Common Questions and Answers on Agricultural Holdings Act 1986 Tenancies

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Chapter 6

Common Questions and Answers on Agricultural Holdings Act 1986 Tenancies¹

6.1 SECTION 1: PRINCIPAL DEFINITIONS

Question

When will a tenancy cease to be governed by the 1986 Act?

Answer

If the actual contemplated use of the holding at the time the parties entered into the tenancy agreement, and subsequently, is predominantly agricultural, it will all be an agricultural holding governed by the provisions of the 1986 Act.

It is not possible for part of a holding to be agricultural and part not (section 1(2) of the 1986 Act; Howkins v Jardine²).

It is possible for a holding which was predominantly agricultural at the start subsequently to change into a business tenancy or, if the commercial use is abandoned altogether, to become a common law tenancy.

However, where the use is agricultural at the start, strong evidence will be needed to show that the agricultural use has been abandoned.³

¹Note: all references are to sections in the 1986 Act.

²Howkins v Jardine [1951] 1 All ER 320.

³See Wetherall v Smith [1980] 2 All ER 530 and Short v Greeves [1988] 08 EG 109.

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6.2 SECTION 2: CONVERSION INTO A TENANCY FROM YEAR TO YEAR

Question

Is there a genuine partnership, contract farming or share farming agreement, or is there a tenancy?

Answer

This question is important in ascertaining whether or not an arrangement is governed by the 1986 Act.

Before the introduction of FBTs, landowners were at pains to enter into arrangements to try to avoid the security provisions of the 1986 Act. Many of these purported to be arrangements which did not grant exclusive possession. Street v Mountford 4 established that, with a few limited exceptions, where a person was granted exclusive possession he would be a tenant regardless of the label which the parties put on the agreement they signed. The court would look into the reality of the situation and would not be persuaded simply by the label given to the document.

The question for the courts is whether or not as a matter of practice exclusive possession was taken by the occupier. The courts have been quite astute in detecting shams and documents described as licences which are, in effect, tenancies.

6.3 SECTION 12 AND SCHEDULE 2: VARIATION OF RENT

Question

What sources of income can be taken into account on a rent review?

⁴Street v Mountford [1985] AC 809.

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Answer

The rent formula is set out in section 12 of, and Schedule 2 to, the 1986 Act.

In ascertaining the rent properly payable, an arbitrator must take into account the terms of the tenancy, the character and situation of the holding, the productive capacity, the related earning capacity and other relevant factors.

Factors to be disregarded are the tenant’s improvements and fixed equipment, any grant-aided elements in the landlord’s improvements, extra income achieved by high farming, the tenant’s occupation of the holding and the tenant’s dilapidations.

An important case on the formula is the Court of Appeal decision in J W Childers Trustees v Ankers.⁵This established that the statutory formula is not the open market rent and that section 12 of and Schedule 2 to the 1986 Act provide a complete statutory code to fix the rent. The arbitrator will also take into account the single income payment under the BPS and all other relevant factors. Marriage value, i.e. any special value the holding might have because it could be farmed in association with other holdings, also has to be taken into account. Other relevant factors are the income from any management agreements, and other sources of non-agricultural income, for example, money which might be earned through a caravan site or bed and breakfast accommodation.

Question

Are FBT rents a valid comparable for 1986 Act tenancies?

Answer

The short answer is no.

There has been much argument over this question. The case which is sometimes quoted in support of allowing comparable rents from tenancies governed by other legislation is Spath Holme Ltd v Greater Manchester and Lancashire Rent Association Committee.⁶A fair rent had to be assessed under

⁵J W Childers Trustees v Ankers [1996] 01 EG 102.

⁶Spath Holme Ltd v Greater Manchester and Lancashire Rent Association Committee [1995] 2

EGLR 80, followed in Curtis v London Rent Assessment Committee [1997] 4 All ER 842.

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the Rent Act 1977 and the question was whether rents of tenancies granted

under the Housing Act 1988 could be taken into account as being comparable.

The Court of Appeal held that a fair rent under the Rent Act 1977 was not a reasonable rent, but the open market rent less statutory disregards and discounted to remove any element of scarcity. The formula for assessing the rent under the Housing Act 1988 was the open market rent without any disregards.

In other words, under both statutes the starting point was the open market rent.

Two legal arguments raised by the Rent Assessment Committee disallowing comparable rents from assured tenancies were rejected by the Court of Appeal.

First, the Committee argued that a distinction should be made on the grounds of security of tenure. Although the security of tenure given to both Rent Act and Housing Act tenants was very similar, on rent reviews under the 1977 Act it was argued that security of tenure was a personal circumstance of the tenant. Section 70(1) directed that personal circumstances were to be disregarded. There was no such provision in the Housing Act 1988.

The Court of Appeal rejected the view that in the context of rent review, security of tenure was a personal circumstance. Consequently, the security of tenure under Rent Act 1977 tenancies and Housing Act 1988 tenancies were to...