Get clued up on farm tenancies and licenses

This article was first published on Devon Live on 30 October 2017 and is reproduced by kind permission.

Whatever form of agreement is decided, it is always worth seeking proper advice, Michelmores Exeter's Philip Wolfgang is urging farmers and landowners.

We often find that we are asked to advise landowners and farmers on the relative merits of tenancies and licences and it seems that there is much confusion surrounding the difference between the two.

A licence grants the licensee the right to do something specific on the land. You could use a licence to give someone the right to take the grass, graze livestock or hold a fair etc. It can be thought of as permission, without which the licensee would be trespassing. It does not confer any “interest” in the land nor any right to occupy it exclusively.

A tenancy on the other hand gives the tenant exclusive possession of the land for a fixed period of time with the intention to create an interest in the land, that can be transferred or sold. They give the tenant more rights than a licence.

Avoiding an accidental tenancy

What matters in judging whether an agreement is a licence or a tenancy is not the title of the document or the words within, but what really happens on the ground.

If you use a licence agreement, but try to include some of the matters a landlord needs to protect his or her interest, you risk a judge saying it is a tenancy.

But because you have not drawn it as a tenancy, you may not have included the correct provision for ending the tenancy, and you may be stuck with a problem tenant for a long time.

On the other hand if you leave out all the "tenancy stuff" from your licence agreement, you may indeed have successfully created a licence, but at the price of losing control of how the licensee looks after your land, fences and gates.

Which agreement do you want?

If your "letting" is actually the sale of a crop, most usually grass, for less than a year then you should use a grazing agreement.

If the land will be used for (non-agricultural) business purposes (for example, to store equipment owned by a business) then a standard lease, regulated by the Landlord and Tenant Act 1954, should be right.

If your occupier might just start to use the land at some time for his or her business, use and agricultural tenancy, rather than risk problems in future. A good marker here is whether any building is included in the occupancy. If there is, keep an eye open from time to time to make sure your occupier is not using it to repair tractors or to store a product for sale.

If your occupier is in business in agriculture use a farm business tenancy agreement.

If the occupation is for a short period and for a specific use, then an agricultural licence might be appropriate. For example, a licence may be appropriate for a four week letting for a summer event, or for ten Sundays in the summer for an organiser of a car boot sale.

The longer your occupier has possession of your land, the more likely it is that he will find some reason to stay even longer. So I advise that no matter what the circumstances, keep any licence agreement to no more than one year (preferably much less) and renew as necessary. If you want to let for more than a year, use a business lease for land or an agricultural tenancy.

Whilst looking at tenancies it might be helpful to mention that the words "tenancy" and "lease" mean approximately the same thing. Parliament generally uses "tenancy" when referring to residential leases and "lease" when referring to business leases.

With agricultural lettings, where the property is used for agricultural business (i.e. farming), leases are known in the legislation as "farm tenancies" or "farm business tenancy agreements".

Applying the law

To be protected by statute law, a tenant must either live on the property or conduct business from it. If your tenant does not do either, you can let your land under any terms you like.

But if a tenant puts a caravan on the land and lives in it, or sells the mushrooms that grow on it, or fattens a pig for sale, or sells the hay in the barn, or repairs cars in the shed, then tenant protection law applies. In some places, the line to draw is very fine. A letting to a horse owner to use a stable and enjoy his horse is not protected, but if he puts her in foal, he is breeding horses and that is a protected agricultural use that could create a farm business tenancy.

Whatever form of agreement you decide you need it is important that it does what you want and expect it to do and that the parties to it know and understand their respective rights and obligations and if you are in any doubt it is always worth seeking proper advice to ensure you don't fall into the traps.

For more information please contact Philip Wolfgang, Partner in the Agriculture team on 01392 687720 or philip.wolfgang@michelmores.com.