On 21 January 2021, the House of Lords is due to consider the status of agricultural tenancy reform as part of the following balloted question for short debate:
Baroness Rock to ask Her Majesty’s Government, further to their discussions with the Tenancy Reform Industry Group, what plans they have to reform (1) legislation, and (2) taxation, related to rural landlords and the letting of land.
What is an agricultural tenancy?
When a person rents agricultural land or buildings in order to run a farming business, they are normally granted an agricultural tenancy by the landowner. There are two main types of agricultural tenancies:
- ‘1986 act tenancies’: These can also be referred to as ‘full agricultural tenancies’ or ‘agricultural holdings act tenancies’. This type of tenancy will have been granted before 1 September 1995 and is governed by the Agricultural Holdings Act 1986 (1986 act).
- ‘Farm business tenancies’: This form of tenancy applies to all of those granted after 1 September 1995. They are governed by the Agricultural Tenancies Act 1995 (1995 act).
Since the law changed on 1 September 1995, no new 1986 act tenancies have been granted. However, several remain in existence. Most new agricultural tenancies granted on or after 1 September 1995 will be farm business tenancies.
There are several differences between 1986 act tenancies and farm business tenancies. In 1986 act tenancies, landlords and tenants have the right to hold a rent review every three years. However, in farm business tenancies, both parties are free to decide between themselves how often rent reviews should take place. 1986 act tenancies normally include a lifetime security of tenure, meaning that a tenant has the right to request a new lease upon expiry. Additionally, any 1986 act tenancy granted before 12 July 1984 also carries the right of succession, meaning that a close relative can apply to continue the tenancy if the existing tenant dies or retires. In contrast, there is no automatic right to request a new tenancy in farm business tenancies when the existing one expires, and there are no rights of succession.
Why is further reform needed?
According to government statistics, around a third of agricultural land in England was rented in 2017. Renting agricultural land has many advantages. It provides new farmers with an entry into the farming industry to develop their skills and allows existing farmers to develop their businesses flexibly. The Department for Environment, Food and Rural Affairs (Defra) described this flexibility as a “key part of the industry’s ability to respond to changing markets and economics”.
However, concerns have been raised in Government and across the agricultural sector that productivity growth in England’s farming industry was lower than its other major competitors. For example, the Agriculture and Horticulture Development Board said that if the UK’s rate of growth had kept pace with the US since 2000, the contribution of UK farming to the rural economy would have been £4.3 billion higher by 2013. As a result, in 2017 Defra asked the Tenancy Reform Industry Group (Trig), an industry advisory group to Defra comprising representatives from tenant farming and landlord industry organisations and individuals from professions that advise tenants and landlords, to consider what changes could be made to the agricultural tenancy sector to help improve productivity growth and deliver structural change.
Trig published its recommendations in October 2017. It identified several areas in agricultural tenancy legislation that may have been hindering productivity and structural change. Those concerns are summarised in a subsequent Defra consultation paper as follows:
- Succession provisions in the 1986 Act may be preventing skilled farmers from taking over a holding. Older [Agricultural Holding Act] tenants with no successor have limited options to realise value from their tenancy agreement to help them retire, and so remain on the farm. Providing mechanisms to enable older [Agricultural Holding Act] tenant farmers to retire or move on could make land available to be farmed by a more productive new tenant.
- Some landlords may be discouraged from offering longer-term lets because of the lack of provision in the 1995 Act to enable breaches of tenancy agreements (such as non-payment of rent) to be remedied quickly, rather than through the complex and costly forfeiture procedures.
- Some landlords may be discouraged from investing in holdings (e.g. putting up a new building) if the tenant’s interest payments on investments the landlord has made are lost in the next rent review.
- Some tenants may be prevented from accessing future agricultural and land management schemes and undertaking activities that could lead to productivity and environmental improvements due to restrictive clauses in their tenancy agreement, often written decades ago.
Trig concluded that certain legislative changes, as well as larger policy changes ranging from taxation to support, were needed.
What has happened since?
Following the Trig report, Defra and the Welsh Government launched consultations for England and Wales respectively in April 2019 on reforming the law on agricultural tenancies. Robert Goodwill, the then Minister of State for Environment, Food and Rural Affairs, said:
We are seeking views on how we can open up more opportunities for the next wave of tenant farmers, breathe new life into the sector and step up farming productivity.
The proposals in the consultations were wide-ranging and included legislative and non-legislative changes. They included reforms to the 1986 act—for instance removing succession rights when a tenant reached five years past state pension age. Currently there is no cut-off date when a person can apply to succeed a tenancy on death or retirement of the existing tenant. Defra said that this is one of several factors, coupled with a culture of farming beyond retirement age, that can delay the handover of land to new farmers who are looking to bring new ideas and skills to the land. The consultation also proposed introducing a right for either a tenant or landlord to refer restrictive clauses in a 1986 act tenancy agreement to a dispute resolution process. Reforms to the 1995 act were also considered, including introducing new rights to issue shorter notice periods to terminate tenancies in circumstances such as non-payment of rent. Existing provisions in the 1995 act meant that either party must provide a minimum of 12 months’ notice when terminating a fixed term tenancy of two years or more, or failing that, apply to the court using forfeiture procedures. Defra said that feedback from the farming industry suggested that these lengthy termination procedures were acting as a disincentive to landlords letting for longer terms.
On the issue of taxation, the Tenant Farmers Association (TFA) expressed concern about the absence of tax reform in the consultation proposals, arguing that both legislative and taxation reform “must go hand in hand”. For several years, the TFA has urged the Government to include tax reforms as part of the overall agricultural tenancy reform package.
Defra published its consultation feedback analysis report in March 2020. The Welsh Government is yet to publish its response analysis on its website.
In that report, Defra revealed it had received 147 responses from a variety of organisations. Amongst those respondents, Defra said that a general consensus existed that reforms to agricultural tenancy law were important to maintain confidence in the agricultural rental sector. However, some respondents believed that such reforms alone were unlikely to drive significant change and a wider package of measures, including non-legislative proposals such as industry-led guidance, would be needed. In addition, the Country Land and Business Association questioned whether it was a suitable time to be making the proposed changes with Brexit on the horizon:
The UK is on the cusp of possibly making huge changes to our markets and trading partners. It is a time of great uncertainty, when landlords and tenants need to be communicating and supporting each other, not fearing adverse effects of changes in the law.
The Agriculture Act 2020
The Agriculture Act 2020 (2020 act) was the Government’s second attempt to reform various aspects of the law governing agriculture. This followed a previous bill that fell at the dissolution of Parliament in October 2019. Schedule 3 of the 2020 act consists of a selection of the proposals from the 2019 consultation on agricultural tenancy reform. This includes provisions to enable a tenant to refer a dispute with a landlord to arbitration where it relates to a request to vary restrictive terms in a tenancy agreement.
The 2020 act also includes some reforms to succession rights proposed in the consultation. For example, the act removes all provisions relating to the ‘commercial unit test’ from the 1986 act. This was one of the eligibility tests used to determine the suitability of candidates applying for succession of a tenancy. The test prohibited a person who already occupied a commercial unit of agricultural land to succeed a tenancy. Defra said that the test was not in line with its current policy aim of improving farming productivity. This was because it did not encourage the transfer of land to skilled commercial farmers.
Several other proposals to reform succession rights from the 2019 consultation were not included in the 2020 act. For instance, measures to remove succession rights five years after a tenant reaches state pension age were not inserted. Instead, Defra stated that they will explore how to encourage earlier succession planning in the future. The National Farmers Union (NFU) tenants forum chairperson, Chris Cardell, said that the NFU were pleased to see certain tenancy reforms had been included in the bill. However, there was disappointment that more reforms had not been taken forward, such as the proposals to extend succession rights to include nephews, nieces and grandchildren.
The Tenant Farmers’ Association also expressed support for certain provisions in the bill, including provisions to protect tenants from landlords who may try to restrict access to new public goods schemes. However, the TFA believed that further amendments were still needed, including further measures to support older tenants into retirement and encourage landlords to rent land for longer periods of time.
Further information about the provisions in the 2020 act can be found in the House of Commons Library briefing The Agriculture Act 2020.
House of Lords Library, Agriculture Bill: Briefing for Lords Stages, 22 May 2020
Cover image by Emiel Molenaar on Unsplash.