More and more often, the situation is arising where a landowner is approached by a developer who wants to offer them a substantial sum of money to purchase all or part of the agricultural holding. Alternatively, the landowner is looking at ways to diversify the estate or create opportunities to get a greater return from the land than the passing rent payable by the Agricultural Holdings Act 1986 (“AHA”) tenant who is in occupation of the land.
If you are the landowner who is looking at ways to terminate an AHA tenancy on your land for development purposes, or an AHA tenant who is concerned that you may be at risk of losing some of your agricultural holding due to development, some of the key considerations are set out below.
Firstly, determine whether there is a written tenancy
The existence of a written tenancy agreement may provide more opportunities for a landlord to serve notice on an AHA tenant for redevelopment, such as serving a short notice to quit (less than 12 months’ notice) and/or a notice to quit effecting part of the holding only.
Serving a Notice
General Notice to Quit
If the landlord and tenant cannot reach an agreement regarding the possible surrender of land by the AHA tenant on favourable terms to allow development, and the landowner is still awaiting the grant of planning permission, the landlord may wish to serve a 'general' notice to quit. A general notice to quit does not require the landlord to give a reason for serving the notice. Once served, the tenant has one month to serve a counter notice. If no counter-notice is served by this deadline, it is effective, and the tenant would need to vacate the land upon expiry of the notice period. The notice period must be for at least 12 months and not expire before the end of the current year of the tenancy.
If a counter notice is served, the landlord would need to apply to the Tribunal within two months following service of the counter-notice and the Tribunal would need to consent to the notice taking effect. This is likely to be a long process and could well go against the landlord. Tactically, however, the landowner may have opened a dialogue with the tenant and can then proceed to try to negotiate. However, this may be interpreted by the tenant as an aggressive approach which may not bode well for negotiations.
Case B Notice
Once planning permission has been granted, a Case B notice to quit becomes an option. This notice is served when the land is required for a use other than agricultural use, including development. The planning permission does not need to be in the name of the landowner; it can be in the sole name of the developer. Unless the tenancy agreement allows the landlord to serve notice to quit in respect of part of the holding only, or in other limited circumstances, the planning permission would need to be for the whole of the holding. As with a general notice, a Case B needs to give at least 12 months’ notice unless the tenancy agreement allows for short notice.
It should be noted that the tenant would be entitled to compensation if required to vacate all or part of the holding following the service of a Case B notice. However, Tenants will most likely serve a demand for arbitration upon the landlord within one month of receiving the Case B notice, and challenge the notice in order to either defeat the notice or negotiate far more favourable terms to vacate, which could include a substantial payment or the provision of alternative land to compensate the tenant for what the tenant is giving up.
Case B notices should be served with caution as they are notoriously complex and are open to challenge by the tenant. If the matter is referred to arbitration, it could be a long drawn out process at a significant cost.
For the landlord/developer, it is important to seek advice early to obtain advice on the options, potential difficulties (in terms of the ability to serve notice, timings, cost and matters arising from the planning application itself). For the tenant, it is prudent to act quickly upon receipt of any notices from the landlord, to seek advice at the earliest opportunity to respond to the notices and identify areas to challenge the notice and to assist with negotiations.
Often the preferred option is the landlord (and developer) and tenant mutually agreeing to surrender the tenancy by way of a Deed of Surrender, usually in consideration of a payment to the tenant. This is the preferred method for some because it is a quicker process, the landlord has a guarantee that the tenant will vacate the land, and it gives comfort to the developer. The landlord also has the option to let the land back to the tenant on a short Farm Business Tenancy, so that is the tenant continues to have use of the land and it continues to be maintained whilst planning permission is being obtained.
How to calculate the surrender payment
The surrender payment often depends upon the value of the tenant’s interest. As mentioned previously, the tenancy is worth more when held in the name of a company, as technically a company never 'dies'. An AHA tenancy with two successions (and possible successors) would be more valuable than an AHA tenancy with no succession rights. The value of interest for an 85 year old farmer with no successions left will be less than a 45 year old farmer with an 18 year old child who also works on the farm and is eligible to succeed.
Other considerations include:-
- The extent of the issues the landlord/developer would have to overcome to obtain vacant possession of the land.
- The timescales for securing vacant possession.
- Securing access for investigatory/exploratory works prior to planning which the landlord/developer may not have the right to do under the tenancy agreement.
Both the landlord and tenant will usually instruct a specialist rural land agent assist in calculating the appropriate surrender payment and to assist with negotiations.
Being properly advised on all the options when in a situation such as this, and at an early stage is imperative. This article provides an outline of the main options, however there is a lot more to be considered before making a decision. If you need further information, please get in touch and I will be on hand to advise you.
For further advice on serving Case B notices, please contact Sarah Whitehurst of our AHA team.