HMRC internal manual

Inheritance Tax Manual

IHTM24211 - Agricultural tenancies: Overview of the legislation 1948 to 1995

England & Wales

In England & Wales, the main relevant legislative provisions are the Agricultural Holdings Act (AHA) 1986 (IHTM24220) and the Agricultural Tenancies Act (ATA) 1995. (IHTM24240)

Under the Regulatory Reform (Agricultural Tenancies) (England and Wales) Order 2006 (SI no 2805), from October 2006, further changes to agricultural tenancy law were made. A number of matters of detail which had broad consensus support were incorporated into both the 1986 and 1995 Acts by the order.

Statutory intervention to improve the legal position of the agricultural tenant actually began in 1875 with the Agricultural Holdings (England) Act. Before this date the only protection was under common law. Under this most agricultural tenancies were terminable by six months’ notice to quit and there was no security of tenure.

The first main legislative provision was the Agricultural Holdings Act 1948, which replaced and consolidated all previous legislation dating back to 1875. The 1948 Act set out a detailed code of rights to compensation and security of tenure, as well as providing a system of arbitration for the settlement of disputes as to rent, compensation and the terms of tenancy agreements. This legislation needs to be seen in the context of the fact that post-war rationing was still in force and parliament regarded it as essential that farm production was improved. So agricultural tenants needed to be encouraged to maintain and improve their land on a long-term basis.

Protection for tenants was further increased by the introduction of succession rights in the Agriculture (Miscellaneous Provisions) Act 1976. However these rights were removed for tenancies granted after 12 July 1984 by the Agricultural Holdings Act 1984 which also made a number of other amendments, including the introduction of a statutory formula for the variation of rent.

The Agricultural Holdings Act 1986, which came into force on 18 June 1986 consolidated the previous legislation and also contained a number of minor alterations. This Act puts into place a comprehensive framework providing for security of tenure, regulation of the terms and conditions of the tenancy and for the payment of compensation to tenants for improvements and disturbance.

In addition, the social legislation embodied in the Rent (Agriculture) Act 1976 and now the Housing Act 1988 gives considerable legal protection to occupiers of tied agricultural accommodation, both in terms of security of tenure and control of rents.

Such strong and wide-ranging protection, although providing incentive to the tenant for long-term improvement of buildings and land, was conversely a disincentive to landowners to let their land. The existence of an agricultural tenancy could more than halve the value of the land and succession rights could tie up the land for three generations. So it is not surprising that landlords have tried to take advantage of provisions for short-term arrangements, which do not confer security of tenure and of alternative arrangements by which land is held outside the landlord/tenant relationship such as partnerships, share farming and other forms of joint venture.

Because of the nature of the protection given to agricultural tenants and also because of a move towards more owner occupation by farmers, the proportion of tenanted agricultural land fell into steady decline and reform was clearly needed.

This came in the form of the Agricultural Tenancies Act 1995, (IHTM24240) which is the most radical reform of land tenure legislation since 1948. It introduced a new type of tenancy structure - the farm business tenancy (IHTM24240) - which applies (with some minor exceptions) to all tenancies of farmland granted on or after 1 September 1995. The new legislation represents a substantial deregulation of new lettings, with the parties free to negotiate the terms of the tenancy without statutory interference and without the imposition of security of tenure after the expiry of the agreed term.

The new legislation has three main objectives

  • to encourage landowners to let land,
  • to deregulate and simplify agricultural legislation to provide a flexible framework within which farmers can diversify into other farm-based businesses whilst still remaining an agricultural tenant, and
  • to provide a framework which recognises the increased importance of environmental land management by farmers and which allows for the enforcement of environmental covenants in farm tenancies.

The ATA 1995 is part of the process of changing the legal infrastructure of farming to provide a suitable legal regime for planning and promoting rural diversification, in order to create a more broadly based rural economy which is less reliant on traditional agriculture.

Although it is not possible to create a tenancy (excepting a few limited statutorily defined circumstances) of an agricultural holding under the AHA 1986 from 1 September 1995, very many 1986 Act tenancies will remain in being for a considerable period to come.

Many existing 1986 Act tenancies carry statutory succession rights and succession tenancies granted from 1 September 1995 will still be within the 1986 Act. You may still need to consider the terms of the 1986 Act to ascertain the legal status of many short-term, oral or unconventional agreements entered into before the ATA 1995 came into force. For instance, s.2 AHA 1986 acted to convert many licences (IHTM24222) and other insecure interests entered into before 1 September 1995 into yearly agricultural tenancies with full security of tenure.

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The AHA 1986 and the ATA 1995 do not apply in Scotland, where the relevant legislation is largely contained in the Agricultural Holdings (Scotland) Act 1991. Certain matters such as the rules of good husbandry and good estate management are still to be found in the Agriculture (Scotland) Act 1948.

The Agricultural Holdings (Scotland) Act 2003 introduced new forms of tenancy, the short limited duration tenancy (SLDT) and the limited duration tenancy (LDT). (IHTM24212)