Agriculture Act 2020: New Code of Good Practice for all agricultural tenancies

Agriculture Act 2020: New Code of Good Practice for all agricultural tenancies

The next step in the process towards the reform of agricultural tenancies has been taken with the recent publishing by the Tenancy Reform Industry Group (“TRIG”) of its Code of Good Practice for projects, schemes or works requiring landlord’s consent in agricultural tenancies (“Code”). This Code is an update to the earlier 2004 Code of Good Practice for agri-environment schemes and diversification projects in agricultural tenancies and reflects the new post Brexit, post Common Agricultural Policy world in which we now operate.

TRIG recognised that the new focus away from subsidies and towards health, animal welfare and the environment, with the “public money for public goods” approach, was in danger of being limited, in the tenanted sector, by restrictive written tenancy agreements, often dating back decades to a completely different agricultural age. So steps to override those restrictions were made, initially in the Agriculture Act 2020 (see Agriculture Act 2020: Landlord and Tenant Reforms – Now and Later) and more recently supplemented by the Agricultural Holdings (Requests for Landlord’s Consent or Variation of Terms and the Suitability Test) (England) Regulations 2021 No 619 (“2021 Regulations”) (see Agriculture Act 2020: New power for AHA tenants to override tenancy restrictions). This Code now provides guidance for landlords and tenants of all agricultural tenancies to assist them in reaching agreement to alter tenancy terms.

The 2021 Regulations also brought in a new suitability test for Agricultural Holdings Act 1986 (“AHA”) successors, which will be introduced in 2024, alongside amendments to the eligibility test (see Agriculture Act 2020: England finalises new AHA succession rules). The Code explains the rationale behind these changes, including the reason for the delay until 2024 – to enable succession applicants to prepare for the new stricter succession requirements.

Ambit of the Code

The Code is designed to provide guidance to landlords and tenants in relation to variations to both AHA tenancies and FBTs. It is, however, only in relation to AHA tenancies that the 2021 Regulations operate to enable the tenant to apply to override restrictions for certain purposes.

The guidance covers a wide range of variations, from diversification projects to accessing ELMS and other new financial assistance schemes, as well as consequential requirements such as altering buildings and relaxing subletting and user restrictions.

New 5 step approach

The Code offers a useful 5 step approach for the parties to follow where one of them is seeking consent to a variation. We will refer to a tenant seeking consent below, but these could apply (with appropriate changes) vice versa. In summary, these steps are:

Step 1: Early consultation

  • Tenants should check rent payments are up to date and no pending statutory notices are outstanding. Proposals for remedy of ongoing breaches should be included in proposal.
  • Approach landlord “at the earliest practical opportunity” regarding the proposal, either orally or in writing. If orally – follow up in writing. AHA tenants should make requests in writing, containing information required by the 2021 Regulations.
  • Parties are encouraged to meet as soon as possible to discuss – explain broad terms, potential implications and benefits of proposal for each party.
  • Agree what needs to be provided to support the tenant’s proposal.
  • Agree (and confirm in writing) how costs will be handled, especially if there is no significant financial benefit to the landlord arising from the proposal.

Step 2: Agreeing a timetable

The parties should agree (and confirm in writing) a realistic timetable for preparation and consideration of the proposal, which takes account of deadlines, such as applications for financial assistance (eg ELMS) or time for third party consents.

Step 3: Preparing details of proposal

The tenant should prepare a “sound business case”, the extent of which should be proportionate to the nature of the proposal; the Code suggests that a large diversification project will require far more detail and justification than a simple change of cropping. Further guidance suggests the tenant provides details of:

  • Proof the project can be funded
  • The extent to which the tenancy agreement needs varying and the impact of this on the landlord’s reservations, together with the options for reversing any change if the project ceases
  • Details of third-party consents and relevant compliance requirements, eg planning
  • Any assignments, sub-lettings, joint ventures required and any employee housing needs – these may require part of the holding to be removed from the agricultural tenancy.
  • Proposals for recording of any permanent works, tenant’s improvements or tenant’s fixtures
  • Proposals for any immediate revision of rent and future rent review
  • Details of any financial or other obligations arising from the proposal, which could burden the landlord after the tenancy ends

Step 4: Landlord’s consideration of tenant’s proposal

The Code requires the landlord to “give careful consideration” to the proposal and to request in writing any further information required to address the issues in step 3, (provided this is reasonable and relevant to the proposal). The landlord should then give a written response, confirming approval (either with or without conditions) or refusing consent, but giving reasons for doing so.

Step 5: Formal written agreement

Any agreement should be confirmed in writing in an appropriate form, prepared by a professional advisor. It should cover “all the matters bearing on the tenancy” and where appropriate should “include a waiver of the landlord’s powers under Case B” and any other rights that may detract from or negate the landlord’s consent.

What if the parties fail to agree a proposal?

Where the proposal relates to an FBT or is not one which falls within the 2021 Regulations (so not relating to a claim for financial assistance or to comply with a statutory duty), then ultimately the landlord can simply refuse consent, even if the tenant addresses the landlord’s reasons for refusal. Likewise, where a proposal is made by a landlord, in any context, ultimately a tenant can simply refuse consent.

If a tenant’s proposal relates to an AHA tenancy and is subject to the 2021 Regulations, the tenant can ultimately apply for an arbitrator or an expert to grant consent to a proposal in place of a landlord, who refuses consent, or to change or suspend unreasonable conditions imposed by the landlord.

The Code provides examples of grounds which, depending on the context, could constitute reasonable grounds for a landlord or tenant refusing consent. Arguably, the Code suggests that these grounds are applicable to scenarios including a tenant seeking consent, or an FBT, whereas in fact they will be more useful where the 2021 Regulations apply. That said, whilst these are purely illustrative, they may put pressure on parties behaving unreasonably, or at least provide a benchmark for comparison in negotiations.

With regard to landlord’s consent, the grounds cover reasons, including that the proposal would:

  • be detrimental to the sound management of the estate
  • substantially interfere with enjoyment of rights retained by the landlord (eg sporting)
  • not be viable
  • cause the landlord undue hardship

Further grounds cover issues such as a failure to adhere to the Code, tenant in material breach of tenancy terms (already drawn to their attention), re-submission of a previously unsuccessful application without making material differences and insufficient consideration given to issues, and where all or part of the holding would cease to be an FBT or governed by the AHA.

Similarly, the Code provides a list of grounds which apply where it is the tenant considering a proposal by the landlord.

How does the Code affect my tenancy?

As the Code spells out clearly, the starting point for any tenant or landlord wishing to propose a change on a holding is the written tenancy agreement. If the proposal is not restricted, either expressly, by implication or by statute, then the tenant/landlord will be free to implement the proposal. It is only if the project, or consequential changes required by the project are restricted in some way, that the parties will have to consider the extent to which the other party can be persuaded to agree – or ultimately, whether the 2021 Regulations apply to enable the tenant to apply for an arbitrator to provide consent in place of the landlord.

Although the Code does not override the statutory provisions of the legislation governing AHA tenancies and FBTs, its practical and clear guidance will no doubt provide a useful structure for discussions between landlords and tenants. Furthermore, the examples of reasonable grounds for refusal will put pressure on parties behaving unreasonably – the onus will be on them to show how their refusal falls within (or is comparable to) one of those examples.