Farm Business Tenancies (FBTs) have been around for well over 20 years now but a significant amount of rural land is still held by tenants under Agricultural Holdings Act 1986 Tenancies (AHA Tenancies) and both landlords and tenants need to take care when dealing with tenants who have been in place for a long time.
AHA Tenancies – the differences to the modern FBT
Although the Agricultural Holdings Act 1986 (the 1986 Act) only predated the Agricultural Tenancies Act 1995 (which introduced FBTs) by less than 10 years, the 1986 Act was actually the last in a long line of statutes which afforded a great deal of security to farm tenants.
Rents on AHA Tenancies are lower compared to FBTs as well as being subject to statutory restrictions on the frequency of rent reviews. FBTs rent reviews are not so heavily restricted in this manor.
However, the largest difference between the two relates to succession rights which are often attached to AHA tenancies. Indeed, for tenancies created before 12 July 1984, tenants who have AHA tenancies also have the ability to devolve the tenancy for two successions on death or retirement. FBTs are not automatically subject to any succession rights. This can mean that, for AHA Tenancies granted shortly before 12 July 1984, there may not have even been a first succession with the possibility of two successions to go. This can mean that the land will be out of reach of the landlord for some time. Add to this the fact that AHA Tenancies can arise through verbal agreement or by implication, then it is easy to see that there can be significant concern for a landlord in such a situation. Without an agreement, what terms regulate the landlord and tenant relationship?
One of the main risks to a landlord with an AHA tenant without a formal agreement is that the tenant may assign the tenancy into the name of a company which, in law, is deemed to be akin to an individual person. If well managed by the company director(s), in theory the tenant may never die allowing for the perpetual continuation of the secure AHA Tenancy.
It is possible for a landlord to protect themselves in these circumstances by serving notice which would then introduce certain model clauses, one of which would be to prevent an assignment from happening.
What can be done?
AHA Tenancies offer a great deal of security, even when merely rolling on, year to year. Whilst Landlords can serve a general notice to quit, this can often be thwarted by a tenant serving a counter-notice, thereby requiring the Landlord to risk an application to the First Tier Tribunal to authorise the operation of the notice to quit. This is not necessarily an easy task and there can be no guarantees. Otherwise, the landlord has to rely upon one of the Case notices which requires the landlord to establish the right to the return of the property. https://www.stephens-scown.co.uk/specialist-sectors/rural/bringing-an-aha-tenancy-to-an-end/
In contrast with Farm Business Tenancies, once the fixed term has come to an end, the landlord can obtain possession without having to meet any extra criteria or serve a Case notice. Break notices can be introduced in FBTs to great effect and generally there is a better degree of flexibility for the landlord with an FBT.
What should landowners do?
The risks can be quite high but most landlords are dealing with tenants who have taken possession of land after the introduction of FBTs on 1 September 1995. Therefore, particular care needs to be taken with those who may have been occupying land since before that date.
In consequence, landlords should consider the following:
- Regularly review the tenancy arrangement with long standing tenants to ensure that the Tenant is in compliance with the lease terms;
- Care needs to be taken with possible sub-tenancy arrangements where an AHA tenancy may have been created and landlords should always be careful when the land seems to be occupied by third parties;
- Regularly check from whom payments of rent are being proffered and received; and
- If there is a risk of an oral tenancy having been created at some point, or if documentation has been lost, advice should be sought immediately with a view to taking protective steps.