Tenancies

Where a landowner lets land (arable or pasture) or buildings to someone to farm in exchange for rent.

The tenant, operating as an independent business, has control of the land and how it is used except where limited by the tenancy agreement. The tenant typically has maintenance and other responsibilities.

New tenancies in England will be Farm Business Tenancies (FBTs) under the Agricultural Tenancies Act 1995 with substantial flexibility of the contract within a basic framework for rent review, tenant’s investment and dispute resolution. An FBT can be for any fixed term or can run on a periodic basis (as from year to year).

Older tenancies could be under the Agricultural Holdings Act 1986. Referred to as AHA tenancies, these were often inheritable tenancies which could span the working life of up to three generations, usually at reasonable rents. These agreements are often replaced with newer tenancies such as an FBT.

• A tenant pays rent for occupation of land and/or buildings
• The tenant runs an independent business needing the skills and finance for that
• The tenancy could but might not include a house
• The rights and obligations of the tenant and landlord should be set out in a tenancy agreement, making it important to ensure that it is relevant and fair from the start, considering all practical issues
• Understand how long the tenancy is to be for, how it could be ended within that set period and what is to happen on its end
• Judge the rent that is fair between the parties, attractive and sustainable for the opportunities and risks of the tenancy

The tenant’s business, whether as a sole trader or partnership or company, is an independent business for tax purposes. Rent will be a cost of the business. If the tenancy is very large or long term, the tenant could have to pay Stamp Duty Land Tax. A VAT registered landlord could opt for VAT which the tenant could recover.

The landlord’s rent will be taxed as property income, not trading income, not paying National Insurance but with some limitations. While let agricultural land used for farming will qualify for Agricultural Property Relief (APR) from Inheritance Tax, it is regarded as an investment for Business Property Relief (BPR) purposes. It will not be a business asset for Business Assets Disposal Relief or rollover relief from Capital Gains.

For the tenant: 

• An opportunity to farm on the tenant’s own account without buying land
• Creating a base from which to look for other land, showing and developing the tenant’s skills in farming

For the landlord:  

• A secure and stable income
• Keeping the land in agricultural use without needing to farm it personally
• No direct exposure to farming risk or to business risk
• Having someone to look after the land