News
18th Jan

2021

TFA 2021 Lobbying #01- Agricultural Tenancies: House of Lords Thursday 21 January 2021 – Question For Short Debate

Agricultural Tenancies – Tenant Farmers Association

House of Lords 21 January 2021 – Question For Short Debate

Baroness Rock:  To ask Her Majesty’s Government, further to their discussions with the Tenancy Reform Industry Group, what plans they have to reform (1) legislation, and (2) taxation, related to rural landlords and the letting of land.

  1. The Tenant Farmers Association (TFA) is the only organisation dedicated to representing the interests of the tenanted sector of agriculture in England and Wales. Its membership comprises farms of all types and sizes but active, family farms predominate.  As such, we represent the interests of those within the agricultural industry who do not own the land on which they are operating their farm businesses.

 

  1. The tenanted sector of agriculture is responsible for farming at least one third of the agricultural area of England and Wales and approaching half of that is now under Farm Business Tenancies (FBTs) with the remainder farmed under Agricultural Holdings Act 1986 tenancies (AHA). Sector by sector, the proportion of farmed tenanted land is slightly higher in the livestock and dairy sectors and slightly lower in the arable sector.  In addition, the TFA is aware of a significant amount of informal letting arrangements where rent changes hands based on little more than a handshake.  Adding this together with the formally recorded tenanted sector could bring the total amount of land farmed by non-owners under some form of tenancy agreement to around 40% of the total agricultural area of England and Wales.  It is therefore a very significant constituency of interest in its own account.

Legislative changes

  1. The TFA believes that the Government must come forward with a specific Bill to address much needed changes to the legislative framework for agricultural tenancies including the recommendations for legislative change presented to Government in autumn 2017 by the Tenancy Reform Industry Group (TRIG). Some of these changes formed part of a Government consultation and a short list of matters were brought forward into what is now the Agricultural Act 2020 but there is much more that needs to be done via a specific Agricultural Tenancies Bill.  The TFA would ask noble lords to seek a commitment from the Government to a specific Agricultural Tenancies Bill to implement the recommendations of TRIG.

 

  1. The full recommendations from TRIG for legislative change can be accessed in two reports available by clicking here and clicking here. However, in summary, excluding those changes already introduced, TRIG proposed change in the following areas:

 

  • 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 or environmental management of the holding.
  • 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 reform of dispute resolution to encourage more third-party determination.
  • Providing a statutory mechanism for AHA tenancies to be converted to fixed term assignable tenancies subject to the landlord preventing this by buying out the tenant’s interest.
  • Amending tenancy succession to allow an extra succession option to an expanded list of “close relatives” or modernising the definition of close relatives.
  • Introducing new statutory provisions for 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:
  • non-payment of rent (as an alternative to but not a replacement for forfeiture)
  • breaches by the tenant of the contractual terms or conditions of the agreement
  • the death of the tenant
  • 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.
  • Introducing formal examination in public or similar independent panel assessment and approval for local authority proposals for their rural estate strategy
  • Incorporating the ACES Good Practice Guidance into central government guidance to local authorities on asset disposal. Local Authority Assets Disposal Guidance

Taxation changes

  1. It has been nearly a quarter of a century since the introduction of the Agricultural Tenancies Act 1995 which ushered in FBTs. The legislation 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 1995 Act were to improve the efficiency of land use within the agricultural sector whilst increasing opportunities for both progressing farmers and new entrants.  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 in both environmental and farm business management.

 

  1. 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 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.  This is a clear demonstration of market failure since those offering opportunities have the power to dictate their terms to an unreasonable extent causing inefficient outcomes.   The TFA believes that in response to this market failure Government has a responsibility to intervene and it is through manipulation of the taxation system where such intervention would have the biggest, positive impact.

 

  1. Short term tenancies are holding back progression, investment and sustainable land use. Farm Business Tenancies have been too short for too long and now is the time for that to change.  The TFA believes that average lengths of term on FBTs should be 10 years or more and that the Government should be using fiscal levers to encourage a more sustainable position.

 

  1. In a letter to our then TFA National Chairman, James Gray, on 28 January 2020, George Eustice MP, now Secretary of State at DEFRA said the following:

“Moving on to address your concerns about the length of farm tenancy agreements, the Government recognises that farming is a long-term business and I am interested in exploring ways in which we can encourage more landlords to consider longer term tenancies whilst retaining the flexibility that Farm Business Tenancies currently provide.  We will continue to work with the Tenancy Reform Industry Group to look into the role that industry led guidance and best practice can play in setting out the options and benefits for tenants and landlords of longer term tenancies and I welcome the valuable contribution that the TFA continues to make to this work.  I also recognise that the fiscal framework plays an important part in landowner decision-making.  Rest assured we will continue to engage with HMT about such matters to share information and feedback views from farming stakeholders on this issue.”

  1. In light of these comments, the TFA would ask Noble Lords to press the Government to consider the following changes to taxation:
  • Restricting the generous 100% 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 land for at least 10 years or more. At the same time, allowing landlords to lock in their capital taxation position from entering into the lease for the full duration of the lease.
  • Clamping down on those landowners using share farming, contract farming, share partnerships and grazing licences as thin veneers of trading activity to gain tax advantage when in practice they take no risk, have no entrepreneurial input and lack any management control.
  • Offering landlords prepared to let 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.

Further information

  1. For further information about any of the points raised within this brief please contact TFA Chief Executive, George Dunn on (0118) 930 6130 or (07721) 998961 or by email george@tfa.org.uk.

 

18 January 2021

GWD/0505

 

Share This :