Farm Business Tenancies
| Author | Nigel Davis |
| Pages | 11-36 |
Chapter 3
Farm Business Tenancies
3.1 INTRODUCTION
As already mentioned, the 1995 Act came into force on 1 September 1995. It applies to tenancy agreements, both oral and written, beginning on or after that date. Perhaps surprisingly, the 1995 Act did not require all tenancies from that date onwards to be in writing and so oral tenancies are still in existence and perfectly legal. There can on occasion be problems, however, when it comes to proving the terms of such oral agreements.
The 1986 Act will continue to apply to those tenancies listed in para 2.1.1.
The underlying principle of the 1995 Act is freedom of contract with maximum flexibility to enable parties to enter into agreements which suit their own individual needs.
A precedent of a short form of an FBT agreement is included at para 8.2.3. This sets out some of the more usual provisions to be found in such agreements. It should not be slavishly followed, but provides some examples of clauses you may find useful.
All FBT agreements should be bespoke, with the tenancy agreement being tailored to the details of the particular agreement reached between the parties and not shoe horned into a standard form of ‘one size suits all situations’ document. It is always worthwhile imagining yourself in the shoes of the party you are acting for and seeing if you can understand the terms of the tenancy agreement and if it complies with the instructions you have received relating to the agreement reached between the parties. Does it refer to all matters that have been agreed regarding, for example, access to the holding, use of water and sewage pipes, fencing obligations and so on?
12 Agricultural Tenancies
No security of tenure is provided for a tenant other than any provided by the agreement itself. The 1995 Act contains very few mandatory provisions. The only ones there are relate to:
(1) the definition of an FBT;
(2) the termination of an FBT;
(3) rent;
(4) fixtures and compensation; and
(5) resolution of disputes.
3.2 MEANING OF FARM BUSINESS TENANCY
3.2.1 Definition
The 1995 Act defines the term ‘farm business tenancy’. In order to be an FBT the tenancy must comply with the business conditions and either the agriculture or the notice conditions set out in the 1995 Act (section 1 refers).
3.2.2 Business conditions
There are two business conditions.
Firstly, since the beginning of the tenancy, all or part of the land must have been farmed for the purpose of a trade or business. What constitutes the farming of land? ‘Farmed’ is defined in section 38(2) of the 1995 Act to include references to the carrying on in relation to the land of any agricultural activity. The definition of ‘agricultural’ is similar to that in the 1986 Act. Both definitions use the word ‘include’ and are not therefore exhaustive. It is considered that the expression ‘farming of land’, because it includes agricultural activity, may be wider than ‘agriculture’.
Secondly, at the time when the status of the tenancy is being considered, all or part of the land comprised in the tenancy must be so farmed. Provided this second condition is fulfilled at the time then it is presumed that the first condition has been fulfilled unless the contrary is proved. This presumption may be of assistance where proceedings have arisen in respect of another issue, but while that issue is being determined one of the parties questions whether the business condition has been fulfilled at all times since the tenancy was granted. This could be difficult to prove and therefore without the
presumption would impose an unreasonable burden on the party facing the challenge to the status of the FBT.
It is not necessary for the same part of a holding always to have been farmed for the purpose of a trade or business. The business conditions will be satisfied if farming for a trade or business has been carried out on different areas of the holding during the tenancy, provided that at all times there has been some part of the holding in use for commercial farming. The business condition does not require the farming activity to be predominant. Any farming activity will suffice provided it is not de minimis.
If all agricultural activity were to cease on a holding then the tenancy would no longer be an FBT under the 1995 Act. It would become a business tenancy governed by the provisions of the 1954 Act. There would be no opportunity for the parties to agree to contract out of the security provisions of the 1954 Act. That is because the notice and declaration required by the 1954 Act has to be made before the tenancy is granted. A tenancy which ceased to be an FBT would automatically become a 1954 Act business tenancy without a further grant.
The 1954 Act applies:
to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him for those and other purposes.
‘Business’ is widely defined. It includes:
a trade, profession or employment and includes any activity carried on by a
body of persons, whether corporate or incorporate.
Accordingly, although land let for non-commercial farming will not be an FBT, it could be a business tenancy.
Premises for the purposes of the 1954 Act include bare land. Expressly excluded from the 1954 Act, however, are 1986 Act tenancies and FBTs.
Where the tenancy becomes a business tenancy under the 1954 Act either because it fails to comply with the business conditions or the agriculture
14 Agricultural Tenancies
condition, the tenant has a right to apply to the court for a new tenancy at the end of his tenancy. However, a landlord can oppose the grant of a new tenancy on the ground that he intends to occupy the premises for the purpose of a business carried on by himself (or by a company which he controls) or as his residence.
If the farming activity does not amount to a business the tenancy will simply be a common law tenancy without any statutory protection. It will not be governed by the 1995 Act, or by the 1954 Act.
3.2.3 Agriculture condition
The agriculture condition, unlike the business condition, does not need to have been satisfied at all times since the tenancy was granted. It must be satisfied only at the date of any challenge being made to its status as an FBT. The agriculture condition requires that, having regard to:
(1) the terms of the tenancy;
(2) the use of the land comprised in the tenancy;
(3) the nature of any commercial activities carried on that land; and
(4) any other relevant circumstances;
the character of the tenancy is wholly or primarily agricultural.
There is no single test or any weighting given to the elements which make up the condition. One criterion, taken alone, could give a misleading answer with regard to the overall character of the holding.
The drafting of the condition enables a court to use reasonable discretion in judging the character of the tenancy, by having regard to the range of factors specified. The terms of an FBT will not necessarily be in writing and there may be a dispute over what oral terms and conditions were negotiated by the parties. The terms of the FBT would then be a matter for the court to determine based on whatever evidence there may be. Where there is a written agreement, the terms of the agreement will be relevant in deciding on the character of the tenancy.
If the status of a tenancy is challenged in its early stages, discretion may need to be exercised to determine what use is being made of the holding. For example, non-agricultural crops may have been sown on certain areas within a holding or non-agricultural use may take place for part of a year. It may be
that at the time of the challenge there is no financial evidence available (or the evidence may not cover a reasonably representative period of time) to enable the respective contributions to the business of the agricultural and commercial activities to be assessed. For instance, in a given year, income from agriculture might be virtually non-existent and thus outweighed by only modest non-agricultural income.
A judge or arbitrator will have to consider all these matters, and any additional relevant circumstances, including allowance for exceptional circumstances, in determining whether or not the agriculture condition is fulfilled at the date of the challenge.
3.2.4 Notice conditions
The purpose of the conditions is to ensure that the parties, especially the tenant, are aware of the nature of the tenancy before becoming contractually bound. However, failure to give notice will not prevent the tenancy being an FBT, provided that it complies with the business and agriculture conditions. The notice is not therefore crucial.
Nevertheless, it will be more satisfactory if the parties do, in fact, comply with the notice conditions. This will ensure the tenancy will remain an FBT and therefore within the legislation as intended and contemplated by the parties. If the notice conditions are not fulfilled there is a danger that on the development of a non-agricultural business by the tenant, the tenancy will cease to be an FBT and become a business tenancy governed by the 1954 Act.
Well-advised landlords and tenants will ensure there is compliance with the notice conditions, to avoid uncertainty.
In practice, it is likely that where there are written tenancy agreements the parties will exchange notices. It is important to remember that the written notice cannot, however, be included in the tenancy agreement itself. Where there are more informal arrangements resulting in oral tenancies, notices probably will not be served and the agriculture condition will have to be fulfilled. Also, where there are fixed term tenancies of 2 years or less with a covenant restricting the use to agriculture, the parties may decide to dispense with notices.
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