4 Break Clauses and Repossession of Part
3.50 Where a fixed term tenancy is granted, it will continue until it expires by effluxion of time at the end of the agreed term – unless contractual provision is made for early termination during the agreed term eg by incorporating a ‘break’ clause.
The inclusion of a break clause allowing either (or both) parties to terminate, on giving notice at specified times during the tenancy, will be particularly relevant where a long fixed term is granted eg for 5 or 10 years. If the farm business tenancy is an annual periodic tenancy, on the other hand, it can be terminated at any time by not less than 12 months notice to quit. In either case, the tenant enjoys no right of security of tenure once the tenancy has been contractually terminated. While a periodic tenancy offers the greatest flexibility for the landlord, a long fixed term offers greater security for the tenant, and may be more appropriate where long term investment in improvements to land buildings or fixed equipment is proposed. In this event, the inclusion of a break clause will afford some flexibility to the parties, and should be considered. Additionally, there are individual circumstances for which early termination should be provided eg on the death of the tenant or where the landlord wishes to repossess part of the holding for development.(a)Length of Notice
3.51 By virtue of section 7(1) of the 1995 Act, a notice to quit a farm business tenancy for a fixed period of two years or more, given pursuant to a break clause in the tenancy agreement, will be invalid unless it is in writing and is given at least 12 months before the date on which it is to take effect. This requirement cannot be varied by contract. It follows that any provision in the contract of tenancy providing for shorter notice to break will be invalid, and that statutory notice of the required length will have to be given notwithstanding the terms of the tenancy.
3.52 Before the introduction of reforms suggested by the Tenancy Reform Industry Group (TRIG), a break notice had to have a maximum duration of 24 months. This restriction was removed by the Regulatory Reform (Agricultural Tenancies) Order 2006.97 The removal of the 24-month upper limit on the notice period was intended to facilitate the use of ‘rolling’ tenancy contracts of longer duration, and to give greater security to the tenant by enabling the parties to agree a long notice period.98 This will also facilitate better financial and business planning in the longer term by the parties. A tenant who agrees a contract with a break clause providing for a 5-year notice period will effectively be in the same position as one who agrees a 5-year fixed term with no break clause. Conversely, if the contract of tenancy includes a break clause but does not specify the length of notice, then the contract could be terminated by any notice longer than 12 months up to an indefinite period. Once notice to break has been given in this situation, either party could shorten it by serving a notice of more proximate effective date down to a minimum notice period of 12 months.99
3.53 Whatever its length, the notice must be expressed to take effect on the date allowed for in the contract. This does not have to be an anniversary date of the tenancy. There is a question whether a contractual clause that provides for notice shorter than the statutory minimum will itself be invalid, or whether section 7 invalidates solely a notice of shorter than the statutory minimum duration given thereunder. The better view, it is suggested, is that the break clause will retain its validity, but that the 1995 Act overrides any contractual provision for a break notice of shorter than 12 months.100 The statutory provision renders any notice of shorter duration invalid, but does not invalidate the break clause itself.
(b)Repossession of Part
3.54 Under the Agricultural Holdings Act 1986 the landlord was able to include a provision for repossession of part of the holding for non-agricultural use on giving short notice.
Further, if planning permission had been granted for a non agricultural use he could rely on Case B to Sch 3 of the 1986 Act which gave him an incontestable right to forfeit the tenancy. The 1995 Act makes no provision for repossession for non-agricultural use, nor for short notice. If the landlord anticipates wishing to terminate a farm business tenancy with a view to non agricultural use or development, he can include a break clause giving a right to terminate the tenancy and repossess part of the holding – but notice of not less than 12 months will have to be given if the farm business tenancy is for a term of more than 2 years.1013.55 In these circumstances there may be a case for either (i) granting a periodic tenancy of less than annual duration, or (ii) in splitting the holding and making a separate letting of the land earmarked for development under a short fixed term of less than 2 years, for which no notice of termination will be required. If a break clause is included in the lease, the parties will wish to define the ‘part’ of the holding which can be repossessed eg by reference to a maximum area of the holding subject to possible repossession, or by identifying the land so subject by reference to OS field numbers. They will also need to define the grounds on which repossession will be permissible.
(c)Death of tenant
3.56 Where a fixed term tenancy of more than 2 years is granted it may also be advisable to include a break clause operable on the tenant’s death. If a break clause is not included, the tenancy will continue until its termination date, but will be vested in the deceased tenants executors. By virtue of section 7 (above) at least 12 months notice will have to be given to terminate following the tenant’s death, if given pursuant to a break clause in the tenancy agreement. The only exception is provided by s 149(6) of the Law of Property Act 1925, which converts a tenancy for life or for a term of years terminable with a life or lives or on marriage, into a fixed term of 90 years duration. Under s 149(6) the tenancy will continue after the death of the tenant, or his marriage (which ever applies), but either party is entitled to terminate the tenancy by giving one month’s written notice ending on the quarter day applicable to the tenancy.102 The operation of s 149(6) is unaffected by the 1995 Act,103 but tenancies for life or determinable on marriage are rarely encountered in practice.