Farming News - How to plan for succession of a tenanted farm

How to plan for succession of a tenanted farm

22 Jun 2020
Frontdesk / Finance

Succession planning of a farm holding, that is planning for the future of your farm and your family, is vital to protect future generations. However, this is an area that is not always clearly understood on tenanted farms.   Here, Robert Jauneika, Chartered Surveyor for H&H Land & Estates, explores the position for those agreements under the Agricultural Holdings Act 1986 (AHA 1986), and explains how to maximise your chances of success.

“If a farm is let under the AHA 1986 and various criteria are met, direct relatives of the farm tenant have the right to apply for a succession tenancy of the holding on the same terms as the previous tenancy. This is particularly important where the let farm includes the farmhouse and is the home of the tenant and their family.”

In the first instance, it is important to review the actual tenancy agreement to be sure of the provisions that are in force. If the tenant was in occupation of the farm prior to the 1st September 1995, it is likely that the tenancy will fall under the Agricultural Holdings Act 1986. New tenancies granted after this date will usually fall under the Agricultural Tenancies Act 1995 and be outside of the succession provisions discussed here. Further, if the tenant was in occupation of the holding prior to 12th July 1984, it is likely that the tenant benefits from succession rights to pass their tenancy on to a further two generations.

If you are hoping to hand your farm tenancy on to the next generation, it is advisable to hold discussions between the Landlord and Tenant at an early stage, as it may be entirely possible to come to an agreement without having to resort to the formal succession procedures detailed in the following.  Succession cases that go to Tribunal can be enormously costly for both parties, so if a voluntary agreement can be reached between the Landlord and Tenant, this is often the best outcome for all involved.

Under the AHA 1986, a succession application can be made either on the death or retirement of the farm tenant. There are numerous rules under Part 4 of the AHA 1986 that must be strictly satisfied for an applicant to be deemed eligible for a succession tenancy by the Tribunal, which are briefly detailed in the following.

Close Relative - as mentioned previously, the applicant must be either the child, sibling or spouse of the tenant. Any other relation is prohibited from applying for a succession tenancy under the Act. Grandchildren are strictly not eligible. When planning for succession, it is useful to ensure that copies of birth certificates or marriage certificates are available to prove, beyond doubt, that the applicant is related to the former tenant in one of these ways.

Commercial Agricultural Units - the applicant must not be farming another ‘commercial agricultural unit’. This is defined as a unit that generates sufficient income to equate to two full time agricultural worker’s wages. A comprehensive review of the tenant’s complete farm holding is useful here, including land occupied on other tenancy agreements as well as any land that is owned freehold.

‘Principle Source of Livelihood’ - the applicant must be able to demonstrate that in the seven years leading up to succession, they have derived at least 50% of their livelihood from agricultural work on the farm holding, which includes financial income as well as the value of any benefits in kind such as accommodation, vehicle use, fuel etc. Planning and evidencing this is critical for success. It is common for a Landlord and their professional advisors to thoroughly scrutinise the financial accounts of the tenant and the Applicant, to assess whether compliance with this test has been achieved and demonstrate that there is financial evidence to show that they have derived their livelihood from the holding. The Applicant is permitted to spend up to three of the previous seven years at a higher education establishment under this test.

If the farm includes non-agricultural diversification enterprises, income from this is allowable providing that the Landlord’s written consent was obtained by the Tenant. If consent is not in place, it is advisable to try and secure the Landlord’s consent as part of succession planning at an early stage in order to avoid unnecessary complications at the point when a succession application is actually made.

Robert adds: “If the Landlord is not willing to grant consent, it is advisable to work with a Chartered Surveyor and an Accountant to ensure that the farm’s profit and loss accounts clearly prove that agricultural work provides the majority of the applicant’s income.

“Here at H&H Land & Estates, we have seen this issue cause enormous complications for farm tenants who are not able to clearly show that the majority of their livelihood has been generated from agricultural business on the holding, rather than non-agricultural activities. The 50% livelihood test is strict for a succession application.”

The Tribunal will consider all relevant factors as to the suitability of the applicant such as age, training, health, financial security etc. To maximise chances of success, it is advisable to take a holistic view of the case in the years leading up to succession and consider whether any further training or education may be beneficial to demonstrate competence to run a farm business.

Robert concludes: “Succession is a very complex area of tenancy law and is fraught with potential pitfalls for both the Landlord and the Tenant, the breadth of which is far too extensive to discuss fully in just one article. If you have a farm or land that is either occupied or let under a AHA 1986 tenancy and would like to discuss this further please get in touch with your local H&H Land & Estates office and we would be delighted to help you.”  

It is worth mentioning that the Government is currently considering making changes to the succession provisions of the AHA 1986; a consultation was held on this matter during 2019. At present these proposals include removal of the minimum age requirement to make a succession application on retirement, which is currently 65, as well as removing the commercial unit test that is briefly detailed above. However, this has not yet been clarified.