Passing on property to children without penalty has always been an important issue for parents, but with family farms it is even more vital.
Inheriting land is a crucial part of continuity in the rural economy. Children learn the business of farming from their parents and eventually take over, ensuring long-term vision and business plans for the way our food supply and countryside is managed.
Supporters of the family farm model say that this works not just for the families themselves but for the community as a whole, protecting historic methods, green production and ensuring that those who look after the land are those best qualified to do so.
But passing on farms is not always easy. If you own the farm, inheritance regulations mean that taxes need to be carefully managed. If you are a tenant farmer, things are even more complicated, because landlords, understandably enough, do not like to lose control of the land they own.
But losing control is exactly what can happen, largely thanks to succession tenancies, which were introduced in 1976 and guaranteed transfers from one generation of a family to another for two generations.
This was great news for tenant farmers in possession of a farm, particularly as the regulations were retrospective, but not so good for landlords or for those wanting to get into farming from the outside. This is why things changed and have become much more favourable to landowners, first under the 1986 Agricultural Holdings Act and then the 1995 Agricultural Tenancies Act. The ability to grant an old-style tenancy ended in 1995.
In 2012, this means that there is a complicated picture. Some old-style tenancies still benefit from the three generation rule and could conceivably still be under those tenancy agreements for another century. Others, however, labour under the challenges of tenancies that are much shorter. George Dunn, chief executive of the Tenant Farmers Association, says that the average length of a farm tenancy is now three-and-a -half years, which is far too short for long-term planning for farmland. Dunn says that farm tenancies should be “10 years at least”.
However, he does accept that changes in tenancy arrangements were necessary for the UK’s rented farms, which make up around 30% of our total farmland. This is partly because when the multi-generation tenancies operated across the land, the number of farms offered for letting fell sharply.
“Landlords did not want to give up their land for three generations,” says Dunn.
This posed problems for anybody who wanted to start a career in farming, because renting a farm was often the only route open to them.
Legislation
Stephen Spencer, rural partner in the Lichfield office of agent Smiths Gore, says that under the 1976 legislation, “the amount of land being let was dropping like a stone”.
Landlords, he says, were more likely to take land back and farm it themselves because they did not want to give it up to secure tenants.
Richard White, partner in Strutt & Parker’s Cirencester office, who acts for both landlords and tenants, has argued things from both sides. But he agrees that the older regulations were a “disaster” for landlords, not least because the rent formula for the successor tenancies meant that they were usually paying just two-thirds of the market rent.
He adds: “The older generation resent the changes because they feel they lived through a golden age, but the system now is clearly better for landlords and those who want to get into farming.”
It is also better for agents because it allows more deals to happen. What does not happen so much, says Tom Fawcett, rural partner in the Harrogate office of Carter Jonas, is acting to sort out the details of tenancy successions, because they are much rarer than they used to be.
Fawcett says: “In 1980 we were doing a lot of successions, but I do very few today.”
This is partly because, as time goes by, there are fewer succession tenancy agreements in place, even though some might have decades left to run. But, says Fawcett, it is also because even those with succession tenancies may be willing to do deals with their landlord to move to a newer style of agreement.
Like most agents, Fawcett sees this as no bad thing. He says: “The new farm business tenancies have freed up the market and freed up the landlord tenant sector, which has to be good for business.”
Because the legislation has been put together over several decades, the law is complicated for tenant farmers trying to work out what their obligations and rights might be (see below).
But since the abolition of new succession tenancy agreements, the law has not swung entirely towards the landlord rather than the tenant.
Since 2006, for example, it has been possible to grant farm business tenancies with rents assessed by the formula in the 1986 Act, which can produce lower rents. This is because the 1986 formula allows rents to be related to earning capacity rather than the full market rate.
This is one of several provisions that gives room for renegotiation of farm tenancy contracts. This in itself gives opportunities to agents. Jeremy Procter, partner at Bidwells, says that such negotiations give the chance to both “landlord and tenant to agree alternative arrangements, which secure many or all of the previous benefits for the tenant” but still leave landlords in a stronger position. Most importantly of all, it means that deals will continue to be done.
Succession tenancies: what you need to succeed
Even if you have a succession tenancy, succession on death is not automatic. The three main tests are that you are a close relative (son, daughter, brother, sister, etc); that your main income already comes from agricultural work on the holding; and that you are not already occupying another commercial unit of farmland.
According to Tom French, partner at the BTF Partnership, the last two have become a challenge for relatives in recent years.
French adds that this means many in the next generation are attempting to negotiate with landlords to surrender their succession tenancy and renegotiate a farm business tenancy.
Legislation guide for tenant farms
1948 Agricultural Holdings Act:
Replaced and consolidated all previous legislation back to 1875. Set out code of rights to compensation and security of tenure and principles of arbitration on rent disputes.
1976 Agricultural (Miscellaneous Provisions) Act:
Introduced provisions enabling a close relative of a deceased tenant to claim succession to his tenancy. Two tenancies in succession can be granted so it is possible for the land to be tenanted by the original tenant’s family for three generations in all.
1984 Agricultural Holdings Act:
Removed succession rights for tenancies granted after 12 July 1984 and introduced statutory formula for variation of rent.
1995 Agricultural Tenancies Act:
Phased out security of tenure under the older legislation, effectively removing the rights of succession in the old-style tenancies, although these continue to have force where they already exist.
2006: Regulatory Reform Order (agricultural tenancies)
Amends previous legislation to give tenant farmers rights to diversify what they do on the land, without compromising the requirement to fulfil their obligations to use the land for agricultural purposes. This might include, for example, operating a bed and breakfast from the farm.
