GSC Grays: Retirement and Succession Planning for Tenant Farmers

RET I R E M E N T & SU C C E S S I ON P L AN NI N G FOR T E NA N T S Before a tenant can consider options for retirement and / or succession, they must determine their basis of occupation.

The majority of tenanted agricultural holdings (where tenants benefit from exclusive occupation) are let on either:

•

after 12th July 1984 – it is classed as a ‘lifetime tenancy’.

What are the succession criteria?

Under the Agricultural Holdings Act 1986 successors must be able to show they are ‘eligible’ by meeting the

• Agricultural Holdings Act agreements (AHA’s) – pre 1st September 1995, or;

requirements of the close relationship, principal source of livelihood and commercial unit tests.

The Agriculture Act 2020 proposes to update the succession criteria by removing the commercial unit

• Farm Business Tenancies (FBT’s) – post 1st September 1995

test and amending the suitability requirements. This will not come into force until a date is confirmed in new regulations, following which a new ‘Business Competency’ test will be brought in. This new test is expected to consider the capacity to farm the holding

AHA’s normally provide tenants with security of tenure for their lifetime and can often carry statutory succession rights. FBT’s on the other hand generally provide limited security beyond the fixed term, resulting in the parties needing to negotiate future terms. It is therefore key to understand the basis of your occupation and your rights.

Here are some of the key questions and factors to consider when looking at retirement and succession

commercially to high standards of efficient production and care for the environment.

It is proposed that consideration will also still be given to the applicants suitability including experience, training, physical health and financial standing. Some applicants may benefit from the removal of the commercial unit test, while others may find they meet the current criteria. It is therefore important to look at the facts of each case.

When can I look to succeed?

Succession can take place on death, retirement or by agreement. Applications for succession on retirement can be made regardless of the age of tenant (The minimum retirement age of 65 was removed under The Agriculture Act 2020).

planning, based on the type of tenancy you hold.

These are just a starting point and we would always advise having early conversations with a professional advisor to help you plan for the future.

AGRICULTURAL HOLDINGS ACT (AHA) AGREEMENTS When did your tenancy commence, and are there succession rights?

Generally, if your tenancy commenced: •

before 12th July 1984 – it is classed as a ‘succession tenancy’ – likely providing the tenant with two successions, subject to the successor meeting specific criteria.

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What is the procedure for succession?

It may be that the tenancy is actually held by a farming partnership, rather than an individual, and the

The procedure for succeeding on death differs to

successor is a partner. This could change your options

succeeding on retirement.

significantly and illustrates the importance of taking

We therefore recommend early discussions with your

advice when planning.

professional advisors to establish your rights and

It is worth noting that when an FBT tenant dies the

advise on the process as there can be prescribed forms

agreement will be brought to an end. We therefore

and strict timescales to comply with.

would

It may be possible for a succession to be negotiated between the landlord and the tenant or the nominated

recommend

early

engagement

with

your

landlord in respect of future occupation, which should address matters such as retirement and/or succession.

successor, therefore early communication is key.

Under the formal procedure to succeed a tenancy, an applicant must apply to the First Tier Tribunal (Property Chamber) (Agriculture Land and Drainage) who determine if the applicant satisfies the tests

FURTHER POINTS TO CONSIDER 1. Stamp Duty Land Tax (SDLT)

outlined above.

The grant of a new tenancy may give rise to a SDLT

FARM BUSINESS TENANCY (FBT) What security do I have?

liability for the tenant, depending on the length of the fixed term being granted.

2. Inheritance Tax The

landlord

may

benefit

from

enhanced

If you are an FBT tenant then it is important to check

Agricultural Property Relief through surrender

the length of the fixed term and if there are break

and re-grant of a tenancy, and therefore they

clauses, as this will determine how much security you

may be supportive of discussing plans for future

hold.

occupation.

•

FBT’s granted for two years or less automatically expire at the end of the term.

•

3. Lump Sum Exit Scheme DEFRA has outlined an intention to offer a lump

FBT’s granted for more than 2 years, will become

sum payment in 2022 to allow farmers to retire.

a statutory periodic tenancy, whereby 12 months

This lump sum will be in place of the Direct

written notice must be served to terminate the

Payments that farmers would be entitled to

tenancy.

receive during the remainder of the agricultural transition period. The farmer would need to meet

•

FBT’s in their fixed term can only be ended by

relevant conditions, including leaving the sector.

forfeiture clauses (such as death, non payment of

More details are expected to be announced in the

rent) or by agreement, known as a surrender.

coming months.

What are my options for retirement and succession?

4. Outlook Agricultural

lettings

and

landlord/tenant

Unlike AHA’s, FBT’s are not afforded any statutory

relationships have to some extent been in limbo

succession rights when the tenant dies or retires.

since the UK voted to leave the EU in 2016, as

Therefore, if you are wanting the next generation to

both parties have eagerly awaited guidance on

takeover, you will need to rely on negotiation with your

future policy and trade.

landlord.

As ‘Brexit’ is complete and the principles of A well-prepared business plan will pay dividends when

domestic policy become clearer, now is a sensible

broaching this conversation with the landlord and will

time to engage with landlords and plan for the

provide context to discussions when negotiating the

future.

grant of a new tenancy.

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TAKE HOME MESSAGES 1. Know your agreement and the key timescales (whether that be the term expiry, break clauses or succession provisions).

2. Engage with your landlord and family members to establish what everybody would like to achieve from the holding and any aspirations for retirement/succession.

3. Create a business plan which details who will take the business forward and how.

4. Keep a close eye on emerging policy and how it may impact upon your decisions.

EMMA SMITH MRICS FAAV RURAL ASSOCIATE DIRECTOR

01665 568 310 ecs@gscgrays.co.uk

For more information contact your local GSC Grays office: ALNWICK

CHESTER-LE-STREET

COLBURN

EASINGWOLD

5F Linnet Court Cawledge Business Park Alnwick Northumberland NE66 2GD 01665 568 310 0 n

Dunns 2 Bowes Offices Lambton Park Chester-le-Street County Durham DH3 4AN 0191 303 9540 0

5 & 6 Bailey Court Colburn Business Park Richmond North Yorkshire DL9 4QL 01748 897630 0 n

Far Shires Granary York Road Easingwold North Yorkshire YO61 3EJ 01347 837100 0

HAMSTERLEY Swallow Cottage Hamsterley Bishop Auckland County Durham DL13 3QF 01388 487000

HEXHAM

Pod 2, Eastburn South Park Hexham Northumberland NE46 1BS 01434 611565

n

HEXHAM

Pod 2, Eastburn South Park Hexham Northumberland NE46 1BS m 01434 611565

HEXHAM

n

Pod 2, Eastburn South Park Hexham m Northumberland m NE46 1BS 01434 611565

* Please note that the information contained within this briefing is based on current understanding of Government Legistation and is subject to ongoing change. Before making any decisions that will affect your business you should seek further advice. Compiled March 2021.

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