Consultation outcome

Executive summary

Updated 18 March 2020

0.1 Introduction

1. Between April and July 2019, the government consulted on a range of options for reforming agricultural tenancy law in England. The proposals aimed to remove barriers to productivity improvements and facilitate structural change in the tenant farming sector. The consultation document also incorporated a call for evidence and views on two financial matters: whether current restrictions on agricultural mortgages are a barrier to landowners wanting to let, and whether there is a need to provide additional protections against the repossession of agricultural land for farm business borrowers who are unable to meet finance repayments under secured loans.

2. We received 147 responses to the consultation (120^{[footnote 1]} responses to the online survey, and 27 email responses). In addition, we worked with industry organisations to deliver eight regional consultation events around the country attended by over 190 people including a mixture of tenant farmers, agricultural landlords, and professional advisors.

3. A summary overview of the consultation proposals, the responses we received and the government’s response and next steps is below. More detail on the range of responses received and next steps is contained in the full government response.

1. Chapter 1: Proposals where there is broad agreement for legislative reform

1.1 Consultation proposal: Succession on retirement

The aim of this proposal is to give tenants of Agricultural Holdings Act (AHA) agreements more freedom to decide when to retire and hand over the holding to their successor. The proposal is to amend the Agricultural Holdings Act 1986 Act (the 1986 Act) by repealing section 51(3) to remove the minimum age of 65 for when succession on retirement applications can be made to the First-tier Tribunal (Property Chamber) Agricultural Land and Drainage (the Tribunal).

Summary of responses

Most respondents agreed with this proposal. Many commented that it will help in situations where negotiated solutions to earlier retirement and handover cannot be reached. A few disagreed and were sceptical that it would have much impact.

Government response and next steps

The consultation responses show strong support for this proposal. The government has included provisions in Schedule 3 of the Agriculture Bill to amend the 1986 Act as proposed.

1.2 Consultation proposal: Council farm retirement tenancies

The aim of this proposal is to update the 1986 Act to ensure the provisions that apply to council farm retirement notices to quit are kept in line with current state pension policy. The proposal is to amend Schedule 3 Case A^{[footnote 2]} of the 1986 Act so that retirement notices to quit can only be served by a smallholding authority landlord when the tenant has reached the earliest age that they can be in receipt of the state pension.

Summary of responses

Most respondents agreed with this proposal as a sensible updating measure to align tenancy law with recent changes to state pension age. A few disagreed commenting that council farm tenants should be able to choose when to retire.

Government response and next steps

The consultation responses show strong support for this proposal. The government has included provisions in Schedule 3 of the Agriculture Bill to amend Schedule 3 Case A of the 1986 Act, as proposed.

1.3 Consultation proposal: Changing AHA succession eligibility tests: repeal of the ‘Commercial Unit Test’ (CUT) and updating the ‘Suitability Test’

The aim of these two proposals is to ensure that commercially successful and skilled tenants can succeed to AHA holdings by modernising the 1986 Act succession criteria to repeal the CUT and improving the Suitability Test provisions to focus on agricultural and business management skills in future.

Summary of responses

Most respondents agreed with the proposal to modernise the suitability test. Whilst responses were mixed on the proposal to repeal the CUT, many respondents commented that the CUT is an ineffective test and if it is repealed then it should be done as a package with changes to improve the suitability test.

Government response and next steps

The consultation responses show support for these reforms as a package. The government has included provisions in Schedule 3 of the Agriculture Bill to repeal the CUT and provide powers for Ministers to make regulations setting out the criteria to be used in determining a person’s suitability to become a tenant of an AHA holding. The government will develop these new regulations in consultation with industry including representatives of tenants and landlords. The provisions repealing the CUT will not commence until the new suitability regulations come into force.

1.4 Consultation proposal: Restrictive clauses in AHA tenancy agreements

The aim of this proposal is to provide tenants and landlords of AHA agreements with a new mechanism to challenge and vary clauses that restrict their activity on a case by case basis, where either party considers they present an unreasonable barrier to business development or to accessing future schemes. In addition, the consultation asked for views on whether restrictive clauses are an issue for Farm Business Tenancy (FBTs) agreements.

Summary of responses

Most respondents agreed with this proposal. However, many noted that the reform is only needed for tenants and not for both parties because restrictive clauses mainly apply to tenants not landlords. Some respondents disagreed and flagged that landlords often have valid reasons for maintaining restrictions. Many respondents highlighted that further detail is needed to develop a consistent and fair approach to what constitutes reasonable and unreasonable grounds to refuse a request to vary terms or lift restrictions. Most respondents commented that restrictive clauses are not an issue for Farm Business Tenancy agreements (FBTs) because they have been negotiated more recently than AHAs, are shorter term and are more frequently reviewed and can be re-negotiated to reflect changes to the commercial and policy environment.

Government response and next steps

The consultation responses show broad support for this proposal in relation to tenants of AHA agreements. The government has included provisions in Schedule 3 of the Agriculture Bill to deliver this reform. In response to feedback gathered through the consultation the provisions are focused on AHA tenants so they can access future financial assistances schemes or meet statutory obligations. Further detail will be developed through regulations in consultation with industry, including representatives of landlords and tenants to ensure the interests and views of both parties are taken into account.

1.5 Consultation proposal: Removing barriers to landlord investment

The aim of this proposal is to remove a barrier to landlord investment in AHA holdings by ensuring that the return on a landlord’s investment in the holding is explicitly excluded from rent review considerations.

Summary of responses

Most respondents agreed with the proposal as it will give landlords more certainty which may encourage more landlord investment. Some disagreed suggesting that it is lower levels of AHA rent that discourages landlord investment. Some respondents highlighted that the benefit of the investment to the tenant should also be excluded from rent review considerations until the agreed rate of return payments no longer apply to remove the risk that the tenant may have to pay twice for the investment (the rate of return and an increased rent as a result of the improvement).

Government response and next steps

The consultation responses show strong support for this proposal. The government has included provisions in Schedule 3 of the Agriculture Bill to amend the 1986 Act, as proposed. In response to feedback from the consultation the new provisions ensure that the benefit from the improvement to the tenant is to be disregarded from rent considerations whilst the tenant is still making payments for that improvement.

1.6 Consultation proposal: Timetable for third party dispute resolution in AHA rent reviews

The aim of this proposal is to make a technical change so that third party determination is a useable alternative to arbitration in AHA rent review disputes. The reform will bring the timetable for appointing a third party in line with that for appointing an arbitrator.

Summary of responses

Almost all respondents agreed with this proposal. Some respondents commented that as rent reviews are the most frequent cause of disputes, ensuring third-party determination can be used effectively as an alternative to arbitration is very important in establishing the wider use of this process.

Government response and next steps

The consultation responses show very strong support for this reform. The government has included provisions in Schedule 3 of the Agriculture Bill to amend the 1986 Act as proposed.

1.7 Consultation proposal: Updating the agricultural holdings (fees) regulations and the appointment of arbitrators

The aim of this proposal is to update the prescribed fee (which has not changed since 1996) that can be charged for the service of appointing an arbitrator to resolve disputes under the 1986 Act from the current level of £115 to £195. The consultation also asked for views on whether other qualified professional organisations should in future be able to provide services for appointing independent arbitrators alongside the Royal Institute of Chartered Surveyors (RICS).

Summary of responses

Most respondents agreed with the proposal to update the prescribed appointments fee to £195. A few disagreed commenting that the fee is at the right level or should be reduced. Most respondents commented that other organisations should be able to provide an appointments service alongside the RICS as this would help to widen the pool of arbitrators. Respondents frequently suggested the Central Association of Agricultural Valuers (CAAV) and the Agricultural Law Association (ALA) would be suitable professional organisations to make appointments.

Government response and next steps

The consultation responses show support for these reforms. The government has included provisions in the Agriculture Bill to deliver the changes to enable CAAV and ALA to make appointments alongside RICS. We will also take forward work to update the regulations prescribing the statutory appointment fee.

1.8 Consultation proposal: Procedural reforms to AHA succession law

The aim of these proposals is to make technical updates to the 1986 Act recommended by industry experts to improve the practical operation of succession provisions.

Summary of responses

Most respondents agreed with these proposals. However, some concerns and technical points were raised in relation to the proposal to enable agreed successions and the proposal to remove obstacles to joint successions.

Government response and next steps

The consultation responses show strong support for the proposed procedural changes. However, responses have also suggested that further work is needed to confirm that the proposals would work effectively, and without unfairly favouring one potential successor over another. The government will take forward work with industry to clarify these technical points and refine the proposals.

2. Chapter 2: Proposals which require further work

2.1 Consultation proposal: A new provision for an assignable AHA tenancy

The aim of the proposals is to help to facilitate structural change in the AHA sector by enabling older tenants who want to retire to realise financial value from their tenancy by allowing them to assign their tenancy for payment (subject to certain conditions) to a new third party tenant, unlocking the land for new tenants.

Summary of responses

There were mixed views on this proposal with a slightly higher proportion of respondents disagreeing than agreeing with it. Those who disagreed were concerned that it would not deliver the policy objective and could extend the length of the AHA agreement beyond current expectations. Those who agreed suggested that assignment was a good idea in principle as a way to contribute to retirement funds and help to unlock AHA land for new tenants. Some respondents suggested changes to the proposal or alternative options that they felt would deliver the policy objective more effectively such as: converting the assigned AHA tenancy into a fixed term FBT tenancy, creation of a new statutory exit buy-out mechanism, and developing case studies, guidance and signposting of advice to support exit and retirement negotiations between landlords and tenants.

Government response and next steps

The consultation responses suggest that the current proposal is unlikely to achieve the policy aim effectively, and several alternative suggestions and proposals have been put forward. As a next step the government will work with industry organisations to explore in more detail the alternative proposals and the options for amending the original proposal to make it more effective.

2.2 Consultation proposal: Removing AHA succession rights 5 years after state pension age

The aim of this proposal is to encourage earlier succession planning so that holdings are passed on sooner to the next generation, where appropriate. The proposal is to amend the 1986 Act to remove the right for close family relatives to apply to succeed to an AHA tenancy once the current tenant reaches 5 years past the state pension age.

Summary of responses

Most respondents agreed with the proposal in principle as a way of triggering earlier succession. However, many disagreed commenting that decisions on when to retire and hand over the family business are personal and should not be forced through changes to legislation. It was also flagged that there could be unintended consequences for tenants who have had children later in life.

Government response and next steps

Whilst many of the consultation responses supported this proposal, significant concerns were also raised. Considering the range of views, the government has decided not to take forward this legislative proposal. As a next step we will work with industry organisations to explore how case studies, guidance and better signposting of advice and support can help encourage earlier succession planning in future.

2.3 Consultation proposal: Modernising AHA succession rights to include cohabitation

The aim of this proposal is to enable children (or those treated as children) of cohabiting partners eligible to apply to succeed to an AHA holding (subject to them meeting the other eligibility tests set out in the 1986 Act). The proposal is to amend section 35(2)(d) and section 49(3)(d) of the 1986 Act to include children or those treated as children by the tenant in relation to cohabitation.

Summary of responses

Most respondents agreed with the principle of this proposal, but technical concerns over the definition of cohabitation and creating more ucertainty were frequently raised. Some respondents disagreed and were concerned the change could cause more confusion and be open to misuse.

Government response and next steps

Whilst responses are supportive of the consultation paper proposal, they have demonstrated that further work is still needed to determine the details of how any change might work in practice. The government will take forward further discussions with industry and across government to explore the proposal further.

2.4 Consultation proposal: Modernising AHA succession rights to include nieces, nephews and grandchildren

The aim of this proposal is to extend the definition of close relatives eligible to succeed to an AHA tenancy to include nieces, nephews and grandchildren of the tenant in relation to marriage and civil partnership so that they would be eligible to apply to succeed to an AHA holding in future. However, to ensure that the length of the tenancy is not extended for another generation the proposal included conditions that if succession is extended to grandchildren the term of the tenancy should then be limited to 25 years and subject to market rent.

Summary of responses

Responses were divided on these proposals with nearly equal numbers in favour and against. Respondents identifying as tenants were mostly in favour and respondents identifying as landlords were mostly against. Respondents who agreed commented that the proposals will help ensure business continuity for tenanted family farms. Those who disagreed commented that it would be unfair to extend succession rights to more relatives of the tenant when many landlords are waiting to take back possession of their land to farm themselves or let as an FBT potentially to a new entrant.

Government response and next steps

Broadly similar numbers of respondents agreed and disagreed with this proposal, but there were significant concerns that the proposal would disproportionately benefit one party over the other. Taking into consideration the range of views, the government has decided not to take this proposal forward. Instead we will work with industry organisations to explore how guidance and examples of best practice could encourage negotiated solutions to succession to aid business continuity.

2.5 Consultation proposal: Introducing short notices to quit for Farm Business Tenancies of ten years or more

The aim of this proposal is to encourage more landlords to offer long term tenancies by providing them with more certain and shorter termination procedures in specific circumstances. The proposal is to insert provisions into the Agricultural Tenancies Act 1995 to give landlords that let new FBTs for a period of ten years or longer, and without a landlord break clause, new rights to issue shorter notices to quit (as an alternative to, but not a replacement for, forfeiture) in the specific circumstances of: non-payment of rent by the tenant (a 3 month notice to quit process), death of the tenant (a 12 month notice to quit process), and when the landlord has planning consent to develop land on the holding for non-agricultural use (a 6 month notice to quit process).

Summary of responses

Most respondents agreed with this proposal often commenting that it could provide a better process than forfeiture for landlords to regain occupation of the holding when the tenant is in default. However, many respondents were also sceptical that it would deliver the desired outcome of encouraging more long-term tenancies because other factors are more important in influencing landlord decisions such as the size, location and quality of the land, tax issues, and the landlord’s personal motives for holding land. Many respondents suggested that fiscal incentives could be a more effective way to encourage landlords to offer longer term tenancies and some suggested alternative options including the use of early resumption clauses for land with development potential and industry guidance/best practice to disseminate the benefits of longer term agreements.

Government response and next steps

Whilst respondents were supportive of the policy aims of this proposal, responses suggested that the proposed changes may not actually have a significant effect in encouraging more landlords to offer longer term tenancies. Taking account of views expressed, the government has decided not to take forward this proposal. Instead we will take forward further discussions with industry and across government to explore the alternative suggestions for achieving the policy objective of encouraging more landlords to let longer term tenancies.

2.6 Consultation proposal: Proposals for non legislative options

The consultation asked for views on non-legislative actions that could be delivered as an alternative to, or alongside legislative change, to enhance the delivery of policy aims, such as disseminating industry best practice, guidance, advice, education and developing model agreements.

Summary of responses

Most respondents commented that non-legislative options should be considered in addition to tenancy law reform to encourage best practice and improve tenant/landlord relationships, whilst maintaining the ability for legislation to provide a backstop when needed. Some respondents felt that issues between tenants and landlords are best solved through negotiation and therefore updated guidance should be pursued instead of changing legislation.

Government response and next steps

The consultation responses show that there is broad support for developing non-legislative proposals, such as industry-led guidance, to enhance and support the delivery of policy aims to facilitate structural change and productivity improvements in the tenanted sector. The government will take forward discussions with members of the Tenancy Reform Industry Group (TRIG) to identify the areas where guidance, examples of best practice and signposting advice is most needed, and agree plans for taking this forward.

3. Chapter 3: Call for evidence

3.1 Consultation proposal: Call for evidence on the impact of mortgage restrictions over let land

The call for evidence explored issues relating to current provisions in section 31 of the Agricultural Tenancies Act 1995 which restrict the ability of a landowner with a mortgage over their agricultural land to grant tenancies on that land without first gaining permission from their mortgage lender. Respondents were asked why consent from lenders is necessary, if it poses a barrier to agricultural lettings and if consideration should be given to repealing section 31 of the 1995 Act.

Summary of responses

Most respondents commented that consent from mortgage lenders is necessary and important for loan security and risk management reasons and does not currently pose a barrier to agricultural lettings. However, a few responses indicated that whilst requests for consent from lenders are rarely declined the process can take time and for short term or seasonal lets it is sometimes unnecessary red tape. Responses were very mixed on the question of whether consideration should be given to repealing section 31 of the 1995 Act. Many disagreed as they were concerned that it would lead to a reduction in lending to the sector or lead to higher interest rates. Many indicated that they did not know. Some respondents agreed commenting that it might help to reduce red tape especially for short term seasonal lettings and also for farmers who may be considering retiring and renting their land to a new entrant.

Government response and next steps

The evidence and views submitted suggest that overall the requirement for lenders to consent to agricultural lettings does not currently present a barrier to landowners offering agricultural tenancies. However some noted that it can take a long time to gain consent, and others questioned whether it is a necessary requirement for shorter term lets. Overall, evidence does not suggest that there is a need for legislative change at present, but we will continue to monitor whether there is any change in the situation.

3.2 Consultation proposal: Call for evidence on procedures relating to repossession of agricultural land

The call for evidence asked for views and evidence on whether existing repossession procedures of agricultural land are appropriate and fair for both parties. Respondents were asked if owners of agricultural land should be given additional protections as part of repossession proceedings similar to those afforded to owners of dwelling-houses.

Summary of responses

Most respondents commented that repossessions are rare in the farming sector and lenders are proactive in working with farmers to find solutions so additional protections are not needed. However, some suggested that as we move to a new trading and policy environment the risk of more farmers becoming vulnerable to repossession may increase. Some respondents suggested a greater role for professional mediators to find fresh solutions to address non-performing loans before receivers are called in. Some respondents raised concerns that any changes might negatively impact on the availability of finance to the agricultural sector.

Government response and next steps

Most of the comments and evidence gathered suggests that repossessions in the farming sector are rare, and that the current procedures are not causing widespread problems. However, it was also noted that the significant changes ahead may put some farmers at a higher risk of repossession in future. Overall the evidence suggests that there is not a need for any immediate change to current arrangements, but the government will continue monitor whether the situation changes as the future farming policy is introduced.

1. 105 responses were submitted via the online survey plus15 emails were transferred across to the online survey ↩

2. Case A applies to council farm retirement tenancies and only applies where the tenancy agreement specifically refers to it and where the holding is a smallholding as defined by part III of the Agriculture Act 1970. ↩