Vivienne Williams
Posted on 10 Feb 2014

Succession: When is it Fair and Reasonable for an Applicant to Succeed?

A recent decision of the First Tier Tribunal (previously known as the Agricultural Land Tribunal) examined two important points.  These were:

Whether an Applicant, who could only satisfy the principal source of livelihood to a material extent, could persuade the Tribunal that it was fair and reasonable to be able to apply for a succession tenancy in accordance with section 41 of the Agricultural Holdings Act 1986; and

The value of the Applicant's residence in the farmhouse.

The latter issue is one that often arises in succession applications. The former, less frequently.

Benefits in kind

The Applicant lived rent free in the farmhouse with his father and brother.  Council Tax and utilities were paid by the farming partnership as were the costs relating to the provision of telephone and internet. There were considerable differences between the parties as to how to value this benefit in kind, what deductions (if any) should be made to take account of shared occupancy and what uplifts (if any) should apply in respect of the extra facilities enjoyed by the Applicant.

The Applicant had exclusive occupation of a double bedroom in the farmhouse, shared use of the kitchen and bathroom facilities, and shared use of the back kitchen where he stored and repaired his expensive bikes.

The Applicant submitted that the question was what the Applicant saved by being able to live in the farmhouse instead of having to pay for accommodation elsewhere?  The Applicant's valuer valued the benefit of the accommodation by reference to the cost of renting two rooms with comparable amenities on a lodging basis and then adjusted the price downwards for the previous years using the retail element of the Consumer Prices Index.

The Landlord's valuer based his assessment on the comparable of renting a room with two co-tenants. The comparable rent for a house let on an assured shorthold tenancy was divided by three to reflect shared occupancy by three occupiers.  The valuer then added the resulting figures as a one third percentage of the costs of Council Tax, heat and light, based on figures from the farm accounts.

The Tribunal preferred the approach adopted by the Applicant's valuer, looking at what the Applicant had saved by not having to rent a double bedroom with shared facilities on a lodging basis elsewhere.  They thought that that closely equated to the actual benefit enjoyed by the Applicant.  If the Applicant had been forced to leave the farmhouse he would have been more likely to seek an all inclusive double bedroom with similar facilities to the farmhouse than to seek an assured shorthold tenancy of a house and then look for two house mates.

The Applicant also tried to argue that the figure produced by his valuer should be doubled to take into account the additional facility provided by the back kitchen where he repaired and stored his bicycle.  It was agreed between the valuers that there should be an uplift for this additional space of 10% as the Applicant did not have exclusive use of it. 

Section 41 – satisfying the principal source of livelihood to a material extent

Taking into account the value of the benefits in kind, the Applicant could not show that for five out of the preceding seven years he had derived his principal source of livelihood for agricultural work on the holding.  He was therefore dependent upon satisfying the test under section 41.  This is a two stage test by which an Applicant has to show that:

(a)       The livelihood test, though not fully satisfied, is satisfied to a material extent; and

(b)       It appears to the Tribunal that in all the circumstances it would be fair and reasonable for the Applicant to be able to apply for a direction entitling him to a succession tenancy.

The Tribunal derived assistance from Littlewood v Rolfe [1981] in which His Honour Judge Fay QC stated that it was "wrong to impose a mathematical cut off point to what is material".  His view was that material should not apply only to "bare miss" cases but should be given a wider interpretation.

In the previous seven years the Applicant's percentage of livelihood derived from agricultural work on the holding ranged from 35.95% to 49.95% with only three of these years exceeding 40%.  The Tribunal held that there had been a consistent failure to reach the 50.1% figure but there had never been a "really large failure".  Consequently, the Tribunal were satisfied that the principal source of livelihood test had been satisfied to "a material extent." 

They then looked at the second limb of the test and whether, in all the circumstances, it was fair and reasonable for the Applicant to be treated as an eligible person.  The Tribunal have a broad discretion.

The Applicant argued that it was fair and reasonable because:

(i)         His circumstances were precisely those intended to be covered by the succession provisions in the legislation;

(ii)        Littlewood v Rolfe was a supportive authority for his application; and

(iii)       The Applicant had lived on the farm from birth and it was his home.

By contrast the Landlords argued that:

(i)         This was not a case where the farm provided or supported the Applicant's livelihood and his off farm earnings supported the farm; and

(ii)        A substantial part of his time was spent working away from the farm.

In addition to these arguments the Tribunal looked at the policy of the legislation defined in Littlewood v Rolfe to be "to create new rights in deserving people with a view …. to preserving the family continuity which has long been a feature of English farming life."  The Tribunal were swayed by the fact that the Applicant had a vast outside income and he had chosen not to invest all of this in developing the farming business to a level which would provide his principal source of livelihood.  The Tribunal concluded that it was not fair and reasonable for the Applicant to be granted a direction entitling him to a succession tenancy.  His circumstances were not those which the provisions of the Act were designed to protect.  Consequently his application was dismissed.

The decision of the Tribunal is detailed and well reasoned and, although not binding on any other Tribunal, provides useful guidance as to the valuation of benefits in kind and the guidelines that the Tribunal might consider in the fair and reasonableness test.

Wannop v Cartmell, First Tier Tribunal, Property Chamber (Agricultural Land and Drainage), Northern Region, December 2013

For further information contact Vivienne Williams on 0117 906 9302 or email vivienne.williams@michelmores.com