Independent report

The Rock Review: summary and recommendations

Updated 24 May 2023

Applies to England

This document sets out the foreword, key facts, executive summary and headline recommendations of The Rock Review from the independent Tenancy Working Group.

Foreword

I am pleased to present this review on tenant farming in England. It represents the dedication of the Tenancy Working Group (TWG) members, those organisations and individuals who have supported us with evidence submissions and events, and the honesty of tenant farmers, landlords, land agents and others we have met throughout this review. It was an enormous privilege to meet so many people and I convey my heartfelt thanks to you all.

Above all we have seen first-hand the deep commitment that our agricultural communities have in creating a sustainable farming future and a thriving countryside that is there for everyone.

In February 2022 the Defra Secretary of State asked me to chair the Tenancy Working Group with two clear objectives. The first was to look at how the new government financial schemes should be accessible, open, and flexible to tenant farmers. The second was to look at longer term changes that would ensure a robust, vibrant, and thriving agricultural tenanted sector for the future. With roughly a third of farmed land in England being tenanted, tenant farmers are vital to the nation’s food production alongside the delivery of environmental outcomes.

Tenant farmers must therefore be properly integrated into the Future Farming policy, the design of all future schemes and supported for long-term resilience of the sector. They are, and must remain, a crucial part of the future agricultural and land management landscape.

The state of the tenanted sector is a result of legislative decisions and the impacts of various payment schemes that have come and gone.

From the 1947 legislation that defined agriculture in a post-war era to the 1986 Agricultural Holdings Act and the 1995 Agricultural Tenancies Act that aimed to rebalance the landlord-tenant dynamics, to payments from the EU Common Agricultural Policy and the more recent Agricultural Transition Plan (ATP).

Uncertainty seems to be the watchword of our time. Brexit, Covid, the war in Ukraine, a cost-of-living crisis, political upheaval, and the largest change to agricultural support in a century.

As payments from the Basic Payments Scheme reduce, farmers across England are seeing their future cashflow diminish. The tidal wave of uncertainty around the new public schemes means they are struggling to see how they can remain viable without intensifying production.

Added to this, tenant farmers face multiple barriers to accessing government schemes and growing their businesses. Rent requirements, short duration tenancy agreements, restrictive clauses, and contractual issues can compound the uncertainty.

After delving into the issues facing the tenanted sector, we have surfaced with the following concerns that we want to address:

• improving the tenant-landlord relationship
• ensuring the growth and viability of businesses in the tenanted sector
• preventing tenant farmers from going bankrupt
• minimising the loss of land from the tenanted sector
• reducing scheme complexity and ensuring flexibility and access for tenants
• public support for permanent land use changes including tree planting, and the creation of habitats

Managing and coordinating how land in England is used needs to be improved. We eagerly await the findings of the House of Lords Committee on Land Use and look forward to seeing how the Land Use Framework, to be published in 2023, incorporates tenant farmers.

The Tenancy Working Group has been clear through its engagement and communications that landlords are and must be part of the solution. We have seen fantastic examples of collaboration between landlords and tenants to move forwards together in an uncertain future. These enlightened tenants and landlords have realised the benefits of a symbiotic relationship. There is no tenanted sector without landlords to let land, and what is best for landlords are viable, thriving tenants.

We also want to highlight that tenant farmers have rights. They have the right to sanctity of contract, the covenant of quiet enjoyment of the rented land, they have the right to develop a viable business, and they have the right to a future livelihood. Some of the issues we have seen that cause us concern are working to trample or diminish the ability of tenants to exercise these rights. With these rights come obligations such as stewardship of the land and paying rent.

Our challenge, and the one that we now pass to Defra, has been to navigate the balance of rights and obligations from both the tenant and landlord. Rights are not inherent, they are formed through decades of experience, cultural views, institutions, and legislation. They change over time to suit the needs of the present and future.

Our proposals and recommendations aim to ensure tenant farmers can exercise their rights. Through full and flexible access to Government schemes they can support the viability of their business as well as seek to create a resilient and viable agricultural tenanted sector for the 21st century; one that balances the rights and interests of both landlords and tenants.

This is a once in a century change. Defra need to adopt these recommendations with a sense of urgency. What we do now will echo through time.

Baroness Kate Rock

Chair of the Tenancy Working Group

Members of the Tenancy Working Group

Andrew Clark

Charles Cowap

Simon Dixon Smith

George Dunn

Alastair Martin

Matthew Morris

Emily Norton

Key facts

8.9 million hectares - Total farmable area in England (2022).

64% - “Whole or Part tenant holdings^{[footnote 1]} as a proportion of the total farmable area.

45% - “Whole or Part tenant holdings^{[footnote 1]} as a proportion of all holdings in England.

48:52 - Ratio of land under Agricultural Holding Act tenancies to Farm Business Tenancies.

3.03 years^{[footnote 2]} - Average length of new Farm Business Tenancies in 2021.

75% - Average share of tenant farmer net income from Basic Payment Scheme^{[footnote 3]}.

Executive summary

We begin this review by providing a background to the tenanted sector including the legislation underpinning the tenancy system and the more recent changes in context, in payments, and in demands that tenant farmers are dealing with in the 21ˢᵗ century. It is important to understand what tenant farmers are dealing with when planning and running their businesses and why this review is much needed and timely.

We start by looking at two of the most important aspects of the tenanted sector: the collaborative relationship between landlord and tenant and tenancy agreements. The review then focuses on more specific areas of the tenanted sector and the different types of schemes and initiatives that the Department for Environment Food and Rural Affairs (Defra) can directly improve. We examine the impact of the

• environmental land management schemes,
• productivity schemes, and
• tree planting schemes, and the
• offer to New Entrants

We look at the developing but important private markets for natural capital and how they may impact and work with tenant farmers. We also consider taxation and legislative changes to increase the resilience of the agricultural tenanted system, and finally how to embed the tenanted sector into Defra’s policy and protocols.

Across the broad range of issues examined, we consistently present:

• what we believe about the issue
• what we have found from our evidence
• what should change
• where we want our recommendations to take us
• list of recommendations for how Defra can move us closer to a vibrant agricultural tenanted sector within that topic

Prior to this review being delivered to Defra, the Tenancy Working Group made several early recommendations to Defra. These have already been responded to by the Farming Minister and some have already been implemented. The response is noted in Annex 1.

In view of the upheaval in agricultural policy, short-term non- collaborative landlord-tenant relationships will not deliver viable and sustainable businesses for the tenanted sector. The recommendations in this review should be seen as complementary and mutually reinforcing to deliver “a vibrant tenanted sector [that] is vital to the future of agriculture.” Defra Secretary of State, Farmers Weekly, August 2022

Why we need a vibrant agricultural tenanted sector in England

The tenanted agricultural sector is of vital importance to this country. Holdings that are either wholly or partly tenanted cover more than half of farmable land in England. They represent a significant constituency in our rural communities and rural economy.

Tenant farmers are small businesses, innovators and, partly driven by the need to pay rent, can be the engine of efficiency and productivity improvements for the sector. We therefore welcome the Chancellor’s September commitment to boost agricultural productivity growth, improve competitiveness and strengthen food security.

If we are to level up the whole nation then we need to unlock the potential of tenant farmers to play their part in adding value to the rural economy.

Every tenant has a landlord, and the review has sought to balance the interests of both parties. Landlords may be private individuals, investment trusts, corporations or institutions. They will have different aims and objectives but all will benefit from a positive relationship with a successful tenant.

Agricultural tenancies create opportunities for entrepreneurs and for the next generation to start productive agricultural businesses that deliver our food, fuel, and environmental services.

But they also have a high level of reliance on government support making them especially vulnerable to the policy changes being enacted by the government to transform agriculture in England.

The trajectory of the agricultural transformation is broadly welcomed. However, there are risks in how Defra is developing its schemes that cause concern in the tenanted sector. Without the ability to access government support, many tenanted businesses risk financial hardship with a considerable knock-on impact to productivity and investment in the rural economy.

Defra must grasp the opportunity in the policy landscape to be more ambitious in how it ensures the deliverability of the recommendations, specifically through scheme design. Data on land management, which can be collected as the new schemes are rolled out, will be an important enabler for this. Throughout this review, the lack of available data on how tenants currently engage with public schemes has been a barrier to understanding the scale of the issues facing tenants.

Ensuring the deliverability of the recommendations in this review requires a higher level of trust between tenant farmers and Defra. This will be of utmost importance if Defra wants to bring the tenanted sector with them as we move through the agricultural transition.

Recognising the importance of the tenanted sector in land management, this review was launched by the Defra Secretary of State who clearly stated that one of the roles of the group was to “identify and explore ways to really make sure that our new schemes work for tenant farmers”.

Pressures facing the tenanted sector

Tenant farmers are facing multiple pressures.

• the security of basic payments is being withdrawn as part of the agricultural transition
• tenant farmers are being asked to deliver more for the environment from customers, supply chains, and government, but a commensurate level of support has yet to crystalise
• high levels of inflation are exerting upward pressure on input prices while commodity prices are, in some cases, reducing
• demands from non-agricultural land use such as solar, development, bioenergy, tree planting, and biodiversity improvements could take land out of production
• private markets for ecosystem services are catching the attention of investors across the country

In addition to these pressures, we have heard how rent reviews are leading to rents either staying level or increasing.

Coping with these levels of uncertainty requires collaboration between tenants and landlords and stability in the form of security of tenure.

Long-term tenancy agreements are one of the best ways to cope with these short-term uncertainties. It allows the tenant to plan beyond the uncertainty knowing that they will still have access to land for their business and that they can carry out environmental actions, and access the associated payments, that require longer-term agreements.

The demands on land in England are higher than they have ever been. Food production, housing developments, tree planting, energy production, net-zero ambitions, reversing declines in biodiversity, amenity, water quality, and combating climate change are all looking to our nation’s finite land resource.

Furthermore, the government has been explicit about its focus on achieving 2.5% growth across the economy. This necessarily includes growth of the rural economy.

We cannot rely on the proportion of land that is owner occupied to meet these needs. Our recommendations ensure that Defra, working with other government departments, will unlock the entrepreneurial, productive, and growth potential of tenant farmers across the country to meet these aims.

Our vision for the tenanted sector

Our overarching vision is for a resilient and vibrant tenanted sector. Tenant farmers should be able to enter a diverse range of public and private schemes which support them to deliver food production and environmental benefits that we want and need as a nation. The schemes on offer to tenants should be simple and flexible for them to do what is right for the land, their tenancy agreement, the wider estate they may be on, and for government objectives. The eligibility of the schemes is such that both landlords and tenants are clear about where tenants can enter on their own and where they can enter collaboratively with the landlord.

We want tenants and landlords to be making significant investments in upgrading and improving their holdings from both an infrastructure and natural capital aspect.

We want the tenanted sector to be a mosaic of diverse, thriving, and innovative businesses whose benefits radiate out into the rural and wider economy, improving our land, waterways, and air quality, alongside the importance of sustainable food production.

The government’s role in delivering this vision must be made clear. Government needs to be explicit about how it sees the future of the tenanted sector, what actions it will support, and how it will support tenants to deliver them. The focus should be on supporting the resilience and ability of tenant farmers, as stewards of our land, to deliver environmental improvements alongside contributing to food security.

In each chapter, we have outlined where we want to get to on the issues facing tenants. We have summarised them below. It is our view that the recommendations will move the tenanted sector towards

• collaborative and transparent arrangements which respect the ambitions of both parties and that those arrangements should become the norm
• a relationship of trust, collaboration, and alignment between landlords and tenants with guidance for best practice and recourse for those who do not follow it
• longer-term agreements that allow tenants to diversify and access multiple sources of funding without impacting the landlord’s interests, so that both the landlord and tenant benefit and can invest in the productive capacity and environmental health of the holding
• tenant proof schemes developed by Defra that are accessible for tenants. This needs appropriate eligibility criteria, flexibility to changes in circumstances, and trust between the government and the tenant farmer
• government schemes for productivity that support investment with both tenant and landlord involved in a collaborative approach
• a situation where both tenants and landlords understand where they can and cannot plant trees without the consent of the other party, for mutual benefit
• a clear statement from Defra on what it wants to see from new entrants to the tenanted sector and how it intends to support them
• private markets for natural capital that provide a new income stream for tenant farmers supported with clarity for how tenants and landlords can enter agreements together and how benefits from the private agreement are equitably shared
• a range of tax incentives that support and incentivise tenants and landlords to take actions that lead to the above aims
• an update to existing legislation that reflects the current and future demands on land, enables the structural changes needed to achieve the aims above, and provides clarity for practitioners, landlords and tenants alike
• awareness throughout Defra of the issues facing tenants with policies, processes, and protocols to incorporate the tenanted sector into their work on policy and scheme design

What we found

We found that most tenants and landlords want to do what is best for the environment on their holding. They both see themselves as custodians of the land for future generations.

Tenant farmers especially see themselves as playing an important role in providing food for the nation and for exporting high quality British produce alongside actively delivering environmental outcomes. With these important objectives in mind, there should be few barriers for collaboration and having flexible, long-term agreements. However, we found the opposite.

We found that an open and collaborative approach between tenants and landlords is sadly not the norm, and that Farm Business Tenancies (FBTs) are often used off the shelf without the flexibility that they offer. We also found that the average length of FBTs is less than 4 years, driven to some extent by the uncertainty of what future public schemes will pay, who can enter the schemes, and who they will pay.

We have found that Defra has only recently given thought to how the new schemes will impact tenants and how they can make these new schemes tenant proof. Specifically, how tenants can access schemes, carry out actions and receive payments. We recognise that there have been successes through changes to the current Sustainable Farming Incentive (SFI) eligibility and some acknowledgement of issues facing tenants in the productivity, woodland, and new entrant schemes, but the corresponding level of action has been minimal. Defra has a long way to go to make its schemes open to tenants.

We also found that the current tenancy legislation and tax incentives do not align to government policy of farmers delivering long term environmental benefits. These are discussions that must take place across government to ensure that Defra’s policy objectives are supported by appropriate legislation and a forward thinking tax system. This should incentivise longer term FBTs, more land to be let, and an increase in on-farm investment.

These structural issues had been looked at previously through the work of the Tenancy Reform Industry Group, a 2019 Defra consultation, and the work to develop the Agriculture Act 2020. However, the context at the time was very different. The tenanted sector now finds itself well into the transition period without clarity on schemes, without clarity on tax, and without clarity on legislation.

There is an opportunity now for Defra to work across government departments to lead these changes that can put the tenanted sector, both landlords and tenants, in a better position to collaboratively deliver on the many demands on land in England.

Achieving the vision

In the short-term, the focus must be on providing clarity on the schemes within Defra and starting conversations on the more investigative and structural points.

The war in Ukraine has driven up prices of wheat, fertiliser, gas, and other inputs that are critical to maintaining food supply. A weaker sterling has exacerbated these price increases especially where imports are concerned. Food security has risen to the top of the agenda.

To show that it is serious about addressing this, Defra needs to define food security as a public good alongside other environmental objectives such as clean air, clean water, lower carbon emissions, and improving biodiversity. This will open options for Defra to take supportive action through the public payments for public goods framework.

Our recommendations to Defra on schemes are more granular. They need to be because the policy is being developed now and the clarity is needed now. They focus on scheme eligibility and flexibility such as transferability of agreements. They call for certainty on what government is asking for with regards to the levels of land use change, in effect asking if the action is deemed permanent or not.

Environmental schemes, either as they stand now or in the future, must be designed so that they are accessible to tenant farmers.

Therefore, the recommendations for scheme design can and should be seen as applicable to and current and future environmental schemes.

We are also recommending changes to how woodland and tree planting schemes are developed to allow tenants to play their role in any tree planting and net-zero ambitions.

Achieving these schemes needs more than just support for actions. In many cases, farm holdings need investment in foundational infrastructure and equipment. Defra is already providing grants, but small adjustments are needed to increase the eligibility, purpose, and ability for tenants and landlords to apply and invest in let holdings.

Finally, the pipeline of future tenant farmers needs to be invested in. We recognise that the industry needs to play a role in this, but Defra can do more to support new entrants to the tenanted sector and our recommendations will expand that offer.

In the longer-term there needs to be structural and legislative change to transform the tenanted sector in England. The last major piece of tenancy legislation was in 1995, prior to that it was legislation in 1984. There has been no major legislative change to update the tenanted sector in England for the past 27 years. The world, the country and farming has moved on significantly in that time. If the government wants to transform agriculture, it will need to support the transformation of the tenanted sector.

There are structural issues that can be addressed partly through policy and scheme design, but more strongly through changes in legislation and tax. These levers can embed a new structure within which landlords and tenants will be better able to thrive and access future schemes. They can also change how professionals who work with landlords and tenants operate, from an adversarial approach to one that is more supportive of collaboration.

Defra has a large role to play in all these changes, and to do that it will need to upskill itself on issues facing tenant farmers. We recommend that Defra immediately incorporates the tenanted sector throughout its thinking and its work by setting a Defra KPI and systematically collecting information on land management in England. This is extremely important if Defra is going to be able to measure success of its schemes and how they work for tenant farmers.

Where we go from here

From early in the process, we knew that collaboration between the landlord and tenant is the keystone of a vibrant and thriving tenanted sector. It was a consistent theme from roundtables held and written evidence received. Positive relationships driven by discussions between the landlord and tenant, while recognising the rights each party has on the land, can overcome many issues facing the tenanted sector. We heard, saw, and were encouraged by the many cases where this process has already begun. The parties in these cases were often called progressive, indicating that most the sector does not operate in this way.

If the quantity of land available to the tenanted sector is to grow it is likely to come primarily from private landowners choosing to let out their land rather than farming themselves or selling to a third party. We seek to create an environment that incentivises this behaviour.

If there is one message to take away, it is that the tenant - landlord relationship must be seen as a mutually beneficial one. The landlord thrives when the tenants thrive, and they must work together to deliver the bright future that we know is within our grasp.

Headline recommendations

This review makes recommendations to deliver a more resilient tenanted sector that can:

1. Deliver sustainable food production.
2. Meet the challenges of climate change.
3. Deliver improvement and enhancement of biodiversity.

The recommendations have been developed to work together as a package to deliver on the aims and objectives of the Tenancy Working Group. When taken as a package, specifically including building our understanding on how land is managed, the recommendations become more deliverable than when looked at in isolation.

We urge the government to swiftly consider, investigate, and action recommendations to deliver the clarity sought by the sector and the change demanded by society.

With over 70 detailed recommendations, we have highlighted the 18 headlines which the more detailed recommendations sit within. We have separated the recommendations into those that:

• are for immediate action
• require action over a longer timescale

We look forward to hearing Defra’s response and to being part of the evolution of the tenanted sector.

Recommendations for immediate action

1. Defra must design all Environmental Land Management schemes and Productivity schemes to be accessible and open to tenant farmers. This should be done by starting from the basic principle that tenants should not need landlord consent to enter tenanted land into schemes and landlords should not be allowed to enter tenanted land into schemes unilaterally. Building from this, the necessary details are:

• Where there is alignment between scheme length and the length and terms of the tenancy agreement, the tenant can unilaterally enter tenanted land into schemes without landlord consent.

• Where schemes require actions to deliver outcomes that are longer than the tenancy agreement, tenants who have had more than one historic renewal or who are on a rolling annual tenancy, and self-assess that they will have sufficient management control to enter schemes, should be able to unilaterally enter tenanted land into schemes.

• Landlords can only enter tenanted land into scheme options that require permanent land use change jointly with the tenant and then only with consent of the tenant. The consent of the tenant should be entered into separately and subsequently to a signed tenancy agreement.

• This must be met with adequate protections to stop land being taken back in hand and subsequently entered into schemes by landlords where tenants could have carried out the action, unless the tenant has not objected.

• Tenants with AHA Agreements should be considered to have sufficient security of tenure and management control to enter multi-annual schemes.

2. Defra needs to allow joint applications to productivity schemes and joint applications from both landlord and tenant for fixed equipment.

3. Defra should enable joint applications to woodland schemes that incentivise landlords to discuss woodland planting with their tenants so that both can benefit from any agreement.

4. Defra needs to examine ways to incentivise investment into renewing and upgrading infrastructure. Defra and HMT should create appropriate incentives throughout the agricultural transition period to bring tenanted holdings into an improved state.

5. Developers of government schemes such as EWCO, natural capital markets, and the forthcoming land use framework need to consider how they work together to mitigate land being removed from tenancies, and provide adequate protection to tenants who could manage woodland.

6. Defra needs to develop a comprehensive and long-term new entrant policy that has clarity of vision with success criteria and should consider ways in which it can best use public funds to incentivise and support private landlords to play their part in safeguarding the future the tenanted sector and progression of new entrants.

7. Government needs to outline what it sees as its role, a roadmap, and broad guidelines for the development of private ecosystem markets alongside basic expectations for how demand and supply side actors should behave. This includes setting out clear guidelines to ensure that tenants are rewarded and not disadvantaged for their work in maintaining and improving the natural capital asset and managing the associated flow of ecosystem services.

8. Defra needs a consistent process and protocol that requires testing of all schemes and options within the schemes with tenant farmers to ensure they are compatible with the constraints facing tenants and are tenant proof.

9. To support the ability of Defra to enforce and deliver the scheme recommendations Defra should immediately begin to develop a data layer on the management of land in England through applications to grants. This should be complemented by a policy position that does not penalise a change in tenancy circumstances as this does not mean a change in intent to deliver an agreement.

10. Defra should confirm that it will maintain tenancy in the portfolio of the Farming Minister and explicitly include land occupation as a strategic portfolio item for a Defra Director to ensure that Government takes account of land occupation issues in development of policy, procedures, and practice.

Recommendations that require action over a longer timeframe

11. Defra should examine how it can incentivise and provide advice on how landlords and tenants can collaborate to develop and enter mutually beneficial agreements that cover public and private schemes.

12. Defra should consult on legislative changes to open up the ability for tenants to diversify their businesses without the landlord unreasonably refusing consent. In defining the tests for unreasonableness, consideration will need to be given for how the diversification impacts the landlord’s tax status, land value and estate management plans. They should also consider legislation to extend existing AHA protections such as ‘no unreasonable refusal of scheme entry’ and ‘access to arbitration’ to FBT tenants.

13. To support this, Defra ministers should actively engage the services of the Law Commission to update legislation pertaining to agriculture, tenancies, and land use in England to bring it into the 21st century and make it fit for the multiple demands being made on land.

14. The government should address the state of tenancy agreements head on with a broad consultation on tenancy reform in 2023. Part of the consultation should address why FBT agreements are using such a narrow band of the flexibility available within the ATA 1995, and ways to update the definition of agriculture and the rules of good husbandry to encompass actions for environmental benefits.

15. Defra must examine ways to improve the licensing of land agents so their performance and behaviour can be appropriately scrutinised and held to account.

16. Defra should appointment a Tenant Farmer Commissioner to ensure government policy is tenant proof and to ensure fairness within the tenanted sector. They should also have the remit to examine and strengthen dispute resolution processes.

17. Defra and HMT should carry out a robust analysis on a strategic package of proposed recommendations made in the tax chapter to incentivise landlords to let more land for longer.

18. Defra must publish an update on their progress against these recommendations every year of the agricultural transition plan. This should be tied to the annual progress update on the agricultural transition plan, There should be a specific section on how the recommendations of this review are being implemented.

Read the full report The Rock Review: working together for a thriving agricultural tenanted sector.

1. Holdings who have land under some form of tenancy ↩ ↩²

2. From CAAV 2021 survey ↩

3. Average of 2018/19 to 2020/21, for solely tenanted holdings ↩