News
8th Mar

2018

TFA National Chairman 2018 AGM Speech – in full

Tenant Farmers Association

THIRTY- SIXTH ANNUAL GENERAL MEETING

THURSDAY, 08 MARCH 2018

Report from the National Chairman

It is hard to believe that a year has passed since I made my first report as TFA National Chairman.  The TFA, of course, is the only organisation dedicated to the interests of the tenanted sector of agriculture and throughout the past year the Association has sought to ensure that the voice of the tenanted sector and the active farmers we serve, has been heard at the highest levels of Government.  The Association has extensive contacts with Ministers and Civil Servants in Government, MPs and Welsh Assembly Members, other stakeholder organisations, major landlords and financial institutions all to ensure that proper account is taken of the needs and aspirations of those of us who, as tenants, farm around one third of all of the land within UK agriculture.

Tenant farmers are the true backbone of the farming industry in this country.  Bound by tenancy agreements which often tightly regulate both the methods of our farming and our ability to diversify our income sources we are, as a breed, much more reliant on the profitability of agriculture than our owner-occupier friends and neighbours.  We do not have the value of agricultural land to fall back upon to support additional borrowing and nor do we have the same options when it comes to planning our retirement.  Our homes, businesses, livelihoods and families are all inextricably linked to what we do on the land and what we can make from it and less about the value of the land itself.  Whilst we care about good soil and long-term environmental management we have no interest in land as a financial asset.

Understanding this background is important, as it helps to explain why the TFA’s attitude to policy-making for agriculture will be different to that espoused by other organisations who might be more interested in enhancing and preserving the wealth retained within the sector rather than providing a sensible framework for business progression in the farming context.  This this is seen most acutely in the TFA’s attitudes towards the taxation of land, the operation of the planning system and the scope for alternative uses for land including for renewable energy.  However, it also pervades all of our thinking on agricultural policy and the landlord tenant system which underpins our sector.

With the Country’s decision to end its membership of the European Union in a little over than a year’s time, we have a unique opportunity to build a policy framework for agriculture on our own terms rather than those which have been the result of compromise with the other 27 Member States of the European Union.  Our lobbying has focused on stressing the need for the Government to look at the task ahead of it by taking a systematic approach rather than seeking to address specific policy elements in isolation from the wider context within which farming operates.

Put at its most basic, what the new policy framework must address is how to ensure that as a nation we continue to deliver to consumers safe, high quality food, produced to high environmental, ethical and animal welfare standards at prices they can afford and which provide adequate returns to the farming community to cover costs, provide a living and produce a profit which enables reinvestment.  It sounds simple to say but more complicated to deliver.  It is only recently that we have seen something of the Government’s intention to address this conundrum and it is fair to say that we are some way off from achieving a solid basis for taking this forward.  There will be much to do over the coming months to the hone the future policy environment to ensure that we are ready for the brave new world beyond any implementation period that may be agreed with the EU notwithstanding the possibility that we end up leaving the without a deal.

Of course, we are breaking new ground here.  No other Member State of the European Union has decided to end its membership and since the triggering of our Notice to Quit under the provisions of Article 50 of the Lisbon Treaty about a year ago, there has been a period of intense activity.  This appears to be operating at two levels.  Firstly the level at which the media seems to have an interest covering matters such as the financial settlement, citizens’ rights, the future of the Irish border and our future trading relationship with the EU and the rest of the world.  However, we also have an operational dialogue dealing with the practicalities of developing policy outside of the EU in the context of devolution, developing functioning systems to allow us to be day-one ready following Brexit, agreeing trading schedules for Tariff Rate Quotas under our WTO commitments and considering what our access to labour requirements will be and how we secure those.

Following the publication of the DEFRA consultation paper for the future of food, farming and the environment we will now be entering a detailed period of negotiation and discussion with the Government about the development of policy in England and we are also engaged with the Welsh Government on its plans for the same within Wales.

The appointment of Michael Gove as the Secretary of State for Environment Food and Rural Affairs was an interesting development and one which was not anticipated by anyone in advance of the announcement of his appointment, not least by Mr Gove himself.  Having got over the initial surprise, it soon became clear that there were a lot of advantages to having Mr Gove in DEFRA.  Not only is he a big voice politically, he has a fierce intellect and a stubborn determination to implement reform where necessary.  In the TFA’s engagement with the new Secretary of State we have found him to be well briefed, deep thinking and challenging.  He has certainly been able to garner the media spotlight for food, farming and environmental issues more than some of his immediate predecessors including by securing the Prime Minister to launch the 25 year plan for the environment – the first time that a sitting Prime Minister has made a major speech on the environment since the days of Tony Blair.  Mr Gove has set out a clear agenda for the ongoing dialogue with industry and we must grasp the opportunity to engage positively, constructively and in ensuring that we take an evidence-based approach to our lobbying.

Of course, much will depend upon the deal we end up agreeing with the European Union and we expect this to come to a head later this month with the European Council meeting.  Having come to at least an understanding on paper with regard to the financial settlement, citizens’ rights and the Irish border in December of last year, we move forward to seeing what comes out of the further negotiations with regard to trade, the legislative framework and the operation of the implementation period.  With the clear health warning in the December communique from both negotiating sides that nothing is agreed until everything is agreed, much still hangs on the negotiations of the next few weeks.

The Government will then have the hurdle of the Parliamentary vote in the autumn to get over.  At that point, the Prime Minister may be regretting her decision to call a General Election in 2017 which saw her Parliamentary majority slip away and left her reliant upon the Northern Ireland Democratic Unionist Party to keep her Government afloat within a Confidence and Supply arrangement.  This arrangement has already led her into difficulty over the arrangements for the Irish border.  Having committed to maintaining a soft border between the North and South of Ireland the UK Government now has to deliver that within the overall deal done with the European Union or, failing that, to find a solution for the island of Ireland whilst inserting no new restrictions between Northern Ireland and the rest of the UK.  It will be interesting to see how the Prime Minister intends to operate within the four dimensions this agreement seems to suggest will be necessary to achieve the outcomes to which the Government has committed.

With so much uncertainty the TFA has been encouraging our members to ensure that they are in a position to have a rent review available in either the autumn of next year or the spring of the following year when there should be a greater degree of certainty surrounding the future of our relationship with the EU and the policy environment within which we will be operating.  It is no surprise that we have seen some landlords looking to press tenants into rent increases at this time given that it might be the last opportunity that they will have to do so for some time to come.  We are advising all tenant farmers to ensure that they are properly advised before agreeing to settle any rent which will be fixed for the next three years.  The TFA has been calling for landlords and tenants to use the pre-Brexit period for more productive discussions about how both parties intend to deal with the opportunities and challenges which lie ahead rather than having a focused argument about the level of rent being paid.

In the same vein, we believe that it is in the best interest of both landlords and tenants to be providing long-term security to tenants under farm business tenancies.  The TFA has been a long standing advocate of longer farm business tenancies culminating in our 2015 FBT10+ campaign.  It has been pleasing to see some landlords responding positively to the TFA’s call for longer tenancies and to see the independently collected statistics produced by the Central Association of Agricultural Valuers show a year on year move towards landlords offering longer term agreements, particularly those with buildings and dwellings.  Whatever happens with Brexit, farm businesses will require security in order to invest for the future whilst retaining the flexibility of rent reviews to ensure that the deal reflects the true economics of farming throughout the term of the agreement.

That said, we do not believe that we will see the full extent of the change required in lengths of term before we have a change in the taxation framework within which landlords take decisions.  Sadly the taxation system does not encourage landlords to consider letting for the long term.  With Agricultural Property Relief from Inheritance Tax fully available to any agricultural landlord letting for any length of term since 1 September 1995, it is inevitable that land owners, and those who advise them, will take the line of least risk by offering only short term agreements.  We need this to change.

The Agricultural Tenancies Act 1995, which ushered in FBTs, represented a major deregulation of the agricultural let sector and at the time there were great hopes that it would produce an increase in opportunity both for new entrants and those looking to develop existing businesses.  Indeed the stated objectives of the new legislation in 1995 were to improve the efficiency of land use within the agricultural sector whilst increasing opportunities for both progressing farmers and new entrants.

Over two decades on and the TFA believes that neither of these objectives have been attained.  Whilst we saw an increase in the amount of let land through the early years of the new legislation this has, by and large, tailed off.  However, the biggest failing of the legislation has been the perpetuation of short lengths of term leading to inefficiency.

Given that farming is a long-term endeavour requiring significant capital investment, patience, good soil management and the ability to balance profitable years against the bad (recently recognised by the Government’s decision to allow averaging of farm profits for tax over five years) there is a legitimate question about why lengths of term are so short.  The answer is with much higher demand for land than supply, landlords can offer short terms for high rents at very little risk whilst at the same time receiving generous and unconstrained tax benefits.

Short term tenancies are holding back progression, investment and sustainable land use.  The TFA has long held the view that average lengths of term on FBTs should be 10 years or more.  However, the problem is not necessarily within the legislation.  The 1995 Act provides very wide scope for parties to agree virtually whatever terms they desire.  We are aware of very forward-looking tenancy agreements let for long periods of time with innovative rent review and other provisions but these are all too rare.  Landlords and their agents take an unnecessarily short term and restrictive approach to farm business tenancies and this has got to change.

The TFA has been pressing the Government to use its fiscal levers in order to encourage a more sustainable position.  We continue to call for the following

  • Restricting the generous, 100% Agricultural Property Relief from Inheritance Tax (currently available to all landlords regardless of the length of time for which they are prepared to let land) only to those prepared to let for 10 years or more, or on new tenancies (eg successions) with security of tenure under the Agricultural Holdings Act 1986.
  • Clamping down on those land owners who, through schemes promoted by agents and accountants, are using share farming, contract farming, share partnerships and grazing licences as thin veneers of trading activity and as vehicles for aggressive tax avoidance since in practice they take no risk in the business, have little, if any, entrepreneurial input and lack any management control.
  • Offering landlords prepared to let land for 10 years or more the ability to declare their income as if it was trading income for taxation purposes.
  • Reforming Stamp Duty Land Tax to end the discrimination against longer tenancies.

On the first of these points we held constructive discussions with the Office for Tax Simplification (OTS) towards the end of last year which seemed to land well with officials.  More recently, we have been pleased to see the Chancellor of the Exchequer request formally that the OTS carries out a wide-ranging review of Inheritance Tax within which the TFA will be seeking to raise again its proposals for amendments to Agricultural Property Relief.

In addition we are also calling for the reform of Capital Gains Tax rollover relief which we believe should be abolished in relation to investments in land (other than that which is replacing land lost through compulsory purchase) whilst providing a new relief to allow landlords to invest in fixed equipment on let land which would assist productivity and profitability of the tenanted farm businesses into the long term.

Having been in long-term hibernation, we were pleased that DEFRA farming Minister, George Eustice MP, re-awoke the Tenancy Reform Industry Group to advise the Government on reforms that may be necessary for the tenanted sector of agriculture in order that it might be fully able to take advantage of the opportunities and respond positively to the challenges arising from Brexit.  It was helpful that the Minister required the group to abandon its usual modus operandi of needing unanimity before it made any recommendations to Government.  As a result, TRIG has made a significant number of positive suggestions which are summarised below.  The full reports are available within the public documents section of the TFA website.

In respect of Agricultural Holdings Act 1986 (AHA) tenancies:

  • Allowing landlords to ring fence return on their investment against changes in rent.
  • Allowing landlords and tenants to override restrictions in tenancy agreements using a test of reasonableness where to do so would assist the full and efficient farming of the holding.
  • Requiring that tenancy clauses barring the erection or alteration of buildings to be subject to a test of reasonableness.
  • Requiring that tenancy clauses barring the tenant’s economic activity off the holding to be subject to a test of reasonableness.
  • Allowing tenants to counter notices to remedy which are not notices requiring work to be done.
  • Reforming the game damage procedures to make them easier to use.
  • Providing that rent review disputes can be determined by third-party determination rather than by arbitration.
  • Providing a larger reform of dispute resolution to encourage more third-party determination.
  • Providing a statutory mechanism for AHA a tenancies to be converted to fixed term assignable tenancies at an open market rent subject to the landlord preventing this by buying out the tenant’s life interest.
  • A package of measures on succession which would:

o             Repeal of the Commercial Unit Test.

o             Exclude the ability for succession for tenants beyond five years from their state pension age.

o             Allowing an extra succession option to an expanded list of “close relatives” or modernising the definition of close relatives.

o             Replacing the suitability test with a business competence test.

 

In respect of Agricultural Tenancies Act 1995 tenancies:

  • Introducing new statutory provisions for new FBTs with an initial term of a minimum of 10 years and no Landlord’s break clauses referable solely to a future point or points in time to allow the FBT to be terminated by notice served on the tenant by the landlord for:

o             non-payment of rent (as an alternative to but not a replacement for forfeiture)

o             breaches by the tenant of the contractual terms or conditions of the agreement

o             the death of the tenant

o             to allow the landlord to remove land from the holding where planning consent has been granted for non-agricultural use

 

  • Introducing new statutory provisions to allow an existing landlord and tenant under the AHA greater freedom to make changes to the holding in circumstances where there is agreement between the parties on re-location or re-organisation and where the parties agree that the new/altered agreement is to remain within the AHA and where the provisions of ATA 4.1(g) would otherwise remove the new/amended tenancy from the AHA.

 

  • Implement a wide-ranging programme of education and awareness amongst professionals and the industry in consultation and collaboration with the appropriate industry and professional groups to encourage all parties to make better use of the flexibilities and opportunities that the ATA affords the parties to create longer-term and more bespoke FBTs that better reflect the aims and objectives and commercial ambitions of the parties.

In respect of taxation:

  • Limited Income Tax relief on farm land rents to encourage letting and letting for longer.
  • Recognising a business with multiple trades, including property income, as a single trade for Income Tax, easing letting and diversification.
  • Capital allowances to support investment with restoration of the Agricultural Building Allowance, the ability to carry forward the Annual Investment Allowance and extended/simplified allowances for the new technologies.
  • Capital Gains Tax Rollover Relief – allow reinvestment in improvements by landlords to let farmland.
  • SDLT – exempt leases of agricultural property, to remove a deterrent to a tenant taking a longer lease.
  • VAT – raise the de minimis threshold for partial exemption – easing complications where a letting includes a dwelling or a business includes let land but has not opted to tax.
  • The Group did not recommend excluding land let for less than a 10 year term from APR however, the TFA’s arguments for this have been included in the paper.

In respect of County Farms:

  • Introduce formal Examination in Public or similar independent panel assessment and approval for Local Authority proposals for their rural estate strategy (including strategic capital disposals where these are proposed as part of the strategic plan), which must be based on a minimum 15 year Rural Estate Plan with a referral route to Secretary of State. Independent inspectors should be appointed by the Secretary of State and should be suitably experienced in a rural and business context.
  • Include provision in the Rural Estate Plan for ring fencing estate income for reinvestment in the estate.
  • Introduce measures to ensure that the Rural Estate Plan includes requirements for Local Authority estate management functions to follow ACES Good Practice Guidance in preparing and implementing the Rural Estate Plan strategy.
  • Introduce Infrastructure Grant (through new UK Agriculture Policy) and other grants as offered to private landowners so these are available to Local Authorities to assist in capital improvements on their smallholdings but only on approval of their Rural Estate Plan by Secretary of State and subsequent formal adoption by the Local Authority
  • Review of procurement protocols and procedures to enable Local Authorities as landlords to obtain best value for improvement and repair work carried out on smallholdings
  • Incorporate ACES Good Practice Guidance into DCLG Local Authority Assets Disposal Guidance (March 2016)
  • Adoption of TRIG recommendations for amendments to Smallholdings Regulations (6 December 2013)
  • Extending Case A notice to quit to coincide with new state pension age.
  • Adoption of single rural dwelling exceptions policy under planning legislation to allow local authority planning departments to grant consent for rural dwellings in appropriate locations and at an appropriate scale and with suitable agricultural tie conditions.
  • Planning Policy and associated legislation should allow Local Authorities to build dwellings on their farms or on land that they own or manage to either act as a retirement house for an outgoing tenant or to allow a larger farmhouse to be rented on the open market (on an Assured Shorthold Tenancy basis) but at the same time retaining a dwelling for the existing farm tenant.

In respect of New Entrants and Retirement

  • Open up and find new ways/business models of accessing land for new entrants such as joint ventures
  • Government and industry support/financing for the further development of the National Land Partnerships Service so it can provide a fully funded service to the farming community to match joint ventures and farming business opportunities. This will benefit not only new entrants but landowners and is a complementary tool for succession.
  • Creation of a business guarantee loan scheme to help new entrants to get started. Not a grant but a loan so it can be built into business plans to be repaid.
  • Clarification and consideration around taxation and APR for those looking to work with new entrants and help new businesses.
  • Financial support and help to ensure business skills for new entrants are available and reaching required standards. Also, the need for additional Knowledge Transfer for land owners and related land professionals to ensure as many as possible options for land use and agreements are being offered.

Despite the extensive and detailed reports produced by TRIG, we have yet to see the Government’s response.  It has so far merited just one paragraph within the Government’s consultation paper for the future of agricultural policy.  Of course, having provided enough material on agricultural tenancies to fill at least one Agriculture Bill alone, we must be realistic in our expectation of the extent to which the Government will be willing and able to take forward all of the above recommendations and therefore there will be work to do in ensuring that we are able to progress the most important of those.

Another area of significant concern for the TFA is the available dispute resolution facilities for landlords and tenants who cannot otherwise agree on matters such as rent, repairs and matters of compensation.  Arbitration has been the tried and tested mechanism to which parties have taken cases in dispute to seek a determination.  Historically, arbitration was a relatively straightforward and inexpensive procedure but of late it has become anything but.  Routinely we see arbitrations where one or both parties are represented by solicitors or barristers and where the costs for even simple disputes tumble into tens of thousands of pounds.

This is unsustainable and must change.  The TFA welcomed the inclusion of expert determination into the auspices of the Agricultural Holdings Act 1986 through the 2015 Deregulation Act but it has been an under used facility and sadly does not yet work for the most common of disputes, rent reviews.  We are calling for the Government to ensure that the legislative anomaly which prevents expert determination within rent reviews is corrected as soon as possible and we are urging that more disputes, which cannot be settled by negotiation, use expert determination as the way forward.  If arbitration is going to be a sensible process for resolving disputes then we need to see arbitrators taking greater responsibility to ensure that costs are kept as low as possible and that the procedures of the hearing are not hijacked by unnecessary and aggressive legal argument.

Some problems are perennial and I speak here of the continuing frustrations experienced by TFA members in dealing with the Rural Payments Agency in respect of the Basic Payment Scheme and Natural England in respect of the various agri-environment schemes.  One would have thought that, by now, both organisations would have got themselves into a position of being able to administer their schemes without major hiatus.  It is, after all, now more than a decade after the RPA nightmare that was the introduction of the Single Payment Scheme in 2005 and yet we are still arguing over the same issues of maladministration, poor communication and delayed payments.  Otto von Bismarck is attributed to have said that only a fool learns from his own mistakes whilst a wise man learns from the mistakes of others.  Surely Natural England should have taken heed of the administrative problems experienced within the RPA and ensured that its procedures were immune from the malaise suffered by its sister organisation.  Sadly this is not the case.  These issues must be resolved both for the immediate problems being experienced by farmers involved in Pillar I and Pillar II schemes and to ensure that these organisations are fit for purpose to deliver whatever new policy framework appears on the horizon post Brexit.

Turning to matters relating to the internal workings of the TFA, 2017 proved to be a milestone for the Association when it completed on the purchase of its current Head Office building which it had been occupying in Theale since 2005.  We were pleased to have the opportunity of purchasing the freehold from our landlord as we were approaching the end of our 15 year commercial tenancy.  Not only has this saved the expense of having to move to new premises, it provides the Association with much needed security into the future.  I was particularly pleased that the purchase was helpfully supported by donations from some of our longest standing TFA members who are to be thanked through the erection at Head Office of a special patron’s board marking their generous assistance.

Having launched our legal expenses insurance scheme in 1999 which, for the first time, brought together the world of legal expenses insurance with agricultural landlord and tenant disputes at both arbitration and tribunal we made the decision to change to new providers in 2017.  The Legal Protection Group was selected on merit to provide this important member benefit which provides essential cover for farm tenants who are approaching arbitration or tribunal and are concerned about their exposure to costs either when they are defending or prosecuting from a reasonable position.  TFA members report frequently that the availability of the insurance is often sufficient to convince their landlords not to pursue spurious arguments against them.  However, sadly there are cases which have to be taken all the way and the TFA’s insurance has provided much needed assistance to members in such circumstances.

In April 2017 the TFA entered into a new affiliation arrangement with Hendersons Insurance for its offering to TFA members for general farm and motor insurance.  Based in the North of England we have been very pleased with the service that the Hendersons team is providing to TFA members.  Members report both great value for money in terms of premiums and good service in discussing and arranging the right level of cover in each case.  With the insurance market tightening of late it is important to have good advice about cover so that you are not left short in the event of having to make a claim.  Having the ability to go to the market for each renewal is also a major benefit of the new arrangements with Hendersons.

Following numerous requests from landlords seeking help in setting up a tenancy agreement which is fair both to them and their new farm tenants, the TFA decided to launch its Responsible Landlord Scheme in October last year.  Through the scheme, we do not provide landlords with advice but we are responding to the desire from some within the landlord community for a little guidance on how to draw up a fair tenancy agreement between themselves and their tenants. As we are constantly arguing for better landlord tenant relationships we felt we had a responsibility to assist those landlords who approached us for help.  The scheme provides landlords with an example Farm Business Tenancy (FBT) agreement, a Guidance Note looking at considerations for drawing up a tenancy agreement and a special voucher for them to pass to their new tenant who can redeem it for full membership of the Association. We believe that the service should help to cement a good landlord and tenant relationship from the beginning and that it will create the right platform for a sustainable future. The example agreement is not designed to replace professional advice, but to provide a starting point for landlords and tenants to agree terms for a new letting before instructing professionals.

In November of last year we were pleased to work with Barclays in putting on a special conference which took place at the National Agricultural Centre in Stoneleigh under the heading “Building Farm Business Resilience for the Tenanted Sector of Agriculture.”  We had a high profile selection of speakers including, for our morning session, DEFRA Minister George Eustice, Minette Batters from the NFU, Helen Ghosh Director-General of the National Trust and Tim Breitmeyer, President of the CLA.  I was particularly pleased with the level of agreement that there was between the three main organisations about the future direction for agricultural policy and the need for landlords and tenants to work together to ensure a sustainable future for the sector.  A conference report is available on the TFA website.

Drawing to a conclusion I would like to thank all with whom the TFA has a working relationship.  This includes our panel of recommended professional chartered surveyors, solicitors and accountants, the many affiliations we have with organisations providing member benefits and all those who provide sponsorship and financial support to the Association including Thrings Solicitors and Agri-advisor who sponsor the TFA newsletter and TFA Cymru newsletter respectively.

I would like to thank our small but professional and dedicated staff team which works so hard to ensure that the needs of our members are met on a day-to-day basis.  The staff team has gone through some major change of late due to retirement, maternity leave and one or two people moving on.  We wish those members of staff who have moved on all the very best for the future and welcome new members of the team as they slot into place alongside those more established at Head Office under the Guidance of our long standing Chief Executive, George Dunn.

My thanks also to my National Vice-chair, Mark Coulman and Treasurer Robert Martin who have been a great support to me over the past year as has the whole of the TFA’s Executive Committee.

I thank my family for its support and assistance as I carry out my role as TFA National Chairman.  Having a good home team is vital to ensuring I have the freedom and ability to properly conduct the role.

Finally, I thank all of the TFA’s members for their continued support and I and the rest of the TFA team look forward to serving you in the year which lies ahead.

Ref: MR18/12

Date: 07 March 2018

Notes for Editors:

For further information contact Julia Meadows on 0118 930 6130 or 07887 777157

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