Are written tenancy agreements really that important for rural properties?

Nicola Beneduce, from our commercial property team, highlights some of the pitfalls associated with not having a comprehensive written tenancy agreement in place for an agricultural tenancy.

When an agreement to occupy land is entered into without any formal documentation, various issues can develop over time. Once a tenancy is established, disputes can arise from any uncertainty over the agreed terms, including the type of tenancy or regarding the law which governs it.

Landlords and tenants of different types of tenancies have very different rights and protections in relation to the tenancy. Disputes can be avoided with a clear, well-drafted and comprehensive tenancy agreement at the outset.

Farm tenancies created on, or after, 1 September, 1995, are governed by the Agricultural Tenancies Act 1995 (the 1995 Act). Any tenancies created prior to 1 September, 1995, are governed by the Agricultural Holdings Act 1986 (the 1986 Act).

It is important to identify the type of agricultural tenancy by the date it was created, as the two statutory regimes give the landlord and tenant different rights and responsibilities. The most significant differences relate to freedom of contract and security of tenure.

Neither the 1986 Act nor the 1995 Act requires a written tenancy agreement and therefore many farm tenancies in existence today are based on verbal agreements or are recorded in very brief terms. These fail to provide for a range of common issues which arise in the course of a tenancy, often leaving crucial issues unaddressed. It is in these grey areas that disputes can arise.

Dealing with potential tenancy disputes

Disputes regarding tenancy arrangements can prove costly for both sides, so it is important to ensure any agricultural tenancy remains fully comprehensive by way of a regular review.

Some common areas for dispute include:

• Term-date or date of renewal: If a landlord wishes to terminate a farm tenancy, the term date is needed to determine the date on which the tenant must surrender the holding, following service of a relevant notice. Any uncertainty over this date can lead to delays and disputes over recovering possession of the holding.
• Assignment and subletting: The landlord might wish to protect its asset by restricting the tenant’s right to assign or sublet the property, for example by setting certain criteria for any ingoing tenant to satisfy. The landlord is only able to impose these restrictions by way of a clause in the tenancy agreement. The 1986 Act tenancies offer considerable security of tenure for tenants with limited restrictions on assignment and therefore landlords may be particularly at risk and should seek legal advice immediately in such circumstances.

• Tenant’s right to compensation for improvements: Both the 1986 and 1995 Acts include a tenant’s right to compensation for improvements made to the holding, although there is less protection for landlords. Tenant’s compensation claims may be significant in value and could include 100% of any increase due to planning permission. It is possible to avoid these issues in most agricultural tenancies by including a clause in the tenancy agreement.
• Rent review: Both Acts contain specific rules on rent review. Where a tenancy is governed under the 1995 Act, the tenancy agreement may impose different rules which can offer a landlord more protection against downwards rents by agreeing a schedule of increases in advance.
• Tenant remaining in occupation after expiry of the tenancy: This can cause particular issues if the terms of the original tenancy agreement are not clear as the nature of the tenants continued occupation will depend on the facts. If the landlord took no action to recover possession, the parties’ conduct may have created a new tenancy.

These issues, among others, can be prevented by putting into place a bespoke, detailed farm business tenancy agreement. Many of the potential pitfalls associated with both verbal and written tenancies are specific to agriculture, which is why specialist knowledge and expertise in this field are essential.

Harrison Drury’s rural sector team can provide a comprehensive service dealing with all aspects of rural law and estate management. To discuss your tenancy agreement or to seek advice on related matters, please contact or team on 01772 258321.