DEFRA Consultation on Agricultural Tenancies Misses the Point

This is the full (unedited) piece, written by George Dunn, TFA Chief Executive, for The Cumberland News and Westmorland Gazette, published on the 26 July 2019.

DEFRA Consultation on Agricultural Tenancies Misses the Point

The Tenant Farmers Association (TFA) has been in existence for nearly four decades and for all that time has sought to support and enhance the rights of tenant farmers in the context of sustaining and developing a vibrant landlord/tenant system in agriculture.  In the white heat of deregulation in the 1990s, which saw the creation of Farm Business Tenancies (FBTs) through the Agricultural Tenancies Act 1995, there was also strong pressure for the abolition of the Agricultural Holdings Act 1986.  Two hallmarks of 1986 Act tenancies are the security of tenure and regulated rents.  The TFA fought hard and successfully for the retention of 1986 Act tenancies and has continued to defend their existence ever since.

A vindication of the defence of 1986 Act tenancies is clearly demonstrable in the light of nearly 25 years’ experience of FBT’s.  With average lengths of term on FBTs consistently around the four-year mark and with 85% of all FBTs let for five years or less, this is no basis for a sustainable let sector in agriculture.  Add to that the tendency towards exorbitantly high rents pushed up on a slim interpretation of the open market and very restrictive user clauses in agreements, we should all be concerned about the direction of travel.  This is even more important as we reach the tipping point which will soon see us with more land let under FBTs than under the 1986 Act.

Good news then that DEFRA has come forward with a major review of agricultural tenancy legislation, the first such review in a quarter of a century.  Whilst welcoming the renewed focus on this important area of agriculture, the disappointment is that the focus was more on making changes to 1986 Act tenancies rather than seeking to place FBTs on a more sustainable footing.  The principal reason for that failure can be attributed directly to the lack of any consideration of the taxation framework within which landlords make decisions about land occupation.  The TFA has called consistently for a review of mechanisms such as Agricultural Property Relief from Inheritance Tax to restrict its availability only to landlords who are letting for 10 years or more.  In that way, longer term tenancy agreements would be encouraged.  Whilst DEFRA will argue it has no jurisdiction over taxation policy, it does rather belie the myth that we have joined up Government.

Putting the disappointment to one side, there are several proposals for 1986 Act tenancies which could prove useful.  For example, the idea of allowing a farm tenant, without a successor, to assign their interest to a third party for a fixed term of 25 years, could assist some farm tenants into retirement.  The proposal allowing the landlord to stop an assignment by buying out the life interest of the sitting tenant will encourage more tenants to think about strategies for retirement much earlier.  However, in order for there to be a sensible value for the retiring tenant, the rent on the new 25 year lease must continue to be regulated, as per the standard way applicable under the 1986 Act, rather than allowing it to be governed by the open market provisions of the FBT legislation.

Allowing farm tenants to question restrictive user clauses in their agreements which might prevent them from carrying out diversification or entering new agri-environment schemes would also be welcomed.  Of course, landlords should have a reasonable opportunity to object, however, if tenant farmers are not going to be disenfranchised from the new arrangements envisaged by the Agriculture Bill and DEFRA’s Health and Harmony policy these changes are a must.

Encouraging earlier farm successions by widening the definition of eligible close relatives to include nephews, nieces and grandchildren, whilst requiring successors to demonstrate a greater degree of suitability, must also be a sensible approach.  Although there has been some criticism of the idea of restricting the availability of succession on retirement when the sitting tenant gets beyond a certain period after their state retirement age, the package of measures will have benefits in the round.  This would include the abolition of the test which prevents succession where the successor tenant already has an interest in another farm construed as a commercial unit.

The tenanted sector of agriculture is responsible for farming around one-third of the agricultural area of the country and a higher proportion of the area in our upland, dairy and livestock sectors.  In its separation of the functions of land ownership and land management, it allows individuals to focus on their separate strengths.  It provides liquidity to the most fixed factor of production in agriculture, land and provides opportunities for new entrants and progressive farmers.  Having a strong framework for the rules, regulations and taxation environment within which agricultural tenancies operate, is of major importance.

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