We are very much open for business. Please click here for our full message.
Brexit will have a tremendous impact on the UK agricultural sector, and it is already apparent that the gradual withdrawal of EU funding from the sector and the UK Government’s attempts to replace it, will act as a catalyst for change.
An example of the impact was provided in August by the launch of a new Code of Practice produced by the Tenant Farmers Association (TFA) and the Tenancy Reform Industry Group (TRIG) working in tandem. The code was created at the behest of DEFRA, and was itself a reaction to the introduction of the Agricultural Holdings (Requests for Landlord’s Consent or Variation of Terms and the Suitability Test) (England) Regulations 2021 (the Regulations) in June of this year.
Before examining the details of the Code of Practice, it is worth considering how the regime of EU Direct Payments is to be phased out by 2027, since it is the introduction of new schemes which has prompted the revised regulations and the perception that a new Code of Practice is required.
Three tiers in the new regime
The UK regime set to replace Direct Payments is called the Environmental Land Management Scheme (ELMS) and, according to the information published so far, there will be three tiers intended to operate in the following way:
The first ELMS tier is the Sustainable Farming Incentive which, on the face of it, appears intended to replace the EU’s Basic Payment Scheme (BPS). A pilot version will start in October 2021. It is designed to be accessible to the maximum number of farmers and is intended to support ongoing, environmental good practice, rather than being used to fund large scale capital improvements.
Although tenant farmers are eligible to take part in the pilot, there are conditions: the farmer in question must have a tenancy that lasts longer than the pilot, and must obtain consent from their landlord if required by the relevant lease. The consultation process saw many agricultural and environmental groups suggesting tenant farmers should be allowed to enter into agreements that extended past the lifetime of their lease, no matter what the tenancy agreement said.
The further two ELMS tiers will focus on funding more ambitious schemes, involving large scale capital works which have a permanent or semi-permanent impact on the landscape. This would encompass schemes such as landscape restoration and reforestation extending over larger areas of land which are often under multiple ownerships.
Other details of ELMS which are yet to be clarified include the question of whether tenancy agreements will be allowed to specify which party receives the subsidy and is thus responsible for introducing the management scheme in question.
Tenant farmers given right to seek lease variation
One indication of the Government’s likely direction came with the introduction of the Agricultural Holdings (Requests for Landlord’s Consent or Variation of Terms and the Suitability Test) (England) Regulations 2021 (the Regulations) in June 2021.
This act enables tenants of tenancy agreements governed by the Agricultural Holdings Act 1986 to seek variations to the existing tenancy if these variations would enable them to enter the financial assistance schemes introduced in the Agriculture Act 2020.
The Agricultural Holdings Regulations state a tenant requiring the consent of a landlord, or a variation of the tenancy, to enter into a particular scheme or to comply with a relevant statutory duty, can request the change needed from their landlord.
If this request is declined, or agreed subject to conditions, the tenant can use an arbiter appointed under the Agricultural Holdings Act 1986 or, with the agreement of both parties, refer the question to an independent expert. For a request to be referred to arbitration the tenant must make the request in writing, be up to date with rent and there must be no valid notice to quit in place.
In addition, any written request will have to include a description of the activities being proposed and the required change to the tenancy. The right to apply for a change to the tenancy is new and is unusual, as it allows for retrospective variation of the terms of an agreement.
Many of the requests for variation are likely to refer to schemes which did not actually exist when the original tenancy agreement was entered into, particularly in the case of an agricultural holding which is based on a succession tenancy.
Ideally, tenants and landlords will reach an agreement on any change needed without having to defer to arbitration. The new Code of Practice has been published to ensure this is hopefully the case when the disruption of switching from BPS to the ELMS impacts the whole agricultural sector.
The steps to reaching an agreement
The Code of Practice details five steps for parties wishing to join environmentally focused agricultural schemes, in circumstances in which another party must provide consent. It explains how the two parties, tenant and landlord, should present their proposals for participation, to maximise the chances of reaching agreement.
The first step for any tenant wishing to join an ELMS is to review their tenancy agreement to establish whether consent is required and if not, the tenant can clearly proceed, but no application should be made until this has been confirmed.
If consent is needed, the Code points out it is more likely to be granted if the rent is up to date and there has been no breach of the tenancy agreement. In addition, the Code advises tenants to approach their landlord at the earliest opportunity to discuss their proposal and set out details such as the timetable for the work and ascertain what the landlord will also need to know to give consent.
The detail suggested by The Code suggests the level of detail provided should reflect the scale of the project. The larger it is, such as wide-spread diversification, the more detailed the application should be and the greater justification for the tenant to seek a change in their tenancy.
Conversely, the Code suggests landlords should consider any tenant’s proposal and provide a written response, which should either confirm approval, propose that approval will be forthcoming if certain conditions are met, or refuse consent with valid reasons. In cases where a landlord or tenant won’t give consent, the party making the proposal will be entitled to refer to arbitration.
As this summary demonstrates, the gist of the Code is that both parties should be sensible and work together, but it’s easy to feel concern that this may be more likely to happen if legislation is introduced to bolster what are currently merely well-meaning suggestions.
As the pilot scheme for the first tier of ELMS rolls out and details of the other tiers become clearer, there’s every chance the Government may be forced to consider further legislation; any scheme designed to replace a well-established EU scheme will need to be a success.
If you have any further questions involving agricultural tenancies, as landlord or tenant farmer, please get in touch with Neil Faunch, a Director of the Agricultural team here at Ansons. Neil can be contacted on 01543 267 191 or email firstname.lastname@example.org
If you would like to be kept up to date with Ansons news please follow us on Facebook, LinkedIn or Twitter.