How farm business tenants and landlords can claim compensation for improvements, terminate a tenancy and ask for a rent review.
If you rent agricultural land or buildings to run a farm business you may have an agricultural tenancy agreement. Every agricultural tenancy agreement is unique. You should seek independent expert advice before entering into a new tenancy agreement or arrangement, or changing an existing one.
This guidance provides information on 2 types of agricultural tenancies governed by legislation:
- Farm Business Tenancies governed by the Agricultural Tenancies Act 1995 - those agreed after 1 September 1995
- 1986 Act Tenancies governed by the Agricultural Holdings Act 1986 - those agreed before 1 September 1995
Farm Business Tenancies
A tenancy is a Farm Business Tenancy if at least part of the tenanted land is farmed throughout the life of the tenancy. The tenancy must also meet one of these 2 conditions:
- if the tenancy is primarily agricultural to start with, the landlord and tenant can exchange notices before the tenancy begins confirming they intend it to remain a Farm Business Tenancy throughout - this lets tenants diversify away from agriculture where the terms of the tenancy agreement allow this
- if the landlord and tenant don’t exchange notices before the tenancy begins, the tenancy business must be primarily agricultural to be considered a Farm Business Tenancy
Farm Business Tenancy rent reviews
Landlords and tenants can negotiate their own rent levels and decide whether or not they want to have rent reviews. Either the landlord or tenant can demand a rent review every 3 years by law.
However, landlords and tenants can agree on how often a rent review should take place – this agreement replaces the law. For example, you can agree on a rent review every 4 years.
You must not preclude a reduction in rent in your rent review agreements.
Farm Business Tenancy compensation
As a farm business tenant you’re entitled to compensation at the end of a tenancy for:
- physical improvements you’ve made to a holding (provided the landlord has given consent to the improvements)
- changes that increase the value of the holding (provided they are left behind when the tenant leaves)
You can agree in writing an upper limit on the amount of compensation, usually equal to the tenant’s cost in making the improvements.
Ending a Farm Business Tenancy
Landlords and tenants of a Farm Business Tenancy can end the tenancy by issuing a notice to quit. The minimum notice period to quit is 12 months
1986 Act agricultural tenancies
Agricultural tenancies agreed before 1 September 1995 are known as 1986 Act Tenancies. They’re also sometimes referred to as Full Agricultural Tenancies (FATs) or Agricultural Holdings Act tenancies (AHAs).
These tenancies usually have lifetime security of tenure and those granted before 12 July 1984 also carry statutory succession rights, on death or retirement. This means a close relative of a deceased tenant can apply for succession to the tenancy within 3 months of the tenant’s death.
Applying for succession stops any notice to quit given by the landlord on the tenant’s death.
Two tenancies by succession can be granted, so it’s possible for the tenant’s family to work the holding for 3 generations. Farmers with a tenancy granted before 12 July 1984 can also name an eligible successor such as a close relative who can apply to take over the holding when they retire.
1986 Act Tenancies rent reviews
The landlord or tenant has the right to a rent review 3 years after either the:
- start of a tenancy
- previous rent review
If land is added to or removed from a holding then the next rent review must be either at least 3 years from one of the following:
- the date the original tenancy began
- from the date of the previous rent review for the original tenancy
This rent review must happen even if the rent has changed to reflect changes to the amount of land on the holding.
1986 Act Tenancies compensation
Under the 1986 Act Tenancy agreements the tenant is entitled to compensation at the end of their tenancy for the following:
- major long-term improvements
- short-term improvements
- ‘tenant right’
Major long-term improvements
- making or planting water meadows
- planting orchards
- erecting or altering buildings
- constructing silos, roads or bridges
- repairs to fixed equipment
- mole drainage
- protecting fruit trees against animals
- clay burning
- liming and chalking of land
- applying manure, fertiliser, soil improvers and digestate to the land (in England)
- the value of growing crops
- the costs of husbandry, such as sowing seeds and cultivations
- compensation for disturbance where a landlord terminates the tenancy with a notice to quit
The amount of compensation is measured by the increase in value to the holding made by the improvements. The landlord may also claim compensation for disrepair - usually the cost of repairing any damage.
Where a landlord or a tenant has a dispute relating to an Agricultural Tenancy (either a 1986 Act Tenancy or a Farm Business Tenancy) they can use third-party expert determination or arbitration procedures.
Arbitration is the private legal settlement of a dispute by an independent, professional arbitrator which can involve either of the following:
- a tribunal hearing where both sides present evidence and testimony
- the 2 parties agreeing to resolve the dispute using written arbitration procedures, avoiding the time and costs of a hearing
If a landlord and tenant can’t agree on the appointment of an arbitrator, either of them can apply to the President of the Royal Institution of Chartered Surveyors (RICS) to make an appointment on their behalf for an arbitrator to:
You must pay RICS for this service – the forms explain the fees.
Landowners can get further information from the Country Land and Business Association.
Specialist information is given by certain organisations: