Family farms: The tenancy conundrum

In February 2021 the Court of Appeal ("the CA") handed down a decision that has a significant impact on property law.

The issue that the CA had to determine was whether three family members were entitled to a tenancy protected by the Agricultural Holdings Act 1986 ("AHA 1986"). 

The facts

The Procter family farm in Yorkshire comprises around 600 acres of agricultural property ("Farm"), six residential properties and a number of agricultural buildings. 128 acres of the land was a golf course.

The ownership of the Farm was complex. The properties comprising the Farm were held, farmed and managed by a number of different vehicles: trusts; a family partnership set up in 1980; a limited company incorporated in 1992; and by the three siblings who were the parties to the litigation: Philip (P), James (J) and Suzanne (S).

The farming was carried out by the family partnership. There was no written tenancy agreement governing the occupation. Historic tenancy agreements had all ceased before 1994. P and J argued that the tenancy came into existence at that time.

In 1994 the freehold owners were the trustees of a trust: Father (F), Mother (M) and P. The partners were: F, M, P, J and S.

P and J are the only remaining partners. S retired in 2010.

First Instance Decision

At first instance, the Judge determined that the partnership would have been entitled to a tenancy, created by conduct, because there was an intention to create legal relations, rent was paid by virtue of adjustments in the accounts and the partnership had exclusive possession of the land.

He concluded that the tenants were P, J and S, despite S retiring from the partnership.

However, he determined that there was not AHA 1986 protected tenancy for the following reasons:-

  • At common law a tenancy cannot be created where there is an overlap between landlord and tenants.
  • As there was no written tenancy agreement, it could not be validated by section 72 of the Law of Property Act 1925.
  • If there was a tenancy, it had not been granted for the best rent reasonably obtainable so took effect as a tenancy at will (the Judge did not need to consider whether this gave the tenancy the protection of the AHA 1986).
  • If the arrangement was a licence, there was an overlap between the licensors and the licensees so they could not have exclusive occupation against the former. Protection under the AHA 1986 failed because that was an essential ingredient for the licence to gain the protection of the AHA 1986.

P and J appealed.

Questions to be answered by the Court of Appeal

  1. Could ABC grant a lease to ABCDE and can it be inferred from conduct?

Answer: Yes.

At common law a tenancy can be inferred from conduct or created orally even where there is an overlap between the parties who are the landlord and the tenant. There is no requirement for the tenancy to be to be created in writing using section 72 LPA.

Note – the same parties who are the landlord cannot grant a tenancy to themselves as tenant (i.e. ABC to ABC).

  1. Can there be exclusive possession where the parties who are the landlord and the tenant overlap?

Answer: Yes.

Where the parties overlap they are entitled to occupy in different capacities. F, M and P had two different types of possession. They were entitled to receipt of rent and profits as landlord. As tenants with J and S they were entitled to exclusive possession of the land.

  1. Does a tenancy at will have the protection of the AHA 1986?

Answer: Yes.

A tenancy at will is a letting for an interest less than a tenancy from year to year within the meaning of section 2 of the AHA 1986.As a result of the CA's decision on this point, it was not necessary to consider whether the arrangement constituted a licence to which converted into statutory protection under the AHA 1986.

  1. Did the fact 27% of the Farm was a golf course meant that the Farm could no longer be characterised an agricultural holding and as such had lost the protection of the AHA 1986?

Answer: No.

This aspect of the CA's decision arose out of a cross appeal brought by S. The Judge at first instance held that the diversification into a golf course did not affect the "character" of the tenancy, which was agricultural. The cross appeal was dismissed. The CA was content to respect the Judge's decision as he had been immersed in the detail at trial.

He concluded that the golf course had been ancillary to the farming business and was a diversification.

Conclusion

In the agricultural sector there are still many occupying land under historic arrangements, where the terms of occupation are not documented in writing.

In light of the CA's decision, there is now greater scope for occupants to argue that their occupation is afforded the protection of the AHA 1986.