Alistair Millar discusses why farming partnerships need to clearly define who owns partnership assets via a partnership agreement

With data showing that productivity growth in the UK farming industry is extremely low compared to other developed countries and affecting our ability as a nation to compete, grow new markets, have a prosperous farming sector and improve our environment, the Department for Environment, Food and Rural Affairs (DEFRA) has been consulting on ways to reform Agricultural Tenancy Law that will ensure it is fit for the future.

But what does this mean for tenants and landlords alike, asks Alistair Millar, agricultural lawyer and Partner at Tallents Solicitors in Southwell. The reforms proposed by DEFRA are quite complicated but the key points of interest for landowners, farmers and tenants to note include:

Creating assignable Agricultural Holdings Act (AHA) Tenancies

Currently, in order realise the value from their tenancy agreement, existing tenants of AHA tenancies with succession rights can only assign their tenancies on retirement or death, to a close relative who must also meet stringent suitability tests. Because there is quite often no suitable successor, existing tenants have to remain in their tenancies and instead bring in contractors to farm the land. Unfortunately, this situation doesn’t bring new entrants into the farming industry who have the ability, skills and entrepreneurial drive to implement new ideas and innovation into the sector.

The reforms propose a change to AHA that would allow older tenants who want to retire to assign their interest in the AHA tenancy agreement to a new third-party tenant. The newly assigned tenancy would offer landlords greater certainty of the end date of the tenancy as there will be an incontestable notice to quit 25 years after the assignment. The assignment is proposed to be a once-only process as the new tenancy would not come with assignable rights.  Additionally, to protect landlords, they would also have the right at the point of reassignment to buy out the remainder of the original tenant’s interest and thereby terminate the tenancy.

Succession Rights reform

Currently tenants can only assign the tenancy to close family relatives once they have reached the state retirement age, and assignment is limited to up to five years past the state pension age.

To encourage earlier retirement and better succession planning, the proposals are considering removing the minimum retirement age requirement so that AHA tenants can decide to retire at any age and pass the land onto a new generation of younger tenant farmers who are able to meet revised eligibility provisions.

Additionally, the reforms want to extend the category of ‘close family relatives’ who are currently eligible to succeed an AHA tenancy to better reflect modern family structures. This would include children of co-habiting partners, nieces, nephews and possibly grandchildren.

Incentivising landlords into granting longer-term Farm Business Tenancies

In attempt to encourage landlords to grant longer-term Farm Business Tenancies (FBT) of 10 years or more, there is a proposal to give them shorter termination procedures in specific circumstances of: non-payment of rent, death of the tenant or when the landlord has planning permission to develop the land for non-agricultural use. The hope is that by offering longer-term security to motivated and focused FBT tenants, they will be encouraged to invest in increased productivity, diversification activities or environmental improvements of their holdings.

At present, the proposals discussed here are subject to the outcomes of the DEFRA consultation which ended on 2 July 2019. However, if you think might be affected by any of the points raised and would like to discuss them in more detail, then the agricultural specialists at Tallents would be delighted to speak to you. Tallents Solicitors have been working closely with farming families in Nottinghamshire and Lincolnshire since 1774 and have extensive experience in advising the farming industry.