Shropshire Farming Talk: Agricultural Holdings Act (AHA) tenancy agreements

Changes were recently made to the succession rules, which came into force on September 1, 2024 and apply in both England and Wales.  

Succession is a process that is applicable to some agricultural tenancies that are governed by the AHA 1986 and it can, in certain cases, provide the opportunity for close relatives to make an application to take over and continue with the tenancy of a holding. 

Succession is an opportunity to secure favourable long-term security of tenure, which can last for up to three generations and is often on more sympathetic rental terms. In many cases a landlord will look to challenge a succession application or will certainly wish to be sure that the applicant does meet the succession rules, before simply allowing the succession to take place, primarily because of the length of time that they could potentially be facing a loss of control over the holding.  

In terms of the recent changes to the succession rules, where a retirement notice was served, or death of the tenant took place prior to September 1, 2024 the old rules for succession will apply. If the date of death or giving of the retirement notice was after this date, then the new rules will apply. 

Under the old succession rules, the tests related to eligibility and suitability. In relation to the eligibility test, this looked at three strands, being the close relative, principal source of livelihood and commercial unit test strands. 

Under the close relative test, the applicant had to show that they were either a child or treated child, wife, husband, civil partner, brother or sister of the outgoing tenant. There have been no changes to this element of the eligibility test. 

The principal source of livelihood test requires the applicant to show that they are economically dependent upon the subject holding or a wider unit of which the subject holding forms a part. The applicant must show that within 5 of the 7 years, ending with the date of death or giving of the retirement notice, their principal source of livelihood was earned from holding or the wider unit. This is a very technical area within the succession rules and the onus of proof is on the applicant to demonstrate and prove their case. Again, there have been no changes to this strand of the test. 

The commercial unit test was in place to disqualify an applicant who in addition to the subject holding, owned or occupied another unit that was deemed large enough to support 2 full time agricultural workers. There was often a requirement to have a Net Annual Income assessment conducted and generally if this demonstrated an NAI of around £40,000 + then the applicant could fail the test. This strand of the eligibility test has been abolished from September 1, 2024.  

In terms of the old suitability test, previously there was focus on the applicant’s training, practical experience, age, physical health, financial standing and the landlord’s views on suitability. These elements have now been abolished from 1st September 2024. 

The new rules for the suitability test now direct the Tribunal to have consideration towards all relevant matters, the applicant’s likely capability and capacity to farm the holding commercially, with or without other land, taking into account the need for high standards of efficient production and care for the environment. The test now looks at a person’s experience, training and skills in agriculture but also in business management, plus their financial standing and their character. The suitability test now considers a hypothetical tendering process for the holding and the test states that consideration must be given to the scenario in which if the applicant applied for the tenancy, then the likelihood should be that a prudent and willing landlord would have selected the applicant as a likely candidate for the tenancy. 

The applicant must now, through the suitability test, be able to clearly demonstrate that they can farm commercially, through efficient agricultural production, but at the same time with care for the environment and there is a requirement to demonstrate that both of these can be achieved. 

These new requirements under the suitability test will need to be demonstrated through the production of quality supporting evidence such as detailed business plans, cashflows and budgets.

A successful application for succession will often hinge on the level of preparation, both in terms of the application itself and the accompanying supporting information, but also in regard to the years of preparation, leading up to either the giving of the retirement notice or date of death. To be successful with this process, requires a great deal of forward planning and finetuning within the business and it cannot be stressed enough how important it is to actively plan well in advance of making the application for succession. 

The final change brought in from September 1, 2024 is in relation to age. An applicant can no longer be discriminated against for being too young or old. If succession on retirement is being considered then under the old rules, the retiring tenant had to have attained the age of 65 as at the date the retirement notice was given. This rule has now been abolished and therefore the outgoing tenant can now serve the retirement notice at any age. This change has been introduced to allow succession to take place when the outgoing tenant deems it to be the most suitable time. Applicants should take this change as a welcome opportunity and consider the merits of this new flexibility in line with selecting their relevant period for the principal source of livelihood test. 

For further information on agricultural tenancy succession please contact me – www.dmpcuk.com

by Kathryn Williams, Davies Meade