In 2017 the Tenancy Reform Industry Group proposed several changes to agricultural tenancies. Amongst these, one of the few that made the final cut of the Agriculture Act 2020 (“AA 2020”), allowed tenants of holdings protected by the Agricultural Holdings Act 1986 (“AHA 1986”), to refer to arbitration or third party determination, restrictions preventing them from claiming subsidies or fulfilling statutory obligations.
We now have the details of this mechanism with the passing of the Agricultural Holdings (Requests for Landlord’s Consent or Variation of Terms and the Suitability Test) (England) Regulations 2021/619 (“2021 Regulations”), which was made on 24 May 2021. These regulations introduce two principal changes to the AHA 1986 in England: this new mechanism to override tenancy restrictions comes into force on 21 June 2021; and the second major change, with effect from 1 September 2024, is to abolish the commercial unit test and create a new suitability test.
In this article, we will consider the imminent ability of tenants to override tenancy restrictions and briefly highlight some potential consequences of this new power.
Under the 2021 Regulations, a tenant of an agricultural holding in England may refer a “qualifying request”, which meets certain conditions, to arbitration or third party determination.
First, the request must be either for the landlord’s consent to a matter which requires consent under the tenancy or it must be a request for a variation of the terms of the tenancy. An example would be a landlord’s restriction on claiming subsidies.
Secondly, the request must be made for the purposes of either:
Thirdly, the tenant must not have been able to reach an agreement with the landlord over the request.
Financial assistance is defined in regulation 2 of the 2021 Regulations and incorporates three types of financial assistance: that provided by the Secretary of State for the 12 purposes described in section 1 of the AA 2020 (including a wide variety of environmental, animal health & welfare, public access and conservation purposes); financial assistance provided by the Secretary of State in exceptional market conditions (section 21 AA 2020); and lastly financial assistance given to creators/operators of third party schemes in connection with its creation or operation (section 2(4) AA 2020). The new Environmental Land Management Scheme (ELMS) falls within section 1 AA 2020.
The tenant can only refer the request if the following requirements are fulfilled:
In addition to the pre-condition request, a tenant who wishes to make a reference to arbitration or third-party determination must serve a notice on the landlord, which contains certain details set out in section 6 of the 2021 Regulations. In summary, these require:
After service of the tenant’s notice the landlord has 2 months within which to serve a counter-notice, in which he must either consent to the request, consent with conditions (which must be set out), or refuse the request.
If the tenant either does not receive a counter-notice or receives either of the latter two types of counter-notice from the landlord, he then has 4 months within which to refer the request to arbitration or third party determination.
The 2021 Regulations set out the options for the award or determination, available to the arbitrator or third party. They can order the landlord to comply with the request in full or to a specified extent. Alternatively, they can make “such other award or determination as the arbitrator or third-party considers reasonable and just, as between the landlord and the tenant having regard to all relevant matters including:
(a) the tenant’s quiet enjoyment of the holding;
(b) the landlord’s reversionary interest in the holding;
(c) other property of the landlord and the tenant;
(d) evidence as to the settled objectives of the landlord and tenant;
(e) the desirability of making the least change to the tenancy that is reasonably necessary to give effect to such variation or approval that the arbitrator or third party may direct.
The “reasonable and just” criteria also applies to four further issues connected with the award or determination. These are a decision regarding the payment of costs, any conditions to impose relating to the application for financial assistance, any conditions restricting the tenant from making another reference to arbitration for the same request and tenancy, and conditions regarding other matters, including the time when the award or determination takes effect.
The 2021 Regulations expressly prevent an arbitrator or third party from making any variation to the rent within the award. A similar restriction is imposed with regards to compensation, except that the arbitrator or third party may direct that any consent or variation must be disregarded for the purposes of assessing end of tenancy compensation payable to the landlord for deterioration of the holding.
Most of this procedure is fairly straightforward, however, some wider issues arise.
The new ability given to AHA tenants to override tenancy restrictions is doubtless prompted by the transition from direct subsidies (which tenants have generally had freedom to claim) to environmental support, over which landlords have historically had more control. Without these provisions, AHA tenants could be cut off from the new subsidy income stream altogether.
Over the course of the last 37 years since milk quotas were first introduced, the Government has aimed direct subsidies towards tenants, rather than landlords, presumably because direct subsidies were originally linked to production and were intended to compensate producers for a drop in income.
With agri-environment schemes, the position has been slightly more flexible between the parties and we have, in England, seen the development of dual-use scenarios, although rarely relevant to AHA tenancies.
However, this is the first time in decades, that we have seen an express power given to AHA tenants to take steps to override the terms of a written tenancy agreement. Not only that, but it covers all manner of different types of subsidy schemes that could be created in the future under the AA 2020 – far wider than the production-linked direct subsidies of the past.
Schemes could relate to issues as diverse as public access to the holding, forestry activities, and supporting “ancillary activities”, which extend to activities such as the marketing, packaging, and processing of products derived from agricultural, horticultural, or forestry activity.
Furthermore, the variation of the tenancy could include a variation as to, for example, use of the holding, if that changed use is linked to the (very diverse) financial assistance scheme or to the statutory duty. We could see tenancy terms varying significantly depending on how future subsidies and legislation change.
The only express limitation is contained in regulation 4(5) under which an arbitrator or third party can direct that any consent or variation given by them must be disregarded when end of tenancy claims by the landlord are determined. This could result in tenants being liable for compensation for breach of the original terms of the tenancy or for general deterioration of the holding. With the threat of this in the background, tenants will need to keep this firmly in mind when considering what activities and financial assistance they claim.
Many AHA tenancies are decades old and will contain limited restrictions in any event. For those succession cases in which more modern agreements apply, it remains to be seen how the exercise of this new power develops over the coming years.