Agricultural lawyers commonly encounter agreements, made ‘on a handshake’. These agreements can vary in nature and be long standing or new arrangements. Although it is refreshing to see that farmers and landowners maintain trust between them, occupation without a written tenancy agreement creates a number of dangers that can be catastrophic to both a landlord and tenant.
Regardless as to whether the tenancy is a Farm Business Tenancy (which subject to a number of limited exceptions, is any tenancy granted after the 1st September 1995) or a tenancy falling under the Agricultural Holdings Act 1986 having no written agreement can lead to unintended consequences .
What is the risk of not having a Written Tenancy Agreement?
Starting with the obvious, it results in uncertainty. Relying on, or even attempting to establish the intention of the parties at the time of taking occupation is fraught with danger especially with the limited protection offered by implied clauses. For example, an oral Farm Business Tenancy imposes very little on a tenant when it comes to repair and good husbandry which could result in a holding falling into substantial disrepair with little remedy available to a landlord.
From a landlord’s perspective, a written tenancy agreement is important not only to govern what a tenant must do, but also what it must not. One of the most common scenarios we come across is where land has been occupied prior to the 1st September 1995 on an oral agreement. Without a written tenancy agreement, a tenant is free to assign their tenancy. Given the majority of these tenancies do not come to an end until the tenant’s death, it would be catastrophic to a landlord if a tenant assigned their oral tenancy to a limited company as it could result in a perpetual tenancy and leave the landlord with limited termination options and in all likelihood, either having to negotiate a financial settlement to obtain vacant possession or sell at a discounted price.
Can not having a written tenancy agreement also impact tax?
Yes, there are also taxation issues to consider. Generally, Agricultural property Relief (APR) is available for land left on death which prevents inheritance tax (IHT) being paid. However, if land is subject to an Agricultural Holdings Act tenancy on death, that relief will diminish to 50% at best. Although as a general rule a tenant will be reluctant to give up a protected Agricultural Holdings Act tenancy, there may be circumstances where subject to tax advice, the surrender of such a tenancy and grant of a Farm Business Tenancy is advised (for example where land is farmed by a partnership consisting of the landowners who wish to secure 100% IHT relief on death).
Even if a tenant’s occupation is governed by a written agreement, it is important those agreements are renewed and reflect how the land is being farmed. The advantage of a Farm Business Tenancy is that if granted for 2 years or less, notice is not required to terminate the tenancy on expiry. However, a common scenario we see is where a landlord grants a 2 year Farm Business Tenancy but allows the tenant to remain in occupation after that 2 year period has expired converting the Farm Business Tenancy into what is known as a periodic tenancy. This will result in the landlord having to give 12 months notice to secure vacant possession which could be problematic if the landlord requires vacant possession quickly.
What do I do next?
Call us, is the short answer. We’re on hand and happy to help if you require any advice on agricultural tenancies, whether you’re enquiring from a landlord or tenant’s perspective.
You can call us on 0800 118 1500 or email us at [email protected]
DISCnzIMER
The contents of this blog or any other published by Talbots Law cannot be considered as legal advice and should therefore not be acted on without prior consultation with a qualified solicitor or legal professional.
