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This podcast from Birketts' Associate, Esther Round explores agricultural land tenancies and the action you should take should your tenant change.
This is part of the series of podcasts we’re producing which deal with tenancies in an agricultural setting. You might have heard the first podcast I have published which sets out a beginner’s guide to what sort of agreement you might have.
For this podcast I am going to talk about the question of who is my tenant. This sounds like a very basic point but it is a question we are asked surprisingly frequently and can need us to deal with some pretty complicated issues. As always please do let me know if you want any more detail or if there is a particular point you would like us to address in the next few podcasts.
So this talk will cover off the basics of how to work out who your tenant is. As I say, this sounds like a surprisingly easy question but actually there can be a number of stumbling blocks.
You’ll have worked out what sort of tenancy you have (and if not, perhaps have a listen to the first podcast in this series). This will help you decide how you can deal with your tenant.
Then your next port of call, as always, will be what does the written agreement actually say? This will show you who the tenant was at the outset of the lifetime of the agreement. That might be the end of your question but if there is any difference between what your written agreement says and the facts as they appear to you to be - then it will probably be worth thinking a bit further about who is your tenant.
I’ll just take a short detour here to say that, of course, you might have an oral agreement only. This does not mean that you do not have a tenancy it just means that it might be trickier to work out who is your tenant (and then what parameters you can work within).
The tenant will need to be someone who can be a legal entity. This means that you will need to be looking to an individual, a group of individuals (but no more than four), a limited company or a limited liability partnership. These are the main possibles although there are other charitable organisations or provident societies that could count as a tenant. You'll note, critically, that a run-of-the-mill partnership isn’t listed. This is because a partnership is not a legal entity in its own right and so you would be looking to the individual partners as your tenants.
Perhaps the agreement that you have shows the name of the person who pays you rent regularly and that will almost certainly be the simple answer to who is my tenant. Sometimes though the identity of a tenant will be different and often this will be because time has elapsed since the tenancy was first entered into.
The tenant’s identity can change for a number of reasons. I’ll talk about some of those reasons now but you’ll not be that surprised when I say that I can’t talk about all of the possibilities. Usually the reason why you would be thinking about who my tenant is will be because of some factual complexity and where that is the case then the very specific nature of those facts will have to impact on the conclusion we can reach.
First, a tenant might die. This sounds very final but actually a tenancy doesn’t simply fall away just because a tenant has died. If you have a single tenant who has died then the tenancy will simply vest in the estate of the now dead tenant. The estate will continue to be liable under the terms of the tenancy until the tenancy is brought to an end. In the case of a Farm Business Tenancy (known as an FBT), and especially one that is really quite simple, practically the landlord and the personal representatives of a deceased tenant will agree to bring the tenancy to an end. This would be what is called in law a surrender.
The situation is a bit more complex where you have a single tenant under an Agricultural Holdings Act tenancy (an AHA). For some AHAs there will be what are called succession rights. Succession rights mean that there is the possibility that a child (or perhaps other qualifying person) may be able to apply to the relevant tribunal to succeed to a tenancy. Usually an AHA granted before the key date of 12 July 1984 would carry with it succession rights. This isn’t cast in stone though and it is usually worth asking if a tenancy does have succession rights (not least because this might mean that your land is tied up for decades to come if it does).
The succession rights mean then that the death of a single AHA tenant might result in the introduction of a new tenant (and perhaps for another generation after that). I won't go into more detail about succession here as I'll come back to talk about this in another podcast. Really I just need to flag up to you at this stage that the death of a sole AHA tenant might not be quite as terminal as you would think. Secondly, we might need to think about retirement.
Retirement under an FBT will be reasonably simple. The contractual end date will be the date that an agreement comes to an end. If a tenant under an FBT wants to retire before that date then he will need to agree to bring the tenancy to an end with the landlord's agreement (again, known as a surrender) or he will need to take advantage of any early termination provisions there might be in the agreement. This sort of early termination provision is usually known as a break clause and the negotiating strengths of the parties to the agreement will dictate whether or not break clauses are included, who can use such a clause and when and whether any such break clause is conditional upon some event or other.
Retirement under an AHA is more complicated. I'll only talk about this very sketchily here and I'll come back to retirement later in more detail when I talk about the death of a tenant. It may be that your AHA will have succession rights attached to it when a tenant retires. These rights will act in largely the same way as the succession rights which kick in on death. A retiring tenant can give a retirement notice to his landlord. This will nominate a successor and that successor can apply to the Tribunal for a new tenancy (assuming he meets all the relevant criteria).
You might need to dig through the papers you have to see if a retirement notice has ever been served and, if one has, that might explain the identity of who your tenant is now.
One point to make is if you are working for a smallholdings authority. As at March 2018, DEFRA reported that there were 43 smallholdings authorities. You will want to check if the body you work for is a smallholdings authority (or it may be clear to you from the detail of the written agreement in front of you). If the tenancy you are thinking about was granted by a smallholding authority then your tenant will have lesser protection than if it were not. For example, there are no succession rights available to such a tenant (either on death or retirement).
Additionally a smallholding can only be let to the person who will actually be farming the land and so selling the lease on won’t be possible. You should also note that many smallholding tenancies refer to a termination date on the tenant's 65th birthday so that the tenancy will automatically come to an end on his retirement.
Even if the smallholding tenancy doesn’t include that provision there is a special form of notice (known as a Case A notice) which a landlord can serve to bring a smallholding tenancy to an end after the tenant has reached 65. In short, it should be far easier to identify a tenant under a smallholdings tenancy than for other types of tenancy.
The next option is to think about what might happen to a tenancy if it is sold or gifted.
This passing on of a tenancy is known as an assignment and can result in you as landlord having a different tenant to when the tenancy started out. This having happened historically might explain why you are uncertain as to who your tenant is. It is usually worth looking through the papers you have to see if there is any evidence of an assignment. I won’t talk about sharing a lease or subletting a tenancy here but do let me know if you want to know anything more about this scenario.
An assignment of a tenancy will almost always need to be documented in a deed. This is the case even if the original tenancy itself didn’t need to be made by a deed. As a really quick aside (and this is a question that is regularly asked) it is not the case that just because someone other than your named tenant has regularly paid the rent then that someone else automatically becomes your tenant.
You should consider though whether or not the tenancy actually allows assignment. Usually (and you should be careful about your particular instance of course) FBTs will have some provision making assignment conditional or completely prohibited. If there is no wording about assignment in an FBT then the FBT can be freely assigned.
On the other hand, it is usual for AHA tenancies to contain an absolute prohibition on assignment. Sometimes the provision preventing assignment will state that the assignment cannot happen unless the landlord provides his consent. Sometimes the provision might also say that such landlord's consent isn’t to be withheld unreasonably. You’ll see that there are degrees of preventing an assignment.
A provision in a tenancy prohibiting an assignment doesn’t actually invalidate an assignment if it were to happen though. This is why you will also usually find a right to bring the tenancy to an end for breach of that provision too (usually expressed as being a breach of any covenant rather than the assignment provision specifically).
The right to bring the tenancy to an end is termed the right to forfeit the lease. This means then that if there is 1) a provision preventing an assignment, 2) an assignment has taken place anyway and 3) a provision allowing the landlord to bring the tenancy to an end in the event of a breach of the assignment provision then the landlord can then choose to bring a tenancy to an end.
This is a complex area of law which you would probably need assistance with so if you are thinking about forfeiting a lease in this sort of situation, I would suggest calling us to pick our brains. The last couple of points relates to where one tenant is now out of the picture. This might be because of death or maybe a change in plan for the business of the tenants. If a joint tenant under an AHA dies or retires then that interest in the property will simply pass to their fellow joint tenant. The succession regime I’ve talked about earlier will only kick in after the death or retirement of the last remaining tenant. You may need to look to see if you have any evidence of death or retirement of a former joint tenant but you may simply not have received anything in writing at all (which can leave you with some uncertainty).
For joint tenants under an FBT if a joint tenant dies then his fellow joint tenant will simply acquire the whole tenancy in his own right. If a joint tenant wants to retire he will need to liaise not only with his fellow tenant but also with you as landlord. This is because he will almost certainly be jointly and severally liable for the obligations under the tenancy and he will only be released from those with the agreement of all of the other parties to the tenancy. Without that agreement then even if he were to retire he would be still liable to, say, pay the rent. Ideally the release of the former joint tenant will be documented so that the identity of the tenant under the agreement is clear and kept up to date for future management of the estate.
This has been a very quick canter through some of the more usual possibilities that are available to you when you are considering who is my tenant. Truthfully, if you are not sure who your tenant is because it is not absolutely clear from your written agreement and the other records in front of you, probably this will mean that the situation is sufficiently muddy to get a second opinion. There are other issues which might muddy the waters too – you might have received rent from someone who isn't your tenant or you might have been dealing with someone who isn't named as your tenant in your written agreement for years.
There are multiple reasons why you might be considering this question and as always please let us know if you've got any questions - we're happy to help.
For further information or advice on agricultural land tenancies, please contact Esther Round. Law covered as at December 2019.