How to make a tenancy fit for purpose

A Farm Business Tenancy is a contractual relationship which allows a tenant to rent land or buildings from a Landlord to run an agricultural business.

But what provisions should a Farm Business Tenancy include to ensure it is legal and fit for purpose for both parties?  

Under the Agricultural Tenancies Act 1995, a Farm Business Tenancy arises if it was granted on or after 1st September 1995 and land is used predominantly for agricultural purposes throughout the term of the tenancy. Whilst some terms are statutory and must apply, many terms of a Farm Business Tenancy can be negotiated between the Landlord and Tenant.

The Act defines agriculture as including ‘horticulture, fruit growing, seed growing, dairy farming and livestock breeding and keeping, the use of land as grazing land, meadow land, osier land, market gardens and nursery grounds, and the use of land for woodlands where that use is ancillary to the farming of land for other agricultural purposes’. Livestock includes ‘any creature kept for the production of food, wool, skins or fur or for the purpose of its use in the farming of land’.

If the tenancy is primarily agricultural to start with, the Landlord and Tenant can exchange notices before the tenancy begins confirming they intend it to remain a Farm Business Tenancy throughout. This allows the tenant some discretion to use the land partly for non-agricultural purposes, subject to the rest of the terms of the tenancy.

If the parties do not exchange notices before the tenancy begins, the use of the land must be primarily agricultural throughout the rest of the tenancy to be considered a Farm Business Tenancy. If the tenancy drops out of the qualification criteria, the tenancy will be regulated by the Landlord and Tenant Act 1954, like most other business leases. This may have unwanted consequences on both the Landlord and Tenant

Although a Farm Business Tenancy can be verbal, it is advisable to put its terms in writing to ensure both sides understand what they can and cannot do. The agreement can be in the name of an individual or a company.

The agreement should outline provisions such as how long the tenancy should last, how it can be brought to an end, how much and when rent must be paid, how and when rent can be reviewed, any restrictions placed on the use of the property, and consequences of any breach of the agreement.

The maintenance obligations of each party for the land and the buildings rented should also be set out. Generally, a Tenant is responsible for day-to-day management of the property, while the Landlord retains a duty to maintain elements which add value to the land such as drainage.

Rent levels can be set according to the wishes of both parties and either the Landlord or the Tenant can demand a rent review every three years by law. This does not, however, stop both sides agreeing to a different frequency for rent reviews in the agreement. A reduction in rent must not be precluded when reviewing the rent.

Farm Business Tenants are entitled to compensation at the end of a tenancy if they have made physical improvements to the property, or if they have made changes that have increased the property’s value. The improvements must have been agreed by the Landlord and the tenancy can set out a cap on the amount of compensation payable to the tenancy. The amount of compensation must be agreed before the tenancy is dated. This will generally equate to how much the tenant has paid out towards the improvements.

Farm Business Tenancies that are fixed for two years or less terminate at the end of the fixed term. Farm Business Tenancies for a fixed term of over two years will roll on from year to year until a Notice to Quit is served. A minimum of 12 months’ notice in writing is required. The tenancy must end on the anniversary of the end date of the tenancy. 

If a Landlord or Tenant have a dispute relating to a Farm Business Tenancy, the Agricultural Tenancies Act 1995 provides they can use third-party expert determination or arbitration procedures to settle the dispute.

For more information on Farm Business Tenancies, or any other property enquiries, please contact us to see how we can assist.