The duration of a farm business tenancy agreement can significantly impact your ability to make long-term investments, establish farming practices, and secure your livelihood. Both the Landlord and Tenant need to consider your farming goals, finances and tax planning.
Most written agricultural lettings are now agreed as either a temporary licence (such as a grazing agreement) or as a Farm Business Tenancy (these are mostly leases granted post-1995).
What is the difference between a Farm Business Tenancy (FBT) and a temporary licence?
Temporary Licence
The main difference between the two types is duration and control. Licences and grazing agreements are decided for specific purposes (e.g. grazing or silage).
They are usually for short term, typically, a year or a season. Importantly, the Landlord retains overall control of the land and there is no exclusive possession. For example, the Landlord can change the way the land is used or continue to use the land for other purposes. The Landlord is not excluded from the land and licences can also be revoked by the Landlord.
Farm Business Tenancy
The main difference with a Farm Business Tenancy is that the land offered (or demised) is exclusively possessed by the Tenant.
The Landlord has restricted rights of use and control. This provides more certainty and stability for a longer period of time, more uses of the land and sustained investment and development.
For example: a tenant with a grazing licence of a few months is less likely to invest in soil nutrition and irrigation. Economically, a tenant farmer would want security for their investment with multiple seasons or years. Hence a Farm Business Tenancy would be more suitable.
What is the optimal length for a farm tenancy?
Unlike standard business leases, Farm Business Tenancies do not have statutory renewal rights and little security of tenure. Therefore, it is important to consider the length of the tenancy agreement.
FBT’s are either ‘short form’ or ‘longer form’ depending on the length of the term, each type attracts different types of statutory protections and notice periods.
Short-Term Tenancies
A short term Farm Business Tenancy is regarded as being less than two years. With a tenancy of less than two years, the Landlord is not required to serve a notice on the Tenant to leave (or vacate) the land. The tenancy will come to an end on the contractual expiry date.
Why does a short-term tenancy appeal?
- Testing – Tenants can try new farming operations, assess the viability of particular farming enterprises and explore new ventures.
- Agility & Change – Tenants can secure more land to changing market conditions.
- Courting – Tenants and Landlord can have a trial period to see if both parties are happy with the arrangement/relationship.
- Landlord Administration – Landowners often take advantage of short-term arrangements to avoid the statutory termination notice.
The importance lies in striking a balance. The shorter term offers less security and stability, especially if a tenant needs to make long-term investments or establish a well-established farming operation.
Longer-Term Tenancies
If the FBT is granted with an initial term over two years and reaches the end of the term without either party serving notice to terminate the tenancy, it automatically converts into a statutory periodic tenancy.
This means that the tenancy continues on a periodic basis, running from year to year. It will continue until either party serves notice on the other to terminate. Serving the written notice can be tricky dealing with protocol and calculating the tenancy’s end date (i.e. at least twelve (12) months’ notice before the tenancies’ anniversary date). It is not possible to contract out of these requirements.
Longer term tenancies offer the highest level of security and stability. They offer a reasonable timeframe to implement farming plans, implement sustainable practices, make significant capital investments and establish relationships with suppliers, customers, and the local community. They also allow for long-term planning, succession arrangements, and intergenerational transfer of farming operations.
Tenant farmers need to consider higher lease costs with rent review increases and potential improvement and repair costs. Entering into a longer term agreement requires more commitment and limits flexibility making it more challenging to adapt to unforeseen market and regulation changes.
Landlords need to consider how long should the land will be “tied up”. Will the letting have an impact on succession and inheritance planning? Are there plans for development or diversification? Is the land to be sold with vacant possession?
Both parties need to consider their personal circumstances, farming objectives, financial capabilities and risk tolerance to decide the tenancy’s duration.
Speak to an expert
Consulting with experienced agents, accountants and lawyers about tenancy terms will help you navigate the complexities of farm business tenancy agreements. Our highly experienced solicitors will work with you to help ensure that all your legal obligations are fulfilled and that the terms of your agreement are viable to the type of agricultural business you want to establish or maintain.
To speak to one of our solicitors, complete the form below and one of our agricultural property experts will be in touch to discuss your matter further.
Key Contact
Joseph Fletcher-Hunt
Real Estate Partner
Joseph acts for clients on a wide range of real estate and property matters, including sales and purchases of land and buildings, mortgages and refinancing (working for both banks and borrowers), easements and property rights and the granting, renewal and variation of leases and tenancies.
