Succession planning is a vital consideration for all business but the continued existence of tenancies governed by the Agricultural Holdings Act 1986 means it can be particularly important for businesses involved in agriculture.

Agricultural Holdings Act 1986 tenancies granted before 12 July 1984 carry succession rights which permit two successors. With the opportunity for a child and grandchild of an original tenant to succeed to a tenancy, it is conceivable that we will continue to see contested succession cases until into the 22nd century. Twenty years after the introduction of Farm Business Tenancies, we continue to deal with a steady flow of contested ALT succession applications each year.

Applicants see significant value in succeeding to AHA tenancies as, in broad terms, the rent payable under a protected AHA tenancy will almost always be less than that payable under an FBT. From the perspective of a landlord, there is considerable value in releasing land from AHA tenancies which can greatly reduce both the rental and capital value of the land for decades.

Despite the number of contested succession cases which cross our desk, there is no clear pattern to the way in which these cases are concluded. A small number of applications will be contested to a hearing before the Tribunal, but the majority will reach a negotiated resolution at an earlier stage. In our experience, the terms of the resolution achieved will depend upon three factors.

  • The strength of the application – succession to an AHA tenancy is not guaranteed and an applicant must demonstrate both their eligibility and suitability to succeed. Often the strongest applications will be made by applicants who have carefully structured their businesses and personal finances over many years to ensure that they meet the requirements for succession.
  • The value of any claim for dilapidations – in respect of succession on death, the value of a potential claim for dilapidations can be a key factor in reaching a negotiated resolution. Whilst a claim for dilapidations would, in practice, be directed to the personal representatives of the deceased tenant's estate, the 'close relative' requirement for succession means that the applicant is often a significant beneficiary of the Estate. In such circumstances, even the strongest applicants can obtain a benefit from accepting a FBT if a high value claim for dilapidations can be avoided as part of the settlement.
  • The applicant's desire to retain the land (or not) – a strong succession application has been known to be used as a tool to negotiate favourable terms of surrender.

As the outcome of an application for succession will depend heavily on the facts of a particular case, it is important for both landlords and tenants of AHA tenancies to actively consider potential successors at an early stage and factor the likely strength of a succession application into their business plans.