Diversification and Farm Business Tenancies

Farmers are having to diversify part of the farm to a non-farming activity in these current times to stay financially afloat. This will likely increase due to the decline in subsidies. So how do tenant farmers go about trying to diversify and what does this mean for landlords?

Agricultural tenancies usually permit the tenant to use the holding for agricultural purposes only and may contain restrictions on carrying out alterations and works to the holding. A tenant’s continued ignorance of the tenancy agreement and pursuit of diversification projects could result in the landlord recovering possession of the holding.

If the tenant wishes to set up a new company to pursue diversification, the tenancy agreement will need to allow for assignment, subletting or sharing of occupation. The tenant should also consider if it needs to negotiate a longer tenancy agreement to allow growth and return of the venture. If works are to be carried out as part of diversification then will these be compensated by the landlord at the end of the term?

The Farm business tenancy regime was implemented with diversification in mind, but diversification will have to be factored in when the tenancy is first negotiated. For existing tenancies, modifications (with the landlord’s consent) to the tenancy agreement may be required to allow for non-agricultural use.  The tenant should approach the landlord where such modifications are needed.

Landlords should not ignore a tenant’s request to diversify as this could result in the tenancy becoming a business lease within the Landlord and Tenant Act 1954 and acquiring security of tenure. This means that the landlord could only obtain vacant possession in limited circumstances.

Jacqueline Barr, Head of Agriculture, Ware & Kay Solicitors York 01904 716000, Wetherby 01937 5983210, Malton 01653 692247 or email jacqueline.barr@warekay.co.uk.