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When applying to succeed to an Agricultural Holdings Act1986 (AHA) tenancy, the Tribunal historically applied its wide discretion in deciding whether an applicant met the ‘suitability’ criteria.
Under the old succession rules, which apply to applications for succession where the date of death or retirement notice is pre-1 September 2024, the suitability criteria was relatively straightforward and reasonably understood.
The new ‘suitability’ rules widen the matters the Tribunal is expressly directed to regard. However, most of the criteria is principally familiar. In respect of those considerations, is the Tribunal to raise the bar against which the applicant is assessed?
Aspects of the new criteria that are less familiar relate to considerations of ‘high standards of efficient production and care for the environment’. In the absence of reported Tribunal cases providing guidance on how the new test is being applied, what can applicants and landlords expect and how can they best prepare? Succession Applications: What makes a ‘suitable’ applicant?
The new suitability test
When looking at the suitability of an applicant, the Tribunal must still consider ‘all relevant matters’, including:
- their capability and capacity to farm the holding commercially, with or without other land, taking into account the need for high standards of efficient production and care for the environment in relation to managing that holding;
- their experience, training and skills in agriculture and business management;
- their financial standing and their character;
- the character, situation and condition of the holding; and
- the terms of the tenancy.
In addition, the new rules introduce a hypothetical test; the Tribunal must be satisfied that if the applicant had applied in an open competition for a tenancy of the holding, a prudent and willing landlord could reasonably be expected to regard the applicant as among the candidates to whom they would be willing to grant the tenancy.
What has changed?
1. Farming commercially
The express requirement to farm commercially is new. However, the requirement to run a commercial operation from the holding has always been a requirement of an AHA tenancy as the legislation requires the holding be used for the purposes of a trade or business.
In considering the applicant’s capability and capacity to farm the holding commercially, the Tribunal is directed to consider ‘the need’ for high standards of efficient production and care for the environment. The wording compels the Tribunal to place significant weight on those matters. Such an assessment is likely to be both subjective and uncertain.
Applying broad industry standards to efficient production will not always be appropriate and it will be subject-holding specific. In terms of ‘care for the environment’, will it be sufficient for the applicant to show that they intend to and are able to join environmental schemes? Will the applicant need to demonstrate a clear pathway towards regenerative farming practices? Expert evidence will be needed to assist the Tribunal in determining what is practicable and reasonably achieved on the holding.
Past performance of the farming operation under the management of the outgoing tenant, should not hinder the applicant. Showing that the applicant has the skills (and means) to effect that change, will be central to satisfying the Tribunal that the farming operation can meet the standards required.
There has always been an expectation that the applicant submit a business plan setting out how the business would run if the applicant was to secure the tenancy. The robustness of that document will be key to informing the Tribunal of the matters now central to the suitability criteria.
2. Experience, training and skills
Previously, the wording of the suitability criteria directed the Tribunal to consider the extent to which the applicant had been trained in or had practical experience of agriculture.
The Tribunal will now, however, look at the applicant’s experience, training and skills in business management as well. It will be even more important for applicants to show that they have been actively involved in the management of the farming business and have the skills to manage the business going forward.
3. Financial standing
The financial standing of the applicant is a familiar part of the suitability test. It is already subject to considerable scrutiny in the first limb of the succession criteria (the eligibility test), with the applicant having to prove they meet the ‘principle source of livelihood test.’ The financial standing of the applicant will be considered as part of the Tribunal’s assessment as to how the holding is to be farmed commercially going forward.
4. Hypothetical test
With regards to the hypothetical tendering test, this goes to the very heart of the suitability test. It is the litmus test for all succession applications- based on the new or old rules.
The revision of the suitability test, with a focus on commerciality, is intended to encourage productivity and the development of the farming sector. This is reflected in a further change to the succession criteria that tenants who are farming a ‘commercial unit’ are no longer precluded from applying to succeed to an AHA tenancy.
Planning and Preparation
When the Tribunal considers an application for succession, it is, primarily, an assessment of the years leading up to the tenant’s death or the service of the retirement notice. How the applicant has performed in that time, will form the basis of the applicant’s case. Planning, organisation and the appropriate structuring of the business operation and finances, remain key to any anticipated succession.
Preparation for succession must be undertaken with the new suitability criteria firmly in mind. It remains the case that the timing of a retirement notice is a key strategy for tenants who wish to secure the holding for a close relative. This has only been enhanced with the abolition of the retirement age for the outgoing tenant. Tenants and their successors need to think about succession to AHA tenancies, as part of their lifetime planning not only on death.
Thorough and strategic planning will allow tenants and their successors to demonstrate a clear case for succession thereby providing families with the opportunity to negotiate a succession tenancy with their potential landlords.