How the new Model Clauses impact on Farm Business Tenancies and 1986 Act Tenancies
New Model Clauses come into effect in England on 1 October 2015. Quite a lot has already been written to publicise this change. However, there has been very little analysis of the impact of the changes. It extends beyond those tenancies governed by the Agricultural Holdings Act 1986 (the "1986 Act"). Hence there is a need for both landlord and tenant to assess how their positions may be affected.
The term "Model Clauses" is given to the statutory regulation that sets out the obligations of landlord and tenant to maintain fixed equipment under the 1986 Act. Fixed equipment is defined as including any "building or structure affixed to land and any works on, in, over or under land, and also includes anything grown on land for a purpose other than use after severance from the land, consumption of the thing grown or of its produce, or amenity…"
The Regulations that are currently in force are the Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) Regulations 1973, SI 1473 as amended by the Agriculture (Maintenance, Repair and Insurance of Fixed Equipment) (Amendment) Regulations 1988 SI 281. On 1 October 2015 these will be replaced by the Agriculture (Model Clauses Fixed Equipment) (England) Regulations 2015, SI 950. The 2015 Regulations apply only in England. The 1973 Regulations continue to apply in Wales.
Model Clauses are deemed to be incorporated into every tenancy governed by the 1986 Act except where they impose on one party to an agreement in writing, a liability which that agreement places on the other.
They are the default provisions. If a tenancy agreement is silent as to where the liability falls, the Model Clauses fill the gap.
Who is responsible?
In order to establish who is responsible for a particular repair there is a two stage process:
- Review the terms of the tenancy agreement.
- If a particular aspect of fixed equipment is not dealt with in the written agreement, there must be a review of the Model Clauses.
The passage of time means that the 1973 Regulations are outdated. There are gaps. For example, there is no reference in those Regulations to roof or wall insulation. There is no reference to slurry or silage systems. The 2015 Regulations were enacted to provide clarity.
What is the impact of the change on Farm Business Tenancies?
It is important to recognise that the impact of the new Model Clauses extends beyond 1986 Act tenancies. Some farm business tenancies adopt the Model Clauses as the repairing obligations.
Where this is the case, a clause in the interpretation provisions of the FBT may allow a reference to the 1973 Regulations to be interpreted as a reference to include any regulations that replace them. If so, the farm business tenancy will include the 2015 Regulations with effect from 1 October 2015. If there is no provision in the farm business tenancy which allows the 1973 Regulations to be updated by any replacement regulations, then the 1973 Regulations will continue to fill the gaps.
If the 2015 Regulations become relevant, then, for the reasons which I will go on to explain below, some liabilities may transfer from one party to the other. That may not had been what was intended at the outset of the tenancy. It may be necessary to review the extent to which the repairing obligations have been complied with prior to any transfer taking place on 1 October 2015.
The impact on 1986 Act tenancies
There are a number of situations to consider:
a) A tenancy agreement may be so comprehensive, setting out all of the necessary repairing obligations, that there is no need to refer to the terms of the Model Clauses in the two stage analysis set out above. However, that is likely to be the exception rather than the rule.
b) The written tenancy agreement sets out some repairing obligations and is otherwise silent. Even though there is no express reference to the Model Clauses, they provide the backup to fill in any gaps. If there is no express reference to the 1973 Regulations, then, with effect from 1 October 2015, any gaps will be filled by the 2015 Regulations.
c) A tenancy agreement expressly refers to the 1973 Regulations. If that is the case then the comments set above in relation to farm business tenancies are relevant. There needs to be a reference in the tenancy agreement itself to those Regulations being "replaced" if the repairing obligations are going to be construed by reference to the 2015 Regulations. If there is no mention of the 1973 Regulations being replaced, they will continue to be relevant to the tenancy.
d) A tenancy agreement is silent as to repairing obligations. If so, the 2015 Regulations will apply with effect from 1 October 2015. This could be because it is an oral tenancy.
The Model Clauses do not override the obligations set out in the tenancy agreement even if the tenancy agreement is inconsistent with the way in which the obligations are allocated under the Model Clauses. The 1986 Act allows the parties freedom of contract in the way in which those obligations are allocated.
What are the changes brought about by the 2015 Regulations?
The 2015 Regulations make various additions by way of clarification. If a written agreement already imposes the obligations on one party, then that will not be altered by the 2015 Regulations. The additions are summarised as follows:
Additional Obligations on the landlord
- Bargeboard, fascias, soffits, chimney linings (which is in addition to the existing obligation on the landlord for chimney stacks and chimney pots).
- Structural frames and cladding (which is in addition to the obligation for main walls and exterior walls) window sills and sill of skylights, roof insulation, wall installation, fire places, fire backs, fire bricks, reed beds for water and sewage treatments, slurry systems (excluding removable covers and tops) silage systems (excluding removable covers and tops), other effluent systems excluding anaerobic digesters (excluding removable covers and tops).
- Gas pipes, fixed liquid petroleum and gas tanks, the electrical supply system including consumer board but excluding sockets, switches, light fittings and electrical furniture. Fire alarms, carbon monoxide detectors, carbon monoxide alarms, regular inspection of the electrical supply system, maintenance and servicing, keeping records of the inspection, maintenance and servicing of the system and making them available to the tenant.
Additional obligations on the tenant
- Space heating (extending the obligation beyond just boilers),water heating systems (extending the obligation beyond boilers and ranges), garden doors, yard doors, fixed equipment for generating electricity heat or power which is wholly for the use or benefit of the tenant.
- Vehicle fuel tanks, oil tanks, radon pumps, insulation of water pipes, livestock handling systems, sheep dips, door and window furniture.
- Glass and glass substitute, the removable covers to any manhole, inspection chamber, sewage system, slurry, silage, effluent system excluding anaerobic digesters.
- Electrical sockets, switches, light fittings [although technically not an addition – see below], signs, notices.
- An increase in the threshold for the cost of replacing broken and cracked roof tiles or slates to £500 in any one year of the tenancy.
- Slurry systems, silage systems, effluent systems excluding anaerobic digesters.
- To keep clear and in good working order reed beds for water and sewage treatment.
There is now no longer an obligation on the tenant to keep all field drains and their outlets free from obstruction.
Transfer of liabilities
Under the 1973 Regulations "electrical supply systems and fittings" was the liability of the tenant. However, it did not extend to replacement, which rested with the landlord. Under the 2015 Regulations, electrical supply systems will be the landlord's responsibility, including the consumer board. However, electrical sockets, switches and light fittings on or outside the surface of walls, ceilings or floors remain the tenant's obligation.
Prudent landlords will now wish to check the state of the electrical supply system which they are about to inherit under the Model Clauses. They will no doubt wish to ensure that the tenant has complied with the maintenance obligations. Obviously, if the system is in need of replacement then that will have previously been and will remain a landlord's obligation.
For the sake of completeness, section 9 of the 1986 Act allows, where there is a transfer of liability on new Model Clauses coming into effect, the recipient to obtain compensation for the other's non-performance by referring the matter to arbitration or third party determination. However, it is important to note that the time limit for such a claim is one month from the date of the transfer of the liability. That would mean that any claim for compensation would have to be referred to arbitration (or a third party appointed) by the end of October 2015.
It is therefore important to ensure that a thorough review of the repairing obligations and the current standard of repair is carried out before 1 October 2015.
The changes to the Model Clauses will also bring into focus the ability of either party to a 1986 Act tenancy to refer to arbitration (or a third party determination) the question of whether the terms of any written tenancy agreement can be altered to reflect the Model Clauses. That will be covered in the Autumn edition of Agricultural Lore which we hope to bring out in September 2015.