AHA Reform: What next?
The TRIG Working Group, which has considered the reform of the AHA 1986, was chaired by Jeremy Moody of the CAAV. It has representatives from the CLA, the NFU, the RICS and the TFA, as well as the Agricultural Law Association. Given Jeremy’s own encyclopaedic knowledge of the subject matter, it is not surprising that TRIG’s analysis of the AHA 1986 represents the largest part of the proposals which have been published.
How important is this sector?
The answer to this question, provided by the Working Group, is that 22 years after the Agricultural Tenancies Act 1995, AHA tenancies (AHAs) still account for towards 17% of the agricultural area of England. With a significant number being larger and equipped units, often the base for substantial farming businesses, using FBTs and owned land, AHAs are, on current trends and with remaining successions, likely to be a significant force until after 2050, with some final successions and company tenancies running into the next century. In essence, enough work to keep me before retirement!
The Working Group has also recognised that consideration of the AHA sector is inevitably and exclusively about changing the framework for existing agreements. In principle, no new AHA can be created without replacing one already in existence. TRIG points out that this means that the topic is about potential changes to the established property and contractual rights and obligations of parties. That need not be “a zero-sum game, especially in the context of seeking to unlock more value, but poses challenges” and affects expectations.
The Working Group has identified that concerns about productivity as regards AHAs requires one to look at who is farming and how they do so, focusing on:
- Upholding standards
- Encouraging justified investment
- Enabling innovation
- Limiting succession to the best qualifying candidates
- Facilitating retirement
What has the Working Group suggested?
The answer is that the proposals fall into two groups. The first is that which has unanimous support from the working party. Secondly, there are some ideas which have substantial, but not unanimous support.
In the first category the list is as follows:
- The option to ring-fence landlords’ investment agreements from rent review
- The tenant’s ability, where a clause in the tenancy agreement prevents this, to take to dispute resolution the question of consent to do works needed to meet statutory requirements, with the result being treated as a fixture, rather than being compensatable under statute.
- Introducing time limits and counter-notice proposals for Case D
- The easing of the time limit for game damage claims
- Reform of the rules for third party determination of rent reviews
- Further reform of dispute resolution to provide a basic framework for third party determination as an alternative to arbitration
- The principle of a statutory mechanism for conversion of an AHA to an assignable fixed term AHA, although not complete agreement as to the mechanics for doing it
- Removing succession rights above a specified age
As to those proposals which did not have unanimous support, they are threefold:
- A package of measures regarding variation of tenancy terms
- The repeal of the Commercial Unit test and the replacement of the Suitability Test with a Business Competence text for succession applications
- The modernisation of the close relative definition to include children of cohabitees
It is beyond the scope of this article to comment upon each of these items in detail. Indeed, the reader is recommended to go to the TRIG report itself. However, the following observations may be of interest.
Reform of notices to remedy
The suggestion that there should be a reform of notices to remedy which do not involve undertaking work is long overdue. Some may say that it is 70 years overdue. Certainly it should have caught the eye for the reforms contained in the Agricultural Holdings Act 1984. The problem being addressed is a simple one. Take the situation where there is an alleged breach of the farmhouse residence clause, but the tenant says that the covenant has been waived. The landlord serves a notice to remedy. Currently there is no mechanism for challenging that by a demand for arbitration or counter-notice. The tenant either needs to go to the Court to obtain a declaration that the covenant is unenforceable or comply with the notice to remedy or face a notice to quit, following a failure to comply. The mechanism for resolving the issue as to the whether the covenant is enforceable in the first place, by way of a challenge to the notice to remedy, is plainly welcome.
This was introduced in relation to disputes under the AHA 1986 (other than in respect of notices to quit) as a consequence of the Deregulation Act in 2015. Some of us were not convinced that expert determination was required, but it gives the parties a different option. There is nothing wrong with that. However, if it is to be adopted, particularly side by side the pre-existing arbitration provisions, it needs to be flexible. When it was introduced by the Deregulation Act, it was hedged around with various procedural rules. It is an area that needs to be addressed. Again, that is welcome.
Determination as to breach
Although it does not have universal support within the working group, possibly the key measure, as regards tackling the ‘how’ of farming in the AHA sector, is the proposal to enable either the landlord or the tenant to seek a determination as to whether an action, in breach of a term of the agreement (or the variation of such a term), would be reasonable. TRIG sees this as a means for significant modernisation of agreements. Plainly it also has the potential for leading to disputes about what is reasonable. At a time when the RICS Panel has a lower number of members than at any time since I have been practising, it is clearly time to expand the Panel.
Conversion to fixed term tenancy
By far the most notable proposal relates to the ‘who’ of farming in the AHA sector, and the proposal that there should a mechanism to convert an existing AHA tenancy to a fixed term one that can be transferred to a third party. The Introduction to the Final Report of 8 October 2017 refers to the requirement for “checks and balance” to protect landlords’ interests. Perhaps it means “cheques”...
TRIG is not the first body to suggest changes in relation to the law of succession. DEFRA established the Future of Farming Review under the chairmanship of David Fursdon. In its report, produced in July 2013, it suggested that it was “not...to gather dust on a shelf in a darkened room”. That report contained a “Legislation Framework”, which included addressing tax and tenancy law. None of that Reports’ recommendations have been implemented, including in relation to the law of succession.
TRIG’s proposal is plainly one way to address the issue of an ageing AHA tenant population. Another route, not proposed by TRIG, might be to extend the definition of “close relations” who can apply for succession to include grandchildren. Many readers will have experienced farms which have effectively skipped a generation, but the tenant continues because grandchildren cannot apply for succession. A change in the law in this regard, perhaps trading one of the two successions, if the tenancy is to pass down missing a generation, is something that might be considered.
In fact (and this is one of the unanimous proposals from the Working Party), TRIG has gone the other way, proposing a bar on succession when the tenant is more than five years passed the stage for receiving the state pension. This serves to reinforce the ageing population.
There are two other related proposals as regards succession.
One is to repeal the commercial unit test. The logic of this is that the current law excludes progressive applicants who have built businesses and it removes “much regulatory clutter”. However, the other side of the coin is replacing the suitability test for applicants with a more demanding business competence test.
Other ideas for reform
Lastly, a footnote. The TRIG proposals do not address a raft of other areas which could be tackled to reduce areas of dispute under the AHA. The requirements for Case B is one such area. Also, is there an agent in the country who thinks that it is a good idea to have to serve a Section 12 notice twelve months before the rent review? If there is, I am yet to meet him or her.
There are many other examples.
One thing is certain and that is that TRIG has provided food for thought. It remains to be seen what legislative change will flow from it.