Farm Business Tenancy
If you wish to rent a farm for the purpose of carrying out business as a farmer then you will need to enter a farm business tenancy for the particular land in question.
What is meant by a Farm Business Tenancy?
In order for a business tenancy to be termed a farm business tenancy under the Agricultural Tenancies Act 1995 one of the following qualification criteria must be met:
- Part of the tenanted land must be “farmed for the purposes of a trade or business” and this must be throughout the life of the tenancy meaning it cannot simply be for a short period of time during the tenancy.
- If it is the case that the tenancy is primarily agricultural in the first place the parties entering into the tenancy can exchange notices prior to the commencement of the tenancy stating that their intention that the tenancy will remain a farm business tenancy for the entire duration.
- The second option is often the preferable route as it will enable the tenants to diversify away from agriculture with the tenancy remaining as a farm business tenancy even in the case when the main use of the land ceases to be agricultural.
- If these notices are not exchanged prior to the commencement of the tenancy the question of whether the tenancy is in fact a farm business tenancy will depend on whether the character of the tenancy is “primary or wholly agricultural”.
- There is therefore more scope to enter into other forms of business if notices are exchanged prior to the commencement of the tenancy.
- Whether the land continues to be farmed will depend upon the circumstances of the individual case with a variety of factors being taken into account as there is no definition found within the Act as to how far farmers can go with diversification for the tenancy to remain a farm business tenancy.
- If it has been found that a tenancy is no longer primary or wholly agricultural then it will cease to be governed by the Agricultural Tenancies Act and will be regarded as a standard business tenancy under the Landlord and Tenant Act 1954.
How long with a farm business tenancy last?
Farm business tenancies are usual to last for a fixed term of more than two years and will be subject to a fixed termination date.
Amount of rent required to be paid
The rent for a farm business tenancy will be agreed upon prior to the commencement of the tenancy between both landlord and tenant.
Will the rent I pay remain fixed during the term of the tenancy?
It is often the case that the parties will agree on a review of the rent at specified intervals inserted into the farm business tenancy. This is usually the case in relation to longer farm business tenancies.
If this has not been agreed to prior to the commencement of the tenancy either the landlord of the tenant can demand a rent review every three years using the provisions in the Agricultural Holdings Act 1986.
What happens if I wish to terminate the tenancy?
If either party, both landlord or tenant, wishes to terminate the tenancy on the agreed termination date then they must give written notice to the other party. The required notice period for this will be at least one year but should be less than two years.
What happens if both parties wish the tenancy to continue?
If both parties wish the tenancy to continue and neither has provided notice for termination then the tenancy will continue from year to year until it is ended by the giving of notice for termination by either party. Again this notice must be in writing and must be one year prior to termination.
Can I insert a break clause?
The parties can agree prior to the commencement of the tenancy to include break clauses providing both of them or either of them the option to break the tenancy after a specified time period. Again a years’ notice must be given prior to the operation of a break clause.
As a tenant what happens if I have improved the land during my tenancy?
The Agricultural Tenancies Act 1995 states that a tenant is entitled to claim compensation from the landlord for any physical improvements made to the land and also for intangible advantages which increase the value of the land.
They must be left behind when the tenant leaves in order for the tenant to claim compensation and they must have been agreed to by the landlord.
What is meant by intangible advantages?
Probably the best example of an intangible advantage is where the tenant has obtained planning permission for improvements to be made on the land which have not taken place before the tenant vacates the property.