Agricultural Tenancies

The application of the AHA 86 to a tenancy has a number of significant effects. In particular a tenant who holds property under an AHA 86 regulated agreement enjoys extensive security of tenure rights and rights of compensation upon quitting of the tenancy.

 

 

While the introduction of the ATA 95 has to a certain extent clipped the wings of AHA 86, the fact that the AHA 86 applies to all potential tenancies which arose before 1 September 1995 means that it will however still continue to have practical implications for some time into the future and is therefore worthy of more detailed consideration.

 

This Act became effective on 1 September 1995. In broad terms the ATA 95 recognises the rights of tenants as set out in AHA 86 only in very limited circumstances.

 

 

The ATA 95 has introduced the concept of "farm business tenancies". Where such a tenancy is created the ATA 95 still provides for a minimum 12 months notice for a year to year tenancy (this term is implied in all tenancies over 2 years) arbitration as to rent, compensation for improvement on termination but does not contain the complicated provisions relating to reasons for service of a notice to quit contained in the AHA 86.

By virtue of Section 12 and schedule 2 of the AHA 86 the tenant is entitled to apply for the setting of a fair rent which will be binding on the tenancy for a period of 3 years.

 

 

(i) general rule

 

By virtue of Section 25 of the AHA 86 a landlord must generally give a tenant 12 months notice from the end of the then current year of the tenancy in order to get vacant possession.

 

(ii) insolvency

 

There are a number of limited exceptions to this rule which includes by virtue of Section 25(2)(a) where the tenant is insolvent. The definition of insolvent only includes bankruptcy, composition or arrangement with his creditors, a winding-up order made or resolution from voluntary winding-up. Composition or arrangement will include a formal arrangement under the Insolvency Act 1986 (a voluntary arrangement), a formal arrangement under the Deed of Arrangements Act 1914 (now rarely used) or an informal contractual arrangement. Notably Administration Order (Partnership and Corporate) and all forms of receivership are not included in the definition.

 

There is no case law on the effect of an annulment of a bankruptcy order and whether the fact that an order had been made will still allow a landlord to avail himself of this provision. Clearly an annulment on the grounds that a voluntary arrangement has been approved will not assist the tenant as the voluntary arrangement amounts to an event of insolvency.

 

If the landlord is entitled to give non statutory notice the question is how much notice must be given if none is stated in the tenancy agreement. While the AHA 86 is silent on the point and there is also no case law. Arguably one needs to refer back to the common law which would require in the case of any annual (year to year) tenancy (which all tenancies caught by the act for a non specific period will have been converted to) six months notice to quit. In any event whether provided for in the tenancy agreement or not the period must be at least one month to allow for service of a compensation notice. See Parry and Another -v- Million Pigs Ltd EG 17 October 1981.

 

 

The legislation does not prevent forfeiture including forfeiture in the event of insolvency. See notes below.

 

(c) Unqualified notice

 

A landlord has an option when serving a notice either to serve a notice without giving reason or specifying reasons contained in Section 27(3). The section 27(3) grounds are; good husbandry, sound estate management, agricultural research, allotments, that greater hardship would be caused to Landlord if consent to operation of the notice was refused, non agricultural use (not covered by Schedule III Case B. Therefore this ground can only be used for change of use which would not require planning permission). Such notices are known as "unqualified" notices even though they may include (but do not have to include) reference to one or more section 27(3) grounds on which the landlord intends to rely. While there is no statutory form of notice it must be clear and unambiguous (although minor errors will not be fatal to its validity).
 

The tenant is automatically entitled within one month of receipt of the notice to serve a counternotice.
 

(e) Hearing before Tribunal
 

The service of a counternotice means that before vacant possession can be obtained the application will need to be heard by the Agricultural Land Tribunal. At this stage the landlord must state which of the Section 27(3) grounds (he can rely upon one or more) the application to the Tribunal is based upon. Which ever Section 27(3) ground is relied upon if a counternotice is served the Tribunal will consider the Section 27(3) grounds as well as the general test of whether a fair and reasonable landlord would not insist upon possession.
 

(f) Contracting Out
 

Johnston -v- Moreton [1978] 3 All ER 37 HL held that on grounds of public policy contracting out of the notice provisions in the AHA 86 should not be permitted.
 

(g) Notice Specifying Seven Deadly Sins (Schedule III Notice)
 

Alternatively a landlord may state in the notice one of eight permitted grounds for termination set out in Schedule III of the AHA 86.
 

(h) Schedule III Counternotice
 

The tenant however is still allowed where the notice is served pursuant to grounds A, B, D, E (set out below) to challenge the serving of a notice and have the matter listed before an arbitrator who will consider whether or not the landlord is entitled to rely upon the grounds specified. Such notice to challenge must be served within one month of receipt of the Schedule III notice. This period cannot be extended.

 

(i) Arbitrator's appointment
 

The matter will only proceed to arbitration if an arbitrator has been appointed within three months of the counternotice. The onus is therefore upon the tenant to ensure that this step is taken.

(j) Non relevance of section 27 to Schedule III Notice

If however one of the Schedule III grounds is stated the only issue is whether that ground applies (there is no requirement to show Section 27 grounds made out in particular "reasonable landlord" test does not apply).

 

(k) Form of Schedule III Notice
 

The rules governing service of notices under Schedule III are strictly enforced. It is however possible to combine an unqualified notice with a Schedule III notice.

 

 

There is only a very limited number of grounds under the 86 Act on which a notice to quit part can be based. Where the landlord cannot bring himself within these restricted heads one possible way to proceed is to sever the reversion under section 140 of LPA. It is still however necessary to then comply with either section 27 or Schedule III when serving a notice in relation to the part (ie still a need to show appropriate grounds).

 

If the tenancy is to be terminated by reason of the landlord's notice to quit under grounds A and B (Small Holding Legislation or Other Use) above basic compensation (i.e. one year's rent) is payable to the tenant. Further if Case B is relied upon additional compensation is also payable.

 

 

By virtue of Section 60 of the AHA 86 compensation payable under Case B (Other Use) is five times the annual rent (i.e. basic compensation plus 4 years).

 

 

There is also provision in the AHA 86 Sections 64 to 69 for compensation for improvements carried out by the tenant to the property. These improvements to be valued by reference to increased value of the holding to an incoming tenant. In the case of such improvements one needs to amortise improvement over its useful life (usually dealt with by written agreement). Only improvements undertaken with consent qualify where those improvements are of a significant nature. However no consent is required for short term improvements e.g. mole drains.

 

 

Separate "tenant right" compensation is payable for growing crops. In order to calculate the level of compensation one needs to refer to the Agricultural (Calculation of Value for Compensation) Regulations 1978. The value is not the market value of the crop but the reasonable cost of sowing and cultivating the crop.

Sections 34 to 59 of the AHA 86 provide for family members to apply for succession of a tenancy upon the death of the named tenant. The provisions only however apply to tenancies commenced prior to 12 July 1984. These provisions are very restricted and only allow spouses, siblings and children to apply and only in circumstances where the applicant can show that they relied upon the business carrying on from the premises as their principle source of livelihood. Increasingly these applications fail because the son who wishes to inherit was forced to seek to earn income during the life of his father away from the farm. It is also possible to apply for succession upon retirement of the tenant after the tenant has reached the age of 65.

 

If a landlord's notice to quit is served upon the death of the tenant, the notice is suspended if the tenancy carries succession rights until the succession application has been heard.

 

In certain circumstances a mortgagor (the owner of the land) is able to create a tenancy despite express provision in the mortgage prohibiting the creation of such a tenancy. This situation arises in relation to agricultural tenancies within the meaning of the AHA 86 and comes about because of the inter action of the legislation relevant.

 

 

By virtue of Section 99 a mortgagor is given the right to create a tenancy. Sub-section 13 however states that the Section only applies in so far as the right to create such a tenancy is not excluded by the mortgagor. Obviously in most cases such an exclusion will be included.

 

 

This provision expressly excludes the right in the case of an agricultural tenancy of a mortgagee to restrict the mortgagor's power to grant an agricultural tenancy.
 

 

This loophole was previously exploited by tenants wishing to frustrate the appointment of receivers, the usual tactic was to grant a tenancy to a party who was related to the mortgagor. The case of Barclays Bank -v- Eustice [1995] 4 All ER 511 saw the challenge by the bank of such an arrangement. The challenge was made pursuant to Section 423 of the Insolvency Act 1986 which gives the power to any victim of a transaction which is designed to defraud creditors to apply to set aside that transaction. The Court held in this case that while the tenancy had been granted between the husband and his wife on normal commercial terms and at a proper market rent the value of the right acquired by the wife as tenant had to be viewed in terms of the total benefit received by her. The total benefit included her ability to prevent the bank from appointing receivers and therefore the market rent which had been set was held to be an undervalue. The Court therefore set aside the tenancy.

 

 

By virtue of Section 31 the right to exclude the power of the mortgagor to grant a tenancy has been reintroduced by statutory modification to Section 99 - sub-section 13 of the Law of Property Act 1925.

 

 

While decided in June 2000 the case illustrates how the issues raised in Barclay v Eustice are not dead where the Bank has not renewed security after the introduction of ATA 95.

Appointment, Powers, Remuneration and Duties of Receiver S109-