Agricultural Tenancies: developing your options

With the new government signalling that house building and renewable energy developments will be on top of its agenda, it is inevitable that some of that land will need to be supplied from existing farm land.

If a landowner has rented out land which a developer may consider suitable for development, thought will have to be given as to how that land may be taken out of a tenancy and delivered for development. 

If a farm business tenancy (“FBT”) has been granted under the Agricultural Tenancies Act 1995 (“1995 Act”) for a term of more than two years then the landowner will need to look to the termination provisions to see if vacant possession can be obtained prior to the end of the tenancy. However, section 7 of the 1995 Act requires at least 12 months’ notice to terminate a tenancy even where that is given under a provision in the tenancy. While an Agricultural Holdings Act 1986 (“1986 Act”) tenancy will provide greater challenges to obtaining vacant possession, short notice under a provision of the tenancy is expressly permitted by section 25.

If an existing 1986 tenancy does not include a short notice provision, it may be possible to negotiate a variation of the tenancy to include such a right, though no doubt this would be at a cost to the landlord. But while it is also obviously possible to vary the terms of an FBT, a variation to include a break right on less than 12 months’ notice will fall foul of section 7 and would not be enforceable.

In some cases, parties to FBTs have agreed separate commercially-negotiated option agreements to allow the landlord to call for a surrender of all or part of an existing agreement on less than 12 months’ notice on certain triggers (e.g. the grant of a planning permission). It is not clear whether this sort of arrangement is permissible under section 7. The courts have not yet considered this point, but there is clearly a risk that even a separately negotiated option agreement might be regarded as a collateral agreement forming part of the “provisions of a tenancy”.

That is perhaps even more so where the option is entered into at the same time as the grant of the tenancy, as part of the same overall deal.  Of course, the landowner could offer a tenancy of 2 years or less where a shorter notice provision (of part) can be agreed, or the landowner could offer a quarterly periodic tenancy.  However, such short term tenancies may not satisfy a tenant.

In many instances, the interests of landlord and tenant in these cases will be commercially aligned, and this sort of option arrangement may provide a workable solution. But if the parties were to be in conflict, then it may leave the landowner exposed to being unable to provide vacant possession to an eager developer. After all, a developer is unlikely to want to wait 12 months from its successful planning to be able to start building and this type of delay may not fit in with the Government’s ambitions.

Written by: Nichola Ross and James Hordern