Agriculture Act 2020: Landlord and Tenant Reforms - Now and Later
Much has already been written about the Agriculture Act 2020. This article focuses on the changes affecting the landlord and tenant relationship for both agricultural holdings and farm business tenancies. Although it is only the least contentious of the original proposals put forward in 2017 by the Tenancy Reform Industry Group that have made it through to the new Act, their application to real cases is not entirely straightforward and the varying dates for their coming into force leave room for misunderstanding and error. We consider the new provisions and highlight when these will take effect.
Changes to the Agricultural Holdings Act 1986 ("1986 Act")
It has taken 5 years to get to a position where third party determination of rental disputes stands on the same footing as arbitration. Third party determination was inserted into the 1986 Act as an alternative way to resolve issues over rent. Crucially it is not expert determination. It can be any third party, experienced or otherwise. However, the Deregulation Act 2015 made a critical error in the way in which it was drafted. It meant that a third party had to be appointed to determine the rent at least 12 months before the review date, whereas an arbitrator only has to be appointed by the review date, giving the parties an opportunity to reach an agreement before incurring too many costs. The changes in the Agriculture Act 2020 address that position, so that the appointment of the third party only needs to be before the review date.
This change will come into force on 11 January 2021 in England and Wales meaning that for any rent review date falling after 11 January 2021, where no appointment has yet been made, the parties have a choice as to whether to use an arbitrator or a third party. Both parties have to consent to the use of a third party. By contrast, an application can be made to an appointing body for an arbitrator to be appointed if the parties can't agree. It will be interesting to see whether third party determination becomes as prevalent as arbitration as the means to resolve rental disputes.
Schedule 2 of the 1986 Act sets out the provisions that have to be followed in a rent arbitration or a third party determination on rent. An amendment has been inserted into paragraph 3 which operates in circumstances in which a landlord and tenant have a written agreement specifying the tenant must make payments in return for improvements on the holding, financed by the landlord. In that event, the arbitrator or third party, when assessing the rent, must disregard the fact that the tenant is required to make a payment and disregard any benefit to the tenant from the improvements before the date that the last payment is made.
The intention is to encourage landlords to invest in holdings to boost productivity and ensure that tenants do not end up paying twice for the improvements that they receive.
This amendment will come into force in England and Wales with effect from 11 January 2021 and will therefore impact on any rent reviews, where section 12 notices have already been served and the rent review date falls on or after 11 January 2021. As a consequence, it may also impact on any rental discussions that are currently taking place.
Appointment of arbitrators
When the 1986 Act first came into force, it specified that various disputes had to be referred to arbitration and if the parties couldn’t agree the identity of the arbitrator, one or both could apply to the RICS for an appointment to be made. Although the Deregulation Act 2015 extended dispute resolution in most cases (except disputes on notices to quit) to allow third party determination as an alternative, this can only be used where parties want to make that choice. They cannot be compelled. The Agriculture Act 2020 doesn’t alter that. Arbitration remains the only mechanism that can be forced on a party, however, the appointing bodies have been widened to include the Agricultural Law Association and the Central Association of Agricultural Valuers, alongside the RICS. Both of those bodies now have panels of arbitrators in place. Hopefully there won't be too many instances of arbitrators being appointed by different organisations in relation to the same dispute. This change will come into force on 11 January 2021 in both England and Wales.
Request for landlord's consents
The Agriculture Act 2020 gives DEFRA and the Welsh Ministers the power to bring in regulations which allow a tenant, in circumstances where a request for consent was refused by the landlord, to refer that to arbitration. The landlord and the tenant can instead agree to a third party determination if they so wish.
The tenant's request must be either for a variation of the tenancy or a request for consent to enable the tenant to request or apply for financial assistance or to comply with a statutory duty. Further detail will be sent out in regulations. The Act also gives power to allow the regulations to specify other conditions that have to be met by the tenant.
The purpose is to loosen the restrictions on tenants, which currently exist in tenancy agreements, so they have a better chance of being able to access funds in the new world of "public money for public goods". It is also with an eye to varying terms which prevent tenants undertaking activities to meet regulatory requirements, specifically environmental obligations. This is a clear move away from freedom of contract and gives third party oversight to the private landlord and tenant relationship. It will no doubt be a while before we see the form of any draft regulations and the outline of when an arbitrator might be able to grant consent. DEFRA freely admit that it will be the summer of next year before we see any proposed detail. Confusingly we will see separate regulations for England and Wales, possibly enacted at different times.
Case A Notices to quit
Case A Notices to Quit are relevant where a holding is let as a small holding and at present those notices can only be served once a tenant reaches 65 and other conditions are met. From 11 January 2021 in England and Wales that will change so that the age of 65 is replaced by the tenant's pensionable age.
Succession on retirement or death
The minimum age for a retirement notice of 65 is abolished in England and Wales with effect from 11 January 2021. The commercial unit test (together with the whole of schedule 6 of AHA 1986) also goes, however this provision will not come into effect until a date appointed in regulations brought in by the Secretary of State. These changes will take effect in England and Wales and cover all successions which have not been decided prior to the relevant date. The objective is to improvement productivity, allowing farmers operating on a larger scale to succeed if all other conditions are met and moving a tenancy down a generation if the requirements are met. Before the regulations come in, applications will still have to be able to show that they are not an occupier of a commercial unit. Thought will therefore need to be given as to whether to delay succession applications (if possible) until this change comes into effect.
When Schedule 6 goes, provisions will be added into the Act so that attendance at a full time course at university or college can still count towards the period required for the principal source of livelihood test. However, three years' attendance is the maximum period which will be taken into account.
The new regulations which will abolish the commercial unit test in England and Wales will set out the new business competency test. Strangely, however, the factors that a Tribunal have regard to when assessing suitability on a succession application following death (set out at section 39(8)) are removed with immediate effect. The notable point is that the reference to the age of the applicant disappears. These immediate changes are not reflected in the sections that deal with suitability on an application following a retirement notice.
The detail of the proposed business competency test in the Agriculture Act 2020 is limited. It says that the regulations must relate to the person's likely capacity to farm the holding commercially, to a high standard of efficient production and care for the environment. The Act goes on to state that the regulations may include:-
- criteria relating to the person's experience, training skills and agricultural or business management;
- criteria relating to physical health, financial standing or character;
- criteria relating to character/condition of the holding or terms of the tenancy.
Although these may not be the final form of the criteria, it is interesting that for the first time there is a focus on care for the environment and business management skills. Notably, the age of the applicant doesn't reappear in these outline provisions. The business competency test, in whatever form it takes, will not come into force until further regulations are passed. Again, there are considerations to be made in each case as to whether to make a succession application before the new regulations come into force.
Changes to the Agricultural Tenancies Act 1995 ("1995 Act")
The Agriculture Act 2020 has limited impact on the 1995 Act and farm business tenancies. Disappointment has been expressed in some quarters that the Government should have gone further in making a similar form of consent arbitration available to farm business tenants.
The only change that has been made to the 1995 Act relates to the bodies which can appoint arbitrators. Certain disputes under the 1995 Act must be compulsorily referred to arbitration. These are disputes over rent, consents to improvement and compensation. Section 28 of the 1995 Act also allows for alternative dispute resolution through arbitration.
In each case, where the parties are unable to agree the identity of the arbitrator, they apply to the RICS to appoint an arbitrator. That remains, but the appointing bodies have been widened. In addition to the RICS, with effect from 11 January 2021 applications can be made to the ALA and the CAAV.
The reforms that made it all the way through to the statute book are a slimmed down version of the reforms that were debated in consultation. However, it does not mean that the changes in the Agriculture Act 2020 are straight forward. They have implications to existing landlord and tenant relationships and should be carefully considered when advising on succession, rent and disputes.