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The Agricultural Tenancies Act 1995 ("the Act") introduced a new concept, the Farm Business Tenancy to replace the old style agricultural holding. The Act was introduced following the development of an industry wide consensus that the relationship between landlord and tenant should be governed principally by the agreement between them rather than the tangled web of legislation which had grown up during the previous 120 years or so. In the long run, the greater freedom which Act allows is likely to lead to a greater supply of agricultural land coming onto the market for rent. Whether the Act will be beneficial depends on one's own political perspective, but there can be little doubt that this reform is of major long term importance.

The Farm Business Tenancy

In very general terms, a tenancy of agricultural land created after 1st September 1995 will be a farm business tenancy if:

It meets "the Business Conditions"; and
It meets "the Notice Conditions" OR "the Agriculture Condition".

The Business Conditions

A tenancy meets the business conditions if all or part of the land is farmed for trade or business (not necessarily an agricultural trade or business) and this state of affairs persists at all times during the tenancy.

The Notice Conditions

The tenancy meets the notice conditions where before the beginning of the tenancy the proposed landlord and tenant exchange notices saying that the tenancy is to be and remain a farm business tenancy and that its character at the beginning will be primarily agricultural.

The Agriculture Condition

This condition is met if looking at all the circumstances at the relevant time (not necessarily at the beginning of the tenancy) the character of the tenancy is primarily or wholly agricultural.

Meaning of words used

It is important to understand that some types of tenancy can be within the Act even if the land is not used for what one might normally be considered to be "agriculture". That word is given a particular meaning by the Act and borderline cases can arise which require special care.

Recovering possession of land let on a Farm Business Tenancy

The Act allows for three situations:-

Fixed term tenancies over two years. To terminate the tenancy at the end of the fixed term, the landlord must give at least a year's notice. Otherwise the tenancy becomes an annual periodic tenancy.

Fixed term tenancies of two years or less. These end automatically at the end of the fixed term. No notice is required.

Annual periodic tenancies. These can be terminated by not less than a year's notice expiring (in general) on the anniversary of the end of the first year.

Notice to terminate must be in writing and cannot be given two years or more before the date on which it will expire.

Relationship with non-farming business tenancies.

In general, a non-farming tenant has the right to renew his tenancy when it expires. The farm tenant no longer has that right. It will often be important for the landlord to ensure that he can recover possession. If what is intended to be a farm business tenancy is inadvertently created as an ordinary business tenancy, the probable result will be to give the tenant a right to renew. Note that a tenancy created as a farm business tenancy can become a business tenancy in some situations, particularly if the land ceases to be farmed for business purposes (even for a short time). This can disadvantage the landlord because the tenant will get the right to renew his tenancy.  Advice should be taken in advance and steps taken to avoid this happening.

Other special rules

The farm business tenancy regime imposes many special rules. We mention the following from among them:

Rent review. The parties can agree to exclude rent review altogether; to fix rent by reference to a formula or to a periodic re-valuation of the rent. There is a basic statutory framework which applies if the agreement is silent, allowing three yearly reviews which are settled by arbitration.

Fixtures and fittings. Subject to certain exceptions, fixtures and fittings provided by the tenant remain his property and he can remove them.

Compensation for improvements. The tenant will usually be entitled to compensation for improvements to which the landlord has given consent. In certain circumstances, consent may be implied. If consent is refused an arbitrator can impose it. The lease can prohibit improvements.

Relationship to the old law and to non-farming business tenancy law

Subject to certain exceptions, it is no longer possible to create an old style agricultural holding. However, existing agricultural holdings are not affected by the new law. Tenants continue to enjoy security and the value of affected freeholds remains depressed accordingly.

It is important to appreciate that if a tenancy is granted which is NOT a Farm Business Tenancy, it will become an ordinary non-farming business tenancy. This can give the tenant a right of renewal which may be disastrous from the landlord's point of view. This can happen through inadvertence at the time of grant of the tenancy. It can also happen during the term of the tenancy itself, although care taken at the outset can minimise the risk.

Conclusion

Much landlord and tenant law is complex and hard to understand. These rules are no exception and there are traps for the unwary. The intending landlord of agricultural land is however placed in a very favourable position and properly advised can takes steps to maximise his return on his investment in ways which the old regime did not permit.

Important note.

A page of this kind can do no more than provide a brief outline of the position and action should not be taken in reliance on it. Every situation depends on its own facts. Appropriate advice should always be taken.