Tips on getting tenancy succession right

Between 1976 and 1984, all tenancies had an automatic right to succession, says George Dunn, chief executive of the Tenant Farmers Association. But no new succession tenancies were granted after the Agricultural Holdings Act 1984, unless by mutual agreement.

“There are a number of exclusions – and the limit is two successions, meaning three generations,” says Mr Dunn. “Succession tenancies are therefore very precious and valuable things.”

Value of tenancies

“Even if you don’t have a successor, consider the capital value of the land and the potential for income under a Farm Business Tenancy and you can see that it is something to be valued. Your landlord may buy you out of a succession tenancy, which could be very useful for retirement planning, for example,” adds Mr Dunn.

However, actually achieving succession is far from easy. “Succession doesn’t just fall into the lap of the next generation. Preparation is absolutely essential – although professional advice can be expensive it is a pittance if you spread it over the lifetime of the tenancy,” he says.

Succession can take place in three cases – upon death of the tenant, retirement at 65 or retirement through ill-health.

Succession tests

The successor must pass four statutory tests to qualify for the tenancy:

First, they must be a close relative, meaning spouse, civil partner, sibling or child – but not grandchild (unless in Scotland).Second, their primary source of livelihood for five of the past seven years must have been made from agricultural work on the tenanted holding, unless they have the landlord’s written agreement to the contrary.

The livelihood test refers to meeting day-to-day living expenses, and includes benefits in kind such as accommodation and vehicles. Up to three years of further education can be claimed as contributing towards the livelihood test, says Mr Dunn.

The third test is that the potential successor cannot be in occupation of another commercial farming unit. Short-term (less than five years) and informal agreements are excluded, and the farm must produce sufficient income to pay two full-time men over the age of 20, which is equivalent to about £50,000.

Finally, they must be suitable to take over the farm, by virtue of training, experience, health and financial standing.

Tenancy succession tips

  • Succession can take place upon death of the tenant, retirement at 65 or retirement through ill-health
  • Four statutory tests must be passed to qualify
  • Take care to arrange income so that succession is not jeopardised
  • Follow procedure carefully, especially in case of timing and form of notices
  • Agricultural Land Tribunal can decide in succession eligibility disputes
  • Check the implications of any new terms proposed at succession carefully
  • Tenancies have a value in many cases – consider this in planning

Due to the stringency – and in some cases impracticality – of some of these rules, there are lots of disputes, which end up at the Agricultural Land Tribunal (ALT), says Mr Dunn. “In the case of death, a successor who knows they will not meet the full eligibility criteria can apply to the ALT to be treated as eligible.”

Follow procedure

Even after having met these requirements, the procedure for taking over the tenancy is very prescriptive, he adds.

On death, the successor must write to the landlord to give formal notice of the tenant’s death within three months – even if the landlord is already aware of it. They also have three months to apply to the ALT for permission to succeed.

In the case of retirement, the tenant must serve a notice on the landlord stating their plans to retire and nominating a potential successor.

Within one month of that notice, the nominated successor must apply to the ALT for consent, with the landlord having another month to agree or oppose the succession.

“If you fail at the ALT on a retirement application, then you cannot reapply to succeed on death,” says Mr Dunn.

“However, you can withdraw at any stage, so if it’s looking like you won’t succeed, withdraw and try again on death.”

The new tenancy agreement will be on the same terms and at the same level of rent as the previous tenant’s contract, but landlord and tenant can agree to vary the terms, or apply to the ALT within three months of its direction to succeed.

“Be very clear that the new tenancy following retirement is suitable for your needs – for example, who is living in the farmhouse, and so on,” says Mr Dunn.

Alternatively, there is the option to assign the tenancy at any time with the landlord’s agreement.

“A tenanted farm before succession will offer the landlord 50% inheritance tax relief – after succession it’s 100%, so it can be in their interest for you to assign or surrender and rewrite the tenancy, potentially putting it into joint names to protect it against the death of one person,” says Mr Dunn.

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