Tenancy reforms - some with immediate impact

In the first of a two part article, H&H Bowe's Julie Liddle examines The Regulatory Reform (AGRICULTURAL TENANCIES) (ENGLAND & WALES) ORDER 2006.

I apologise for stating with the obvious, but these reforms do not apply in Scotland!

Principle areas of change :

Tenancies under the 1986 Act

• Succession - principle livelihood test

• Agreed retirement succession

• Rent reviews

• Arbitration

• Surrender and regrant

Tenancies under the 1995 Act

• Termination notice period

• Rent reviews

• Compensation for improvements

Some of the changes are purely procedural and will only be referred to in brief in the next article, whilst below is one matter in particular which will impact on some tenancies immediately. The important point to note is the effective date for the Order which is 19th October 2006.

It is worth summarising at this point, the differences between the two statutory provisions. The Agricultural Holdings Act 1986 is a very detailed and complex piece of legislation which may permit either a succession or a lifetime tenancy (the effective date of change between the two being 12th July 1984). A breach of this tenancy has the most complicated and arcane requirements of either remedy or termination, and extends to its own arbitration process. So as to highlight the complexity of this legislation, it comprises 102 sections and 15 Schedules.

By contrast, the Agricultural Tenancies Act 1995 (commencement date 1st September 1995) is much less comprehensive, less restrictive and mostly lets the parties agree the terms between them. The difference in volume alone is obvious, here there are only 40 sections and no schedules! The principle difference between the two Acts being that the latter is terminable, whilst the former is not.

The Tenancy Reform Industry Group (TRIG) were a combination of industry stakeholders brought together by DEFRA in 2002 and invited to consider how agricultural legislation could be modernised.

Succession - principle livelihood test

Under the old regime the two principle tests, which must be satisfied before an applicant (successor) can succeed to a tenancy are Eligibility and Suitability. Each of these matters are split into a number of requirements but the main concern with regard to the Reform Order is the Principle Source of Livelihood test under the heading of Eligibility.

Formerly, an applicant had to satisfy the Agricultural Lands Tribunal that "for 5 of the last 7 years ending with the date of death or service of the retirement notice, s/he had derived their principle source of livelihood from their agricultural work on the holding or on an agricultural unit of which the holding forms part."

This meant any off farm income or on farm non-agricultural income could not count towards the livelihood of the applicant, in relation to the holding. Under the new provisions, agricultural work carried out from the holding (e.g. contractor) is now eligible as is non-agricultural work carried out on the holding PROVIDED THAT landlord's written consent has been obtained since the 19th October 2006.

The date the landlord gave consent is crucial. It will have no effect in regard to succession if before the effective date, the landlord gave permission for a non-agricultural activity to take place on the farm because this only permitted the activity so as not to breach the tenancy agreement. The income from this activity will not count towards the livelihood test. You will need to seek a second permission.

The major concern for landlords is that this legislative change may mean a formerly ineligible applicant, becomes eligible. The holding could therefore remain tenanted for a further generation (providing there is one available)

The initial remit for TRIG was to enable access to diversification for tenants and a non-statutory Code of Practice was prepared by them to this effect. This was set up by DEFRA in 2004.

This Code was to provide an adjudication system to determine whether a landlord's refusal to, for example, to give written permission for a non-agricultural activity on the farm, should be upheld or not. Although DEFRA were to administer this scheme it has now been abandoned and this has given rise to the government threat of further legislation. Watch this space!

In the next article we will cover termination periods and compensation for tenant's improvements under the 1995 legislation.

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