Disputes about dilapidations are on the rise as a growing number of tenancies come to an end.
Farmers Weekly asked Adriana Vaux, rural surveyor for the Tenant Farmers Association (TFA), to highlight some of the problem areas and advise on how best to avoid them.
What are dilapidations?
Dilapidations is the term used at the end of a farm tenancy to describe the depreciation in the value of a farm holding caused by a tenant and for which a landlord can claim compensation.
Dilapidations can come about as a result of a tenant not upholding their maintenance and repairing obligations, or where items need replacing because the tenant has caused some damage.
“Common examples include missing gates, damaged fencing, lengths of hedges not laid or trimmed, ditches not cleared out, or buildings which are falling down,” says Adriana.
Does the type of tenancy matter?
Dilapidations are handled differently depending on whether the tenant has an Agricultural Holdings Act (AHA) 1986 tenancy or a farm business tenancy (FBT).
There is a specific process to follow for AHA tenancies, but the 1995 Agricultural Tenancies Act, under which FBTs are granted, makes no provision for dilapidations.
Instead, it is down to the parties to include their own clauses in their agreements, to specify how any disputes over repairs should be resolved.
Are the number of disputes about dilapidations rising?
The TFA is seeing an increase in the number of FBTs coming to an end, due to a combination of landlords not renewing tenancies because they want to take land in-hand, and tenants choosing to surrender.
This is giving rise to lots of conversations about dilapidations and repairing obligations.
The process of dealing with dilapidations is relatively straightforward within an AHA tenancy because there is a set mechanism for a landlord to make a claim.
However, with FBTs the situation can be much more complicated because every agreement is different.
What is the process with AHA tenancies?
The 1986 Act specifies that a landlord must provide the tenant with a written notice under Section 83 of the Act within two months after the end of the tenancy agreement.
This notice must specify the nature of the dilapidations claim.
Claims need to be settled within eight months of the termination of the tenancy or the case must go to arbitration.
Some landlords may also file a Section 72 notice at the end of tenancy if they are concerned that the value of their reversionary interest has been damaged by the management of the holding by the outgoing tenant.
How much can landlords claim from a tenant?
The general rule for assessing compensation within an AHA is that it should be based on the reasonable cost of making good any damage or deterioration.
However, the limit on any claim will be the assessed damage to the value of the holding.
What happens with FBTs?
One of the biggest problems with FBTs is that because farmers may be keen to secure the land, they can often be asked to sign up to agreements that place a significant burden on them in terms of repairs.
It is becoming quite common for landlords to seek to insert a “put and keep” clause in agreements for farms where there may have been little or no investment for many years.
Such a clause requires the tenant to first put the holding into good condition and then keep it that way.
“That can be a huge responsibility for a tenant to take on board,” warns Adriana.
“We do have people who sign ‘put and keep’ clauses and then the landlord will really go for it at the end of the tenancy.
“They want their holding put right at the expense of the tenant – we are seeing this a lot with county councils.”
Ideally, repairing obligations within an FBT should follow the model repairing clauses set out in the 2015 Regulations in England and 2019 Regulations in Wales.
This is because they provide a fair basis on the allocation of repairing obligations and therefore the basis against which to look at dilapidations at the end of tenancy.
However, if the agent or landlord will only accept “put and keep” repairing obligations then the TFA advises tenants to try to safeguard themselves by negotiating more favourable wording within that clause.
Its suggested wording is: “The tenant will use reasonable endeavours to put and keep the holding into good tenantable repair order and condition and thereafter maintain the farm in good tenantable order and condition.”
This helps to stop a landlord effectively asking for everything to be made as if it were brand new at the end of tenancy.
Are there other pitfalls with FBTs?
If parties do not include a dilapidation clause in their agreement and there are also no repairing obligations, then the landlord can still pursue a claim for damages at the end of the tenancy.
If there is a repairing clause but no dilapidations clause, which is also quite common, the landlord can also pursue the tenant during or after the end of the tenancy for not fulfilling those repairing obligations.
The compensation they would be entitled to would cover the depreciated rental value of the holding because repairs are needed, and any void period required while works are carried out.
To secure these damages the landlord would need to go to court, which would be costly for both the landlord and tenant.
How can FBT tenants best protect themselves?
- Always have a tenancy agreement checked by a professional before it is signed.
- Check that any repairing obligations follow the 2015 model clauses where possible.
- Have a schedule of condition in place before the tenancy is signed, particularly if the wording of the agreement is that the tenant must leave the holding “in no worse condition than it was at the start of the agreement”.
Any tips for AHA tenants?
Repairing obligations are one of the most difficult areas in landlord and tenant law, as every tenancy is different, leading to confusion and misunderstandings.
Although there are fallback provisions for 1986 Act tenancies in the form of model clauses, even references to those within tenancy agreements can be nuanced in ways that mean they apply differently in certain cases.
“It is therefore absolutely vital for tenants to know what their repairing obligations are in their own tenancy,” says Adriana.
Even where a landlord has failed to keep up with their own repairing obligations, they can still pursue dilapidations if the tenant has failed to meet theirs.
This means it is important for AHA tenants to prepare for retirement a long time ahead if they want to avoid a claim for dilapidations.
“Understand your own repair obligations and compare what needs doing with what is happening on the ground and then make a timeline of what repairs need carrying out in good time for retirement.”
Where a tenant is considering surrendering a tenancy early, then part of the negotiation could be that the landlord agrees not to make claims for dilapidations.
However, the tenant may also need to agree that they will not make a claim for any improvements.
Tenants often need to argue their case, as landlords can push for repairs that are not the tenant’s responsibility, but they should also be mindful that a settlement is likely to be a much cheaper option than going to arbitration.
If a matter is referred to arbitration, then both parties will need to have either a land agent or solicitor acting on their behalf to argue their case, so costs can escalate.
Typical dilapidations queries – AHA tenancies and FBTs
A tenant has converted some arable land to grass during their tenancy. Does this have to be put back to arable at the end of the agreement?
This would depend on whether written consent was obtained from the landlord before the change was made. If written consent had been obtained, then it would be regarded as a tenant’s improvement.
However, the tenant should still double check if the consent had any conditions attached to it.
For example, it may have stated that at the end of the tenancy the land would need to be returned to arable use.
Without written consent, the tenant could be legally required to restore the land as arable.
However, in doing this the tenant would also need to comply with environmental impact assessment or other regulatory requirements.
A tenant has put up some buildings during their tenancy for which they did not ask for the landlord’s consent. Can the tenant simply leave them behind when they retire?
If the building was put up without the written consent of the landlord, again it would be considered a tenant’s fixture, rather than a tenant’s improvement.
If the building was still in usable condition, then as a tenant’s fixture it could be offered to the landlord for purchase.
However, the landlord has no legal obligation to buy it and if it was a very old building, they may try to claim dilapidations against the tenant on the basis that it is causing a reduction in the value of the property on reversion because of the money required to repair it or pull it down.
So, if the building was old and in poor repair the tenant may need to remove it and make good the area on which it was located to avoid dilapidations.