Farming News - Tenancy clauses – be careful what you sign

Tenancy clauses – be careful what you sign

09 May 2019
Frontdesk / Finance

With the considerable uncertainty being experienced in agriculture at the moment farmers are being advised that it is more important than ever to ensure that any new tenancy agreement, whether it is for 10 months or 10 years, is taken on terms that are reasonable.

“Always be aware of what you are signing before you commit yourself to terms and financial obligations you may not be able to later afford,” said Philip Meade of Davis Meade Property Consultants.

“Most new agreements will be based on some fairly standard documents produced by the larger law firms or the professional organisations linked to the industry such as the Royal Institution of Chartered Surveyors or the Central Association of Agricultural Valuers.

“Many of them will be reproduced without much editing so will have been drafted with a whole range of farms in mind, from a large dairy farm to a small upland livestock farm,” he said.

“There are several important clauses to look out for, some of which have found their way into nearly all modern draft documents.”

The following is only a selection of what to look out for:

1  Term - one of the first things to check is whether the tenancy is actually for as long as it says it as it is quite common for a tenancy to be described as a 10-year tenancy on the front cover only to have a five-year break clause buried in the small print. This would be a five-year tenancy not a 10 year tenancy.

2   Repairs - Most tenancies under the 1986 Act relied on what are known as model clauses. These are set out in the relevant statutory instruments (SI 950 of 2015 in England and SI 1473 of 1973 in Wales). Many Farm Business Tenancies also incorporate these into the agreement as well but always check. There will often be a repairing schedule at the back of the agreement setting out who is responsible for what.  Also, always remember that an obligation to keep in good repair means to put in good repair as well. “It was like that when I came here,” is rarely a defence against disrepair in these circumstances.

3  Quotas and Entitlements - milk quotas are long gone but that does not stop many agreements including obligations to obtain and maintain quotas, entitlements and other “payment rights”.

Often the obligation is on the tenant to use "best endeavours" to obtain and maintain these payment rights. At the very least ask for “best endeavours" to be changed to "reasonable endeavours" because as any good lawyer will tell you “best endeavours" means “move Heaven and earth”, which could involve expensive appeals etd to DEFRA. Check also what happens to these items at the end of the tenancy (do you have to hand them over for free?)

4  Landlord’s Costs -  Another favourite is to pass on various costs to the tenant. Some of these can be innocuous but some can be more sinister, such as an obligation on the tenant to pay the landlords legal and professional costs in dealing with or contemplating dealing with breaches by the tenant. There is often no qualification to this clause and if taken literally the landlord could run up significant costs and expect the tenant to pay them even if the breach is minor.

“As with anything common sense is the key,” Philip said. “Often these clauses are included because they were part of a generic document. In my experience most landlords will accede to reasonable requests to have the more onerous or unreasonable clauses removed or at least modified.

“The overriding message is to be careful what you sign and take advice if you are unsure,” he added.