Depending on how well they know the horse owner, a farmer may feel that a handshake agreement is all that’s needed, but Alistair Millar, agricultural lawyer at Tallents in Southwell, explains why legal advice should always be sought to assess the benefits of grazing licences verses tenancies.
It makes good business sense to have a well drafted formal agreement in place when letting anyone else use, or have access to, any portion of your land. This area of law is complex and care should be taken to ensure that you retain full rights and benefits over your land.
For example, agricultural property can attract significant tax benefits but only when strict guidelines have been followed. It is possible for farmers to inadvertently lose these tax benefits if no formal grazing licence exists or if the agreement has been incorrectly worded and is deemed to have been subsequently breached.
Grazing agreements – should I have a licence or a tenancy?
There are several agreements which can apply to horse grazing, including the granting of a grazing licence, a common law tenancy, a Landlord & Tenant Act business tenancy (LTA) and a Farm Business Tenancy (FBT).
The correct selection of agreement also depends on a number of factors, including the substance and form of the agreement and length of tenancy.
Grazing licence – this grants the horse owner the right to graze their recreational animal for a short period of time. The landowner retains their rights over the land and can continue to claim appropriate tax benefits, as well as the 2015 Basic Payment Scheme (BPS) on what is considered to still be ‘land at your disposal’. It’s worth noting that the licence must not place any obligations on the horse owner, such as repairing fences, otherwise the licence may be in danger of being interpreted as a tenancy agreement.
Common law tenancy – this agreement can place specified management obligations on a tenant, such as: maintaining fencing, drainage, re-seeding or only grazing recreational horses.
Landlord & Tenant Act business tenancy – an LTA should be used if the tenant wants to run a commercial equestrian business on your land and therefore the grazing now becomes a small part of that business. Care should be taken over the wording of this agreement as the automatic rights of tenants should not be underestimated, especially if it is likely that the landowner may wish to take back the land for development at a later stage.
Farm Business Tenancy – an FBT is unlikely to be relevant for the majority of grazing agreements, unless the horses being grazed are part of a commercial equestrian business that is located elsewhere. In this case, the land still qualifies as an agricultural holding within the 1986 Agricultural Act as long as the horses are actually grazed on the land and it is not just being used for turning them out. An FBT automatically grants the tenant exclusive possession of the land, so the landowner can no longer claim BPS or some tax advantages.
Every grazing situation will be subject to individual requirements and needs and therefore, each one should be considered fully before any agreement is entered into.
Tallents have been working closely with farming families in Nottinghamshire and Lincolnshire since 1774 and our agricultural legal experts are here to help farming businesses get appropriate advice.