RICS updates farm business tenancy agreements

Next year marks the 30th anniversary of the Agricultural Tenancies Act 1995, which introduced the concept of the farm business tenancy (FBT).

Before the 1995 Act, the amount of agricultural land available for letting had been declining at a rate of some 20,000ha a year, due to the onerous nature – from a landowner's perspective – of the Agricultural Holdings Act 1986 (in succession to the 1948 Act), with its extensive provisions concerning security of tenure, rent control and other regulations.

The 1995 Act achieved its aims of deregulating, simplifying and encouraging the letting of land, and thereby reversing the decline in the amount of land available for letting to tenant farmers.

A significant landmark was passed in 2021, when, for the first time, the acreage of English land tenanted under farm business tenancies surpassed the acreage subject to agricultural holdings under the 1986 Act. Around a third of agricultural land in England and Wales is now tenanted and that trend will undoubtedly continue to grow, given that – subject to transitional special cases – no new 1986 Act tenancies can be created.

The 1995 Act has been remarkably trouble-free in terms of the interpretation and application of its provisions. Most landlords and tenants and their professional advisers – in the negotiation and agreement of the terms of FBTs, and in their administration and management – have greatly reduced the potential for conflict through a spirit of sensible cooperation, generally to the mutual benefit of all parties.

The expectation is that a collaborative approach will be further encouraged by the Agricultural Landlord and Tenant Code of Practice for England, with which the RICS has been closely involved, and the new RICS Conflict Avoidance Process for the rural sector.

In drafting such agreements – and having regard to the fact that members act for landowners and tenants alike, often on both sides of a negotiation – RICS has sought to achieve a balance between the interests of both parties, which, while they often coincide, may sometimes diverge.

The RICS Agricultural Tenancies Monitoring Group regularly reviews and updates the agreements, in particular taking account of legislative changes and their impact on particular aspects of landlord and tenant relationships, subsidies, the environment and tax. The group also has an eye on wider changes in professional practice and the farming and environmental context generally.

The guidance and user notes had been periodically updated and revised, but as the 30-year anniversary of the FBT approached they have now been rewritten.

The new user notes include discussion of some particular issues that may warrant further consideration when using a precedent, as well as highlighting points to consider when contemplating using a grazing licence.

They also now contain an important summary of the effect of the Legal Services Act 2007 regarding reserved legal activities, and the scope and limits of the FBT-related exemption available to RICS members.

The suite now includes the following, all of which can be downloaded by subscribers to RICS' isurv platform.

• FBT agreement (FBTA) from year to year (2024): a precedent for the classic annual periodic tenancy, in a form suitable for an FBT.
• Fixed-term agreement (2024): a precedent for a fixed-term FBT of any length; it has fuller and lengthier tenancy terms than the two short-form agreements. 
• Short-form agreement (two years or less) for bare land (2024), or for land with buildings (but no dwellings) (2024): these two precedents for so-called short-form agreements have shorter and simpler terms than the one for a longer fixed-term tenancy. The first is envisaged for use for a demise of bare land, and the second for a demise that includes buildings but not dwellings. 
• Grazing licence (2024): this gives rights to take a crop of grass by grazing or mowing. Such licences have a long history in the agricultural sector; the precedent is not intended to create an FBT, but nevertheless included in the suite because such agreements are commonly used as an alternative to, or in conjunction with, the grant of such a tenancy. 
• User notes (2024): these supersede all previous user and guidance notes, and should be read in conjunction with whichever of the above precedents is being used. 

In particular, there was concern about the increasing potential for complications and difficulties that can arise from the use of such agreements in terms of tax, inadvertent property law consequences, and issues with subsidies and environmental schemes.

Indeed, as farming and environmental subsidies and schemes are in a state of flux and review, the relevant provisions of the precedents have for some time been drafted to ensure they will operate satisfactorily in the context of different forms of payment and regulatory schemes as those change and develop.

They have also been updated to take particular account of the changes introduced by the Agriculture Act 2020 and the Agriculture (Wales) Act 2023, the end of the Basic Payment Scheme, delinking payments, sustainable farming incentive and general developments in environmental schemes, sustainable farming and natural capital.

That brought advantages for landowners, who could achieve an increased rent without additional management responsibilities, and for farm tenants, who had control over the whole holding and the ability to profit from such subtenancies. It also benefited subtenants, who could rent a home.

However, that era is now drawing to a close. In Wales, the Renting Homes (Wales) Act 2016 came fully into force at the end of 2022, and in England a ban on so-called no-fault evictions, giving residential tenants substantial security of tenure, is proposed under the Renters' Rights Bill. The future introduction of some form of rent control also seems increasingly likely.

Such changes mean that landowners and farm tenants alike will need to consider carefully before deciding whether or not to include sublettable dwellings in FBT demises. The alienation provisions in the fixed-term and year-to-year precedents have therefore been changed.

Whereas the previous default position permitted subletting on ASTs, the default now seeks to balance the interests of landowner and tenant by requiring the former's prior written consent to sublet any dwelling on the holding.

Finally, new provisions for the payment of interest have been added into the two short-form FBTs and the grazing licence; and all the precedents now also include reference to the new RICS Conflict Avoidance Process in the provisions concerning dispute resolution.