Tenant farmers are being prevented from starting diversification projects by inflexible landlords utilising blanket bans, says the Tenant Farmers Association (TFA).
Most tenancy agreements contain clauses that require the holdings to be used for agricultural purposes only and therefore specifically exclude diversification without landlords’ consent.
Without this permission, the farmer could be considered in breach of the tenancy, which may result in a dispute or even a notice to quit.
Getting landlords’ consent has recently become even more difficult, according to George Dunn, TFA’s chief executive.
“Sometimes this is because landlords are concerned about the effect on their taxation status for inheritance tax,” Mr Dunn said.
“For example, a farm rented under a farm business tenancy would provide the landlord with 100% agricultural property relief in respect of inheritance tax, but this might change if the holding is significantly used for non-agricultural purposes.”
Landlords often use this leverage to secure unreasonable commitments from tenants, including loss of security or unsustainable levels of rent, he added.
Alternatively, they will simply refuse consent.
“Landlords are subject to tighter advice these days and are therefore less inclined to be as flexible as they have been in the past,” Mr Dunn said.
“Advisers to landlords tend to take a blanket approach rather than looking at each individual matter on a case-by-case basis.”
However, Duncan Sigournay, partner and head of agriculture at Thrings, said it is not his experience that landlords have generally been refusing consent.
“I am seeing signs of well-thought-out projects being granted consent by landlords, not all the time, but in many instances,” Mr Sigournay explained.
“Landlords are certainly alive to the need for tenants to have alternative sources of income to help them weather the volatility of the farming sector.”
The Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006 came into operation on 19 October 2006. It amended the Agricultural Holdings Act 1986 and Agricultural Tenancies Act 1995.
The Tenancy Reform Industry Group and Defra jointly created a guide to the main changes, which stated that farm diversification is often essential to secure the sustainability and prosperity of a farm.
The provisions of agricultural tenancy legislation and fiscal rules have placed barriers in the way of tenant farmers seeking to take advantage of opportunities for diversification and to participate in agri-environment schemes, it added.
The reforms introduced by the Regulatory Reform Order intended to encourage diversification by tenant farmers, maintain and improve the viability of tenanted farms and improve flexibility in the sector, while maintaining a balance between landlord and tenant interests.
However, Mr Dunn said despite these intentions, in practice this has not happened.
Top tips for tenants from Duncan Sigournay, Thrings
- Consult early with the landlord
- Discuss the project with your financial advisers
- Prepare detailed proposals
- Document what has been agreed