TFC Blog: Agreeing and Managing Agricultural Leases
Tenant Farming Commissioner, Bob McIntosh, summarises the latest Code of Practice on Agreeing and Managing Agricultural Leases.
A decision to sign up to an agricultural lease is one which results in responsibilities and liabilities and should not be taken lightly and without understanding the full consequences and implications. Understanding the terms of the lease at the outset is the first important step but thereafter it is essential that any agreements affecting the responsibilities set out in the lease are properly recorded. There needs to be a full understanding by both landlord and tenant of the nature and implications of a fixed duration lease.
There are some important principles which if followed will help to ensure that misunderstandings and disagreements don’t occur during the term of the lease.
1. Understanding the terms of the lease
A desire to secure a lease can sometimes lead to tenants signing up without fully understanding the implications. Landlords should always allow time for the tenant to understand, and if appropriate, negotiate the terms of the lease. This is particularly important in the case of the Modern Limited Duration Tenancy (MLDT) because the law allows some flexibility in agreeing such issues as the rent review mechanism and the responsibility for replacement and renewal of the fixed equipment. Not every MLDT will therefore contain the same terms and tenants are advised to take professional advice if they are uncertain about any of the implications of the draft lease provided by the landlord. Once the lease is signed it will be legally binding and changes can only be made with the agreement of both landlord and tenant.
Most new agricultural leases will now be for a fixed term and can only be renewed by agreement. It is important that, at the beginning of a fixed term lease, landlord and tenant have a discussion about what might happen at the end of the term, and the aspirations of both parties should be recorded so that there is no misunderstanding at the end of the term about what was agreed at the start. It is understandable that either of both parties may be unable to say what their attitude to continuation will be when the time comes and if that is the case it should be recorded. The aim is to avoid reaching the end of the term with different expectations about what will happen next. Unless an agreement has been reached to the contrary, tenants should never assume other than that a fixed term lease will terminate at the end of the term.
2. Recording changes and agreements
During the term of the lease there are likely to be occasions when something occurs which might affect the rights and responsibilities of one or both parties. A common example would be the need for a tenant to seek consent for, or give notification of, a tenant’s improvement that might qualify for compensation at waygo. Too often this is subject to a verbal agreement between the tenant and the landlord or landlord’s agent. This is fine at the time but memories are short and personalities change and the end result is disagreement about what may or may not have been agreed. It is imperative that any such agreements and notifications are properly recorded in writing. In many cases a simple exchange of letters or emails (with a printed copy retained) will suffice but in the case of a more complex issue it may be necessary to have a proper legal agreement drawn up. Tenants and landlords are advised to take professional advice about the best way forward if there is any doubt about the most appropriate action to take.
3. Actions towards the end of the lease
If a fixed duration tenancy has been in place for a reasonable length of time (and many are of 15 years or more duration) it is understandable that the tenant may have invested emotionally and financially in the holding and will be disappointed by a decision by the landlord not to renew. The law ensures that tenants of LDTs and MLDTs must be given reasonable notice of a decision to end the lease at the expiry of its term but this will not always be enough to prevent public and political opinion from seeing this as an ‘unfair eviction’ as has happened in one recent case. It will be helpful therefore if a conversation is held between landlord and tenant well in advance of the end date to explore the aspirations of both parties and to consider what options may be available. Much will depend on the landlord’s intentions towards the land but discussions might include consideration of-
· the tenants age and the possibility of extending the lease to enable the tenant to reach pension age.
· whether there might be an option of the tenant retaining the house if this is not needed
· the impact on the tenant’s business if this is the only or main income source
· whether another holding in the landlord’s ownership might be available.
Tenants must accept that a fixed duration tenancy is just that and that it may not be possible for the landlord to provide any of the above, but landlords should be aware that a decision to terminate a fixed duration tenancy will be more supportable if it is preceded by such discussions.