means the bar will be set at a certain level.
This means the potential successor must demonstrate that, if the tenancy were available on the open market, they are of such a standard that a prudent landlord would be willing to shortlist them for the tenancy.
“It’s important to note that this refers to a ‘prudent and willing landlord’ and not the landlord in question,” she says.
“It’s not about proving you are the best candidate, simply that you would make the shortlist.”
Despite succession tenancies having been in place for many decades, there is till a high level of misunderstanding about them, says Adriana Vaux-Chan.
“I still pick up the phone to people who think succession is an automatic right and process; therefore, on the death or retirement of the tenant, the prospective successor will simply get the tenancy passed to them. It’s quite shocking that’s still the case these days.”
Lack of tribunal cases
Few succession cases under the new provisions have been heard by tribunal, known as the First Tier Tribunal Property Chamber (Agricultural Land and Drainage) in England, and the Agricultural Land Tribunal in Wales.
As a result, advisers have little to go on in terms of what a tribunal might ask for, says Adriana. “If a tribunal has not been invoked, a landlord can ask for whatever they want.
“An adviser can object, if they think a request for information is unreasonable and outside of what a tribunal might ask for.”
Landlords have in some cases been drilling into the educational side of things, she says, wanting evidence that the potential successor has an agricultural qualification.
She fears this increased emphasis by landlords on qualifications under the new requirements may discriminate against an older tenant with many years of farming experience but perhaps not a formal agricultural education.
“They are also looking closely at entrepreneurial skills, and at an applicant’s understanding of policy.”
Ellie Allwood is a divisional partner land agent at Brown & Co and has wide experience of acting for farming tenants.
While the suitability test is not something to be scared of, she says, the lack of precedents and guidance on the new suitability requirements is a reason for concern.
“How are you going to prove you are farming to a high standard, or capable of a high standard, when a ‘high standard’ is open to interpretation?” she asks.
Similarly, “care for the environment” is a loose term and, depending on government policy, could mean different things at different points in time.
Commercial ability
On the commercial aspect, an applicant will be expected to demonstrate a good understanding of budgets and cashflows, and any business plan for the farm, as well as market dynamics.
Professional help may be needed in drawing up budgets, cashflows and business plans, says Ellie, which adds to the cost for the applicant.
She suggests that if the applicant is farming in partnership, it may be of benefit for the other partners to state as part of the process that they will support the applicant in farming decisions and give them control if necessary.
This has helped some applicants under the old succession tests regime, she says.
Health information is not a new requirement. Sometimes a doctor’s letter confirming that the applicant is fit and well is sufficient, but a full medical can be requested.
Begin suitability preparations early
As with the livelihood test, it’s never too soon to start preparing your suitability case for succession, say advisers.
While most people will not expect to succeed until middle age, the possibility of the unexpected death of the current tenant must be borne in mind.
Preparations for the suitability test include:
- Ensuring that the potential applicant is involved in the business, including budgeting and cashflow preparation, has an understanding of the accounts and is included in decision-making so that they gain experience and commercial knowledge
- Considering agricultural or business qualifications if these are not already in place
- Involving the potential successor in meetings with the landlord or their agent, such as rent review discussions
- As above, the successor’s attendance at bank meetings may help in gaining the support of a lender for the successor
- Obtaining bank and personal references.
Succession rights and tests
Only Agricultural Holdings Act (AHA) tenancies granted before 12 July 1984 automatically carry succession rights, otherwise the written terms of the tenancy have to allow for succession.
Succession applications can be dealt with informally through negotiation with the landlord.
Alternatively, or where there is disagreement, an application to succeed can be made to the tribunal, using the correct processes and notices. For either route, professional help is advised.
The new provisions, effective since 1 September 2024, were brought in under the Agriculture Act 2020 and require the tribunal to disregard all offers as to rent in relation to the holding.
The act also says that age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, and sex are to be disregarded.
The three tests
- Close relation This test requires the potential successor to be a close relative of the retiring or deceased tenant – this means they must be a child, sibling, spouse or civil partner, or someone treated as a child of the tenant.
- Livelihood Applicants must show that in at least five of the preceding seven years, more than half of their livelihood (including 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.
This is about the applicant’s share in covering household living costs, not about what anyone earns in absolute terms, says Adriana Vaux-Chan. - Suitability Requirements are as described above in the main article. The old commercial unit occupation test has been removed, so that land being farmed other than the holding in question will no longer be prejudicial to the succession application.
Succession on retirement or death?
© Simon Skafar/iStockphoto
Succession can be on retirement, with the retiring tenant serving a notice of retirement and nominating 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 this case, applications must be made within three months of the death.
Both Adriana Vaux-Chan of the TFA and Ellie Allwood of Brown & Co say that a retirement application has benefits, including the possibility of withdrawing an application if it looks likely that the applicant will not satisfy the tests and will not succeed.
Withdrawing 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 person who failed on a retirement application 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.