Young farmers have a hugely important role to play in the industry. After all, they are, quite literally, the future of farming. Yet increasingly, the younger generation is finding it hard to find their place in the agricultural world.
This is backed up by a study from NatWest, which looked at attitudes of 500 young and potential new entrant farmers in Britain. It found that young farmers are keen to diversify and innovate, but are held back by a lack of funding and appropriate infrastructure in the UK’s farming communities.
As most current farmers are over the age of 45, issues of succession are making it harder for the younger generation to take over. In the same way that young people across the country are often struggling to get onto the housing ladder due to the high cost of property, especially in the South East, the same can be said for young farmers looking to buy a farm.
Becoming tenant farmers is often a more realistic possibility for the younger generation, but even finding a farm to let can be challenging.
In fact, the NatWest study also found that of those wanting to enter the sector, not having a farm to inherit put off 55%, and 36% were unable to find a farm to let.
Types of farm tenancy
There are two main types of agricultural tenancy. Agricultural holdings (AH) tenancies under the Agricultural Holdings Act 1986 (AHA) are old style tenancies with controlled succession rights, rent reviews and compensation agreements. The more modern Farm Business Tenancies (FBTs) created under the Agricultural Tenancies Act 1995 (ATA), apply when the tenancy began after the 1st of September 1995 with fewer statutory controls, permitting a more commercial arrangement between landlord and tenant. For instance, they allow part of the farm to be diversified into other activities, as long as part of the land is used for trade or business throughout the term of the tenancy, and is primarily or wholly agricultural.
Both types of tenancies allow for compensation when there have been substantial improvements to the farm. While with an AH tenants may be entitled to compensation equal to the increase in value resulting from specific improvements, an FBT is more transparent. It provides for compensation when there have been any consensual physical improvements and any other changes that increase the value of the farm.
In terms of succession, with an AH there is a right, subject to specific criteria, for a close relative to apply for a new lease if the tenant dies or retires. This is not the case with FBTs.
Helping new entrants
The Government has recognised that for a successful long-term future the industry relies on attracting new talent, and providing opportunities for new entrants to farming. It held a consultation on reforming agricultural tenancies in England in 2019, with the intention for farmers to be more productive and have greater freedom in their business planning.
As a result, provisions were included in the Agriculture Act 2020 to amend the AHA and the ATA to hopefully give tenant farmers more flexibility and choice for their business. These focused on restrictive clauses, rent reviews, succession and retirement age.
AHA tenancies often contain restrictions to prevent tenants from undertaking activities which will change the land use or fixed equipment of the holding without first gaining consent from their landlord. These could make it difficult for some tenants to access the Environmental Land Management (ELM) ‘public money for public goods’ scheme, which will gradually replace the previous Basic Payment Scheme.
In addition, these restriction clauses may prevent tenants undertaking activities necessary to meet new regulatory requirements. Now, tenants can object if landlords refuse consent for changes necessary to enter new financial assistance schemes or meet new regulations.
Retirement and succession
The minimum retirement age of 65 has also been removed, which will give farmers freedom to choose when to retire and hand over the farm to the next generation.
In addition, the commercial unit test has been scrapped. This specifies that a tenant who already occupies a commercial unit of land is not eligible to succeed to an AHA tenancy. This will allow a close family relative of the tenant who already occupies a commercial holding to be eligible to succeed to an AHA holding in future.
The Act contains provisions to replace a demand for arbitration in the rent review process with a notice of determination, which may be followed by either arbitration or third-party determination.
This should reduce the timescale for appointing a third-party expert from 12 months prior to the rent review to any time prior to the rent review.
Looking to the future
There has been criticism from both the National Farmers Union and the Tenant Farmers Association that amendments to tenancies in the Act do not go far enough in helping young farmers and new entrants to farming.
The Act is still relatively new and so it is early days. It will be interesting to see what impact the changes it introduces to farm tenancies will have on the marketplace and where further reform is still needed.
If you have any questions about the issues raised in this article, please do not hesitate to get in touch with the Agriculture and Rural Property team at firstname.lastname@example.org