Guide to the Agricultural
Tenancies Act 1995
Summary of the key provisions in the Act
The following paragraphs give a broad outline of the most important provisions of the Act. However, this is not intended to be a comprehensive guide to every point which should be considered before entering a farm business tenancy agreement.
- Farm business tenancies
- Notices to quit
- Rent
- Compensation for tenant's improvements
- Disputes procedures
Farm Business Tenancies
A farm business tenancy cannot begin before the Act comes into force on 1 September 1995.
Equally, once the Act comes into force new tenancies can only be granted under the Agricultural Holdings Act 1986 in certain clearly specified cases, such as under the statutory succession provisions of that Act or where parties have agreed in a written contract before 1 September 1995 that it is to apply to a tenancy which will begin after 1 September.
There are certain legal tests that must be met in order for a tenancy to come within the scope of the new Act.
At least part of the tenanted land must be farmed for the purposes of a trade or business throughout the life of the tenancy. It may be sensible to make this a condition of the tenancy agreement. In addition, the tenancy must meet one of two conditions:
(a) provided that the tenancy is primarily agricultural to start with, the parties can exchange notices, before the tenancy begins, confirming their intention that the tenancy will remain a farm business tenancy throughout. This will allow tenants to diversify away from agriculture - provided that the tenancy agreement permits this - without calling into question the nature of the tenancy.
Exchanging notices before the tenancy begins will help to ensure that the tenancy remains a farm business tenancy, even if during the course of the agreement the main use made of the holding ceases to be agricultural.
(b) If notices are not exchanged before the start of the tenancy, the question of whether it is a farm business tenancy will rest on whether the character of the tenancy is primarily agricultural in nature at the relevant time.
Notices to Quit
Where either party wishes to end a tenancy for a fixed term of more than two years on the agreed termination date, written notice must be given. At least one year's notice (but less than two years) is required. If such notice is not given by either party, the tenancy will continue as a tenancy from year to year until ended by the giving of a notice. Tenancies from year to year must also be ended by giving at least one year's notice.
Parties may decide to include special break clauses in their agreement if they are to enter a fixed-term tenancy. This is entirely a matter for them. If they decide to do so, then at least 12 months' notice must be given before the break clause can be operated. Alternatively, the parties may negotiate a surrender of the tenancy by mutual agreement, but there are no statutory provisions to deal with this.
Rent
The Agricultural Tenancies Act contains provisions on rent which are very different from those in the 1986 Act.
Parties may negotiate their own provisions on rent levels and decide whether or not they want to have rent reviews. For some tenancies (for example, where land is to be used only for grazing livestock) they may prefer to agree a fixed rent with no rent review at all. Alternatively, the Act enables variations in rent to be agreed according to some objective criterion (for example, movements in the published price of wheat or of wool). In that case, parties will need to make clear provision in the tenancy agreement that the rent is not to be reviewed during the tenancy.
If they do not make specific arrangements which effectively contract out of the Act's provisions on rent reviews, they will still be able to choose for themselves how often rent reviews are to take place. If they do not do so then either landlord or tenant will be able to demand a rent review every three years, as under the Agricultural Holdings Act 1986.
The Act also gives considerable flexibility over rent reviews themselves. Some parties may be able to agree the new level of rent without any great difficulty. Others may be able to agree on the basis on which rent is to be reviewed, but ask someone who is completely independent to undertake the assessment. However, either party will have the right to demand that the rent be determined by arbitration under the Act. If that happens, the arbitrator must set the rent on the basis of the open market value.
Compensation for tenant's improvements
The Act entitles a tenant to compensation at the end of a tenancy for physical improvements made to a holding and for intangible advantages which increase the value of the holding, provided they are left behind by a departing tenant. Intangible advantages include, for example, planning permission which was not taken advantage of before the tenancy ended, or milk quota acquired during the course of a tenancy.
However, in all cases no compensation will be payable unless the landlord has given consent to the improvement. Where parties cannot reach agreement over this, or a tenant is unhappy about conditions attached to a consent, the Act gives the tenant the right to demand arbitration - provided that the tenant has not already begun the improvement. Routine improvements - that is, physical improvements which are made in the normal course of farming the holding - can be carried out before seeking consent, and without losing the right to seek arbitration if consent is later withheld. These would include most of the items formerly known as tenant-right matters.
Compensation must be paid at the current value of an improvement to the holding when the tenancy ends, although any financial contribution from the landlord or from any Government grant scheme will be taken into account. Parties cannot make any valid agreement to the contrary. The question of valuation can also be referred to an arbitrator.
The amount of compensation may be settled when a tenant actually quits a holding, rather than when a fixed term during which improvements have been made comes to an end. If the parties enter a further farm business tenancy, compensation may be 'rolled over' by agreement.
Disputes procedures
The Act gives the right of unilateral access to an arbitrator in cases of disputes over general matters arising under a tenancy agreement, but parties who prefer to do so may use alternative means of resolving disputes. This may be cheaper and faster than formal arbitration. Where arbitration is used, the procedures will be those of the Arbitration Act 1950, as these procedures are simpler than the current agricultural holdings legislation provisions.
The disputes procedures do not prevent parties from agreeing to bring a case before the courts if they consider an important legal issue is at stake. The Act offers a flexible framework within which general tenancy disputes can be settled by the most appropriate means.
It is essential that both landlord and tenant should fully understand the terms and conditions of their tenancy agreement before signing any document.
Page last modified: 3 June 2003