Development Land: Tenancies, Termination and Tactics

The political and economic pressures around housing continue, with supply consistently falling short of demand. In its 2019 manifesto, the Conservative Party re-affirmed its commitment to promoting housebuilding, maintaining a target of 300,000 homes a year by the mid-2020s and pledging to simplify the planning process to get more homes built.

As a result, more and more landowners are considering the residential development prospects for their land. It is easy to see why; land with a planning consent for residential development may be worth as much as 50 times as land without. There is particular potential for the development of agricultural, greenfield land which tends to be favoured by developers as it usually has lower setup costs than an equivalent brownfield site.

It is important for landowners who are assessing the development potential of their land to consider the impact any existing agricultural tenancies might have on the process. There are a number of potential concerns relating to such tenancies, from security of tenure to the potential for any existing tenant to frustrate the planning process. Before we consider these in detail, it is important to clarify the different types of agricultural tenancy that might affect the land, as the options for termination vary considerably. There are broadly two types of agricultural tenancy, and the general provisions of each are shown in the table [please see further below]. 

Terminating agricultural holdings under the Agricultural Holdings Act 1986 for development

The First-tier Tribunal (a special property tribunal) has recently decided that the notice requirements of the Agricultural Holdings Act 1986 only present one avenue for recovering possession of land on the grounds of development – that is, service of a Case B Notice once planning permission has been obtained. This can be a lengthy process, particularly if the tenant disputes the notice. Furthermore, as notice can only be served once planning permission has been obtained, commencement of the development can be delayed.

Frequently, landowners will only wish to develop part of the holding occupied by a tenant, which presents a further complication with recovering possession. For a tenancy under the 1986 Act where only part of the land is required for development, a landowner may find itself unable to terminate the tenancy lawfully. This would arise if the tenancy does not allow for termination of part, and the (limited) statutory exemptions contained in the 1986 Act do not apply. In such a scenario, a landowner should consider severing the reversion by selling or gifting part of the freehold to another person - although there remains some doubt as to whether such an arrangement would be effective - or alternatively, attempting to agree a surrender with the tenant.

Terminating tenancies under the Agricultural Tenancies Act 1995 for development

By contrast, Farm Business Tenancies under the 1995 Act present a much more landlord-friendly approach to termination. The landlord does not have to demonstrate that the land is required for a particular purpose or rely upon a breach by the tenant, it can simply serve a Notice to Quit, and regain possession of the holding on the expiry of that notice.

Surrender – first port of call or last chance saloon?

In light of the complications associated with termination under the 1986 Act, it is not unusual for landowners to explore a surrender with a tenant as their first approach. This is particularly likely if the landowner has a good relationship with their tenant, or if the landowner has identified that it is unable to terminate the tenancy lawfully.  Equally, a surrender may provide a solution for landowners with a difficult tenant, and especially those tenants who are considered likely to challenge any notice served. It is also possible to agree a surrender once a notice to quit has been served.

Landowners should handle surrender negotiations carefully. A tenant who gets wind of the landowner’s plans for development may seek to hold the landlord to ransom, demanding a sizeable premium for surrendering its tenancy and protected status. Landowners are advised to seek strategic advice prior to engaging with tenants in order to protect their negotiating position and ensure any agreement reached is documented, to reduce the risk of any later challenge by the tenant. For example, any surrender agreement will ideally include an obligation on the tenant not to object to or otherwise attempt to frustrate the planning application for the development.

Development agreement considerations

Landowners looking to enter into an option agreement or a promotion agreement with a developer or land promoter will need to disclose any agricultural tenancy affecting the land. The developer or promoter will want to ensure that once planning permission is obtained, vacant possession of the site can be obtained either to allow the developer to implement the planning permission or for the consented site to be disposed of to a developer.

If the parties agree that the land is to be handed back to the landlord at some point in the future, landowners may also wish to consider an agreement for surrender which will be completed as and when planning permission is granted.  If the tenant is agreeable to such an approach, it enables the landowner to keep the rental income from the tenancy for as long as possible, pending the grant of planning permission.

A further alternative is to agree a surrender of an existing 1986 Act tenancy and to grant the tenant a new Farm Business Tenancy with an early break right for the landlord. However, this will require the tenant’s agreement and can cause uncertainty for an agricultural tenant’s business, particularly around crop cycles.

Timing

Landowners should be particularly careful if they enter into a sale contract with a developer that is conditional on the developer obtaining planning permission. An organised developer who is dealing with a site which has already been allocated in the local plan, may well obtain outline planning consent sooner than the statutory notice periods for terminating an agricultural tenancy, which could leave a landowner in breach of the requirement under the conditional contract to deliver vacant possession.

An option or promotion agreement will also impose restrictions on the landowner dealing with the land, usually to avoid any tenancy being granted with security of tenure or with a notice period exceeding an agreed timeframe (typically between six and 12 months). It is therefore important that landowners take proper advice on the granting of any new tenancy or any renewal to ensure they do not fall foul of these requirements. 

How Charles Russell Speechlys can help

At Charles Russell Speechlys, we have a number of specialist teams who can assist with the management of agricultural tenancies and the issues affecting land development:

• We have a dedicated Strategic Land team within our Real Estate group which routinely advises landowners on option agreements, promotion agreements, conditional contracts and all other types of land development
• Our Real Estate Disputes group is regularly instructed to deal with termination of both 1986 Act and 1995 Act tenancies, and in relation to proceedings before the First-tier Tribunal
• Our Rural Business & Landed Estates group is a market leader in agricultural law and the management of rural businesses

Please contact James Green or Emma Preece if you have any queries in relation to the development of agricultural land or require advice in relation to an agricultural tenancy.