News
17th May

2019

Legislative and Taxation Reform of Agricultural Tenancies Must Go Hand in Hand

Legislative and Taxation Reform of Agricultural Tenancies Must Go Hand in Hand

Piece originally written by George Dunn, TFA Chief Executive, for The Cumberland News and Westmorland Gazette, published on the 26 April 2019

I am absolutely convinced that were it not for the existence of the Tenant Farmers Association (TFA), the legislation supporting Agricultural Holdings Act tenancies would have, long since, ended up in the shredder.  The security of tenure, succession provisions and rent review structure have all come under vicious attack at various times from many quarters including those organisations representing the interests of landlords, numerous private land owners and some of the land agents they use to act on their behalf.  However, those interests who are so keen to promote the sanctity of property rights seem to forget that an agricultural tenancy is, itself, a property right in the hands of the occupier.  Thankfully, down the years Westminster administrations of all colours have understood the benefits that 1986 Act tenancies bring to the wider agricultural community.

If we needed evidence of the justification for the protections afforded by the 1986 Act, we need only to look at the operation of Farm Business Tenancies (FBTs) governed by the Agricultural Tenancies Act 1995 which, operate within an open market framework.  Three objectives were set for the 1995 Act when it was brought onto the statute book – to encourage more letting of agricultural land, to increase opportunities for new entrants and to promote economic efficiency in agricultural land use.

In the early years of the new legislation, the annual decline in the area of let agricultural land was replaced with net gains up to 2003.  However, since then we have entered a period of fragile stasis.  Much of the early success can be put down to the formalisation of agreements struck between parties prior to 1995 which were attempting to avoid security of tenure and it therefore could be argued that we haven’t seen a real terms increase in the area of land being let.

 

On new entrants, the Central Association of Agricultural Valuers (CAAV) reports in its 2017 survey of agricultural land occupation, that less than 8% of all lettings and only 18% of lettings where there is a change in occupier, are going to new entrants.  It is difficult to judge whether these figures can be viewed as success, but there is evidence of considerable, unfulfilled demand for opportunities from new entrants with many reporting that they feel excluded because of their inability to compete with established businesses.

 

Turning to the third objective, the TFA argues that FBTs have failed to improve efficiency within UK agriculture.  Farming is a long-term endeavour requiring significant capital investment, patience, good soil management and the ability to balance profitable years against the bad.  None of this is assisted by the short lengths of term offered on today’s FBTs.  Over the nearly 25 years of the legislation the length of term on an FBT has, give or take a few months either way, averaged just under four years.  Excluding lettings of less than a year, the average tenancy length is less than 5 years.  Worryingly, fully equipped holdings, which would be expected to be let for much longer terms, have an average duration of less than 10 years.  As we approach half of all land let being under FBT’s it is worrying, to say the least, that 85% of new farm tenancies are let for terms of 5 years or under.

 

The short-term nature of agricultural tenancies is holding back progression, investment, sustainable land use and productivity on farms.  With much higher demand for farm land than supply, landlords can offer short-terms, for high rents at very little risk whilst at the same time pocketing generous and unconstrained tax benefits which the TFA argues must be addressed.

 

Everyone agrees that long-term relationships are the best way to achieve positive outcomes for landlords and tenants and yet the market is failing to deliver efficient or sustainable outcomes.  The tenanted sector cannot begin to consider issues of resilience and sustainability in the post Brexit environment (whenever that might be) with such short lengths of term.  It is now urgent that the Government steps in to address this major market failure through the taxation environment within which rural landlords make decisions about letting land to encourage longer term FBTs particularly by restricting agricultural property relief from inheritance tax only to those landlords prepared to let for 10 years or more.

 

Frustrating then that with the Government launching what is indeed a major consultation on reforms to agricultural tenancy legislation at the beginning of April that it does not have an explicit reference to taxation.  We are left having to make the case for fiscal changes in response to the question asking for other options we think should be considered on page 42 of a 48-page consultation document.

 

However, I am not as naïve as to think that the operation of 1986 Act tenancies is perfect, which is why I welcome the consultation issued by DEFRA to explore some options discussed by the Tenancy Reform Industry Group in the autumn of 2017.  In so doing, we have been willing to allow some of the sacred cows, to which we have held dear, to be considered for change including the way in which succession takes place, the operation of the rent review formula and restrictive clauses in tenancy agreements.  The response, thus far, from the CLA has been disappointing in that it seems to want to bag the benefits of some of the proposed changes which may work to their direct advantage without accepting the quid pro quo of other changes for the benefit of tenants and the tenanted sector as a whole.

 

The consultation remains open until 2 July and we can only hope that sensible discussions, balanced conclusions and effective outcomes are produced.

 

 

 

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