FCo Rural Estates Newsletter Spring 2022 - Flipbook - Page 21
Requests for landlord’s consent or variation of terms
The Agriculture Act 2020 (AA) has enabled the snappily entitled Agricultural Holdings
(Requests for Landlord’s Consent or Variation of Terms and the Suitability Test)
Regulations 2021. Part of these regulations, which came into force on 21 June 2021,
allows an AHA tenant to refer a ‘qualifying request’ to arbitration under the AHA. A
qualifying request is one where the landlord has refused consent to a matter that requires
consent under the tenancy (or to a requested variation of terms of the tenancy) where the
tenant makes that request for the purposes of:
•
enabling the tenant to request or apply for relevant ‘financial assistance’, or
•
complying with a statutory duty applicable to the tenant in respect of the use of
the holding.
Broadly speaking, ‘financial assistance’ means the subsidy for public goods outlined in
section 1 of the AA; environmental land management schemes. Effectively, this provides
tenants with formal recourse to arbitration where the landlord is resisting a qualifying
request for diversification that seeks to tap into these environmental subsidies. As one might
expect with the AHA, there is a rigid timetable for the service of notices by the tenant, counter
notices by the landlord and for reference to an arbitrator (or third party determination).
If the request is not a qualifying one there remains no formal recourse for the tenant so the
landlord may be able to command a fee for his consent. Note, however, that the Tenancy
Reform Industry Group published a code of good practice for projects, schemes or works
requiring landlord’s consent in agricultural tenancies in July 2021, click here to read.
Improvement finance agreements
The AA has brought back improvement finance agreements (IFAs) from the dustbin of
history. Diversification often comes hand in hand with capital improvements. Historically,
landlords were sometimes reluctant to invest in a holding for fear that any capital outlay
would yield no return through the statutory rent review formula. As a consequence,
many entered into IFAs with their AHA tenants which expressly provided for a return
on capital by way of an interest payment over a period of 10 or 15 years. This payment
stood separately from the rent reserved under the lease. It was always questionable what
an arbitrator would make of these arrangements in a full scale AHA arbitration and after
some decisions unfavourable to landlords the use of IFAs fell out of fashion. That may now
change as the AA provides that where there is an agreement under which the tenant is to
make payments for improvements financed by the landlord, the rent review will disregard:
•
the fact that the tenant is required to make those payments, and
•
any benefit to the tenant arising from the improvements until the last payment has
been made.
This allows the IFA to sit outside the existing tenancy agreement and ensures that neither
party is penalised by its existence. The idea of a landlord investing in a tenant’s plan for a
farm shop or other diversified activity is once more a commercial possibility.
Rural Estates Newsletter
Spring 2022
21