agricultural tenancies and succession

Many agricultural units today rely on diversification in order to increase profitability. However, by diversifying, farmers of Agricultural Holdings Act 1986 tenancies may run the risk of

diluting the amount of income derived from the agricultural holding and thus jeopardising future succession rights to the tenancy.

To succeed to a tenancy on retirement, the nominated successor must be an eligible person and satisfy the following:

• the applicant must be a close relative of the retiring tenant
• in five out of the last seven years (or two or more discontinuous periods in the last seven years together amounting to not less than five years), their only or principal source of livelihood has been derived from their agricultural work on the holding or a large agricultural unit of which the holding forms part, and
• the applicant must not be an occupier of another commercial agricultural unit

If the nominated successor derives some of their income from diversification projects, it may have an impact on their ability to satisfy the livelihood requirement. This was highlighted by the case of  Keene -v- Trustees of Guys and St Thomas' Charity and others (Agricultural Land Tribunal ref. 2/779). In this case, the tenant and his two sons formed a farming partnership which also operated a farm shop on land close to the holding. When a son applied to succeed to the tenancy, the Agricultural Land Tribunal found that the son failed the eligibility tests due to the fact that too large a proportion of profits derived from the shop was purely the result of selling goods sourced outside the holding.

However, the good news is that the implications of diversification on succession was one of the issues addressed by The Regulatory Reform

(Agricultural Tenancies) Order 2006, which came into force on 19 October 2006. This relaxed the principal source of livelihood requirement.

From 19 October onwards, provided that tenants have obtained written consent for the diversification project from their landlord, income derived from such projects on the holding (or the agricultural unit of which the holding forms a part) can be included in the income derived from the holding when considering whether the nominated successor is able to satisfy the livelihood test.

This clearly gives tenants increased scope for diversification whilst helping to protect succession rights for future generations. However, care is still required and tenants should take further advice on this issue before embarking on diversification projects and in particular when the landlord fails to give written consent.

For more information, please contact Michelle Rossiter in our Agricultural, Equine and Rural Affairs group on 023 8085 7114 or email her at michelle.rossiter@bllaw.co.uk

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