The great benefits of an AHA tenancy created before 12 July 1984 is the possibility of a succession from one generation to the next. It is not simply one succession but there can be two, with the effect that a holding may (in theory) be held by a farming family of its landlord for the best part of a century. When one considers that this would take us well into the 2080s, it just goes to show how far reaching the benefit can be. In addition, the tenancy retains all the benefits enjoyed by AHA tenants and pound for pound, makes it arguably the best annual periodic tenancies available.
With the raft of changes generally affecting the rural landscape, the introduction of the Agriculture Act 2020 and with there having been a focus upon the area of succession by the Tenancy Reform Industry Group (TRIG), it is an area where there have been changes and is one to revisit and carefully consider. The new rules concerning succession have been effective since 1 September 2024 and cases will now start filtering through the Tribunal.
Commercial unit test
Meeting the eligibility criteria to succeed to an AHA tenancy is never an easy process, but one of the particular hurdles in place previously has now been removed. The “commercial unit test” i.e. that the applicant is not an occupier of a commercial unit of agricultural land, is no longer part of the process. This referred to a unit of agricultural land that, when farmed under competent management, was capable of producing a net annual income of an amount not less than the aggregate of the average annual earnings of 2 full time male agricultural workers (aged 20 or over).
With this part of the test having been scrapped, this will widen the list of eligible applicants and means that more tenancies are in principle available for succession.
Suitability test
Suitability remains part of the test for succession, and has been significantly amended. The concept of “suitability” works in concert with the “eligibility” requirements. The eligibility requirements (i.e. being a close relative and deriving your livelihood from agriculture for at least 5 of the last 7 years), are largely unaffected with eligibility being determined at the date of death or retirement of the outgoing tenant. Suitability is determined at the date of the hearing of the Tribunal claim, but there is now a significant change in relation to this test.
Previously, the Tribunal would take into account the following:
- The age, physical health and financial standing of the applicant;
- The applicant’s training and/or practical experience in agriculture; and
- The landlord’s view on the applicant’s suitability
However, the Tribunal would consider “all relevant matters”
Now, the situation has been amended by regulation 5(2) under Part 3 of the Agricultural Holdings (Requests for Landlord’s Consent or Variation of Terms and the Suitability Test) (England) Regulations 2021. The main focus now is as follows:
- the applicant’s likely capability and capacity to farm the holding commercially, with or without other land, taking into account the need for high standards of efficient production and care for the environment in relation to managing that holding;
- the applicant’s experience, training and skills in agriculture and business management;
- the applicant’s financial standing and their character;
- the character, situation and condition of the holding;
- the terms of the tenancy.
The age of the applicant is now specifically disregarded.
The Tribunal still will have regard to “all relevant matters” but must also be satisfied that, if the applicant had applied in an open competition for a tenancy of the holding (assumed to be available under the 1986 Act), a prudent and willing landlord could reasonably be expected to regard the applicant as among the candidates to whom they would be willing to grant the tenancy.
It will be interesting to see how this works in practice, but it is generally expected that an applicant will need to show that they would be in a pool of potential candidates who may be considered as eligible for the tenancy. This would not necessarily have to be a small pool and could, in appropriate circumstances, amount to a significant amount of people.
What should applicants do and consider?
It has been said that the new test has widened the gate, but raised the bar. More people will be eligible, but it is arguably a tougher test to succeed.
Farming is difficult at the best of times and it will often be difficult for a farmer to show that they are farming commercially. Not all farms make a profit. Not all aspects of a farm are profitable but this will need to be considered carefully.
Care for the environment is also now something that will prove a key issue in an application, as will be business management skills.
In broad terms, it is therefore considered that anyone looking to succeed to an AHA tenancy would be well advised to approach it adopting in a similar way as a new entrant would when seeking a Farm Business Tenancy. The focus will be upon commerciality and ability to work in a commercial manner. Budgets, cashflows and business plans will be expected, as will the net worth calculation of applicants.
Ultimately, the tenants will need to be well prepared and it should be remembered that succession can happen during the lifetime of the tenant (by retirement) as well as on death. Therefore, preparation and succession planning long before any planned succession can help minimise the rush and panic which can often arise when an applicant applies, especially as they must still meet a stern, yet different, test.
It is clearly worth anyone holding an AHA tenancy to review their position now to see whether or not the above changes place them in any better or worse position and especially where they may have previously written off any ability for there to be a succession tenancy.
We advise regularly in relation to these matters and would be happy to discuss any aspects. You can contact Ian Thomas on 01872 307352 or I.Thomas@stephens-scown.co.uk