Top 10 Tips: Terminating agricultural tenancies affecting development land
Developers and Promoters will want to ensure that vacant possession of a site can be delivered before incurring planning costs. Agricultural tenancies can be difficult to terminate depending on the type of tenancy in existence, the attitude of the tenant, and the development proposals. Here are our top tips:
1. Consider the importance of timing
Landowners should seek advice as early as possible so that the timings of dealing with terminating an agricultural tenancy can be factored into an option, promotion or development agreement.
2. Know what type of tenancy you are dealing with
The date of the tenancy agreement will determine the position, broadly:
- Agricultural tenancies created under the Agricultural Holdings Act 1986 (AHA) are written or oral agreements created before 1 September 1995
- Farm business tenancies created under the Agricultural Tenancies Act 1995 (FBT) are written or oral agreements created or after 1 September 1995
- AHA tenancies are very secure and can only be terminated in limited circumstances - FBT tenancies on the other hand present are far more straightforward to terminate due to the tenant’s lack of security.
3. Ensure the correct approach is taken when dealing with FBTs
The approach to terminating a FBT depends on the length of the term and whether it includes a break clause. Broadly speaking:
- FBTs for two years or less expire automatically on the term date and no notice is required
- FBTs for more than two years can be terminated on 12 months’ notice
- A yearly periodic tenancy can be terminated on 12 months’ notice.
4. Ensure the correct approach is taken when dealing with AHA tenancies
If the land to be developed is subject to a AHA tenancy then what is known as a ‘Case B’ notice to quit can be served once planning permission has been obtained. Outline planning permission is sufficient for this purpose, however the tenant can demand arbitration challenging the validity of the notice.
5. Take care when serving a Case B Notice
A notice can be served if the land is required for a use other than agricultural for which planning permission has been granted, and that the landlord has a firm and settled intention of carrying out the works required. The landlord must ‘require’ the land, although not necessarily for his own use, i.e. a Case B notice can be served by the landowner for an identified future developer. At least 12 months’ notice must be given, expiring on the term date.
6. Is the whole of the land included in the tenancy subject to the planning permission?
If not, then unless the tenancy agreement allows for a notice to quit to be served over part of the holding or the development falls within one of the limited exceptions set out in section 31 of the 1986 Act, then a Case B notice to quit will be invalid.
7. Be aware of the effect of planning conditions
The permission granted may be subject to pre-commencement conditions or reserved matters. Both of these circumstances may leave avenues for the tenant to challenge the landlord’s intention to proceed with the development and the prospects of being able to do so.
8. Consider forfeiture as an alternative
If a landowner finds itself unable to lawfully terminate a AHA tenancy it may consider forfeiture if the tenant is in breach of a term of the tenancy and the AHA tenancy expressly reserves the landlord a right of forfeiture.
9. Consider surrender as an alternative
The parties may negotiate the termination of the tenancy on mutually acceptable terms. Usually this is explored following service of a notice to quit or as an alternative, if a valid notice cannot be served for example.
10. Refrain from discussing direct with the tenant until the position is clear
The landowner will need to clearly understand its ability to terminate an agricultural tenancy and should refrain from any discussions with the tenant until this is established to protect their negotiating position, particularly as an agricultural tenant who becomes aware of the landlord’s proposals may demand a sizeable premium in order to give up its protected status.
This article was written by Emma Preece, an associate in our Real Estate Disputes team. Please do contact us if you require assistance.