Clarity on tenant status crucial in agricultural leases
Bob McIntosh
A couple of recent cases have illustrated the importance of being clear about who the tenant is in an agricultural tenancy situation. The lease of a tenancy might be in the name of joint tenants, a single tenant, or a partnership and the implications of each is different.
Partnerships which are set up to run the family farming business are common but are different from the situation where the partnership is the tenant. As an example, a father who is the legal tenant may choose to run the business as a partnership with other family members but the rights and obligations that go with the tenancy are vested in the father, who is the legal tenant. In that situation it is the father, not the farming partnership, who is responsible for ensuring that the rent is paid and who would be the subject of any claims against the tenant by the landlord and who must issue any statutory notices or intimations. The fact that the rent is paid out of the partnership bank account does not make the partnership the tenant or confer any right of occupation on the partnership. The father needs to consider how best to pass the tenancy on in the event of his death as the farming partnership cannot automatically continue as tenant if the legal tenant dies.
That is different from the situation where the family partnership is named in the lease as the tenant. This brings very different implications and risks for the tenant. Should the membership of the partnership change as a result, for example, of the death or retirement of one of the members, then this would be regarded as a new partnership and therefore a new tenant so the existing tenancy comes to an end. This can create difficult circumstances where one of the partners dies or wishes to retire or where there is a desire to bring the next generation into the partnership.
If a new lease to a partnership is being created, the tenants are advised to seek to have a clause in the lease which enables the tenancy to continue in the event of a change in the members of the partnership. Without this, the tenancy can be brought to an end if the membership changes. An arrangement that is just between the partners to continue the partnership in the event of changes in membership has no relevance to the continuation of the tenancy or the landlord’s ability to bring the tenancy to an end. Tenants considering entering into a lease where the farming partnership is the tenant are advised to take legal advice. It may be safer to name one of the partners as the tenant and to ensure that there are arrangements in place for the tenancy to pass on in the event of the death or retirement of the named tenant.
Where the lease is to joint tenants, each of the joint tenants is personally responsible for delivering the tenants’ obligations and responsibilities, including payment of rent. Unlike the situation where a partnership is the tenant, joint tenants may be able to pass on their share of the tenancy by succession or transfer without bringing the tenancy to an end. Normally, notices, counter notices and other statutory intimations must be issued by all of the joint tenants and it is unlikely that a notice issued by one of the joint tenants without the authority of the other(s) would be valid.
If you are unsure about who the tenant is in your situation or have concerns about the implications of a change in named tenant, you are advised to seek legal advice from a lawyer with experience in agricultural law. Alternatively, you can, in the first instance, contact the tenant farming helpline for initial, informal advice. (01463 423 300; tfc@landcommission.gov.scot). The tenant farming helpline is a free advice service provided by the Scottish Land Commission for anyone with questions or concerns relating to agricultural holdings.
