2 Farm Business Tenancies and Farm Diversification
1.28 The introduction of farm business tenancies in 1995 should be seen against the wider background of changing policy towards agriculture. Reform of the EC’s Common Agricultural Policy has led to reductions in support prices for most agricultural products, and the ‘decoupling’ of direct farm payments from production under the Single Payment Scheme introduced in 2005.
The Mid Term Review of the CAP agreed in 2003 explicitly recognised the multi functional role of agriculture, in which the provision of public goods – such as environmental protection, animal welfare and food security – are important objectives alongside the protection of food. There has also been a reduction in the number of farmers working their holdings full time, and an increase (of 76% between, for example, 1973 and 199544) in the proportion of part time farmers supplementing their income from other sources. The financial pressures on agricultural income underline the importance of diversifying farm enterprises into non-agricultural business, and broadening the economic base of British agriculture. Farmers have, accordingly, been encouraged by a range of policy initiatives to diversify over the last 20 years. Financial subventions have been made available for diversification under several government schemes made under the Farmland and Rural Development Act 1988. To this must be added European Community rural development measures and initiatives to reduce production – such as set aside, under which farmers were initially encouraged to diversify into a range of non-agricultural businesses on former arable land that had been taken out of production.1.29 The introduction of the Agricultural Tenancies Act 1995 was part of an ongoing reform process aimed at changing the legal infrastructure of farming to provide a suitable legal regime for planning and promoting rural diversification.
This has involved the revision of both planning laws governing agricultural development in the countryside, and changes in outmoded tenancy laws represented by the Agricultural Holdings Act 1986. Planning policy has been relaxed to stress the importance of diversification to the rural economy. It now stresses that retaining land in agricultural production no longer has the same priority as formerly, and that the prime objective of development control policy in the countryside should be to promote diversification of the rural economy so as to provide varied employment opportunities for those living and working in the countryside, including those formerly employed in agriculture and related sectors.45 Planning policy therefore favours greater discrimination in favour of the re-use of rural buildings for business (rather than residential) use.1.30 If planning policy is moving strongly in favour of diversifying the rural economy, it is also essential for farm tenancy law to reflect the modern policy agenda and enable those with tenanted farms to take advantage of the opportunity to diversify their farm enterprises. Under the Agricultural Holdings Act 1986 difficult problems can arise where the producer wishing to diversify occupies some or all of his holding as a farm tenant. The postwar preoccupation with maximising production is reflected in the terms of the legislation, which qualifies the tenant’s extensive statutory rights by reference to the standard of the reasonably competent farmer, practicing a suitable system of farming for the holding. Security of tenure is made conditional on the tenant maintaining an efficient form of agricultural production, and presupposes that the land will be used solely for agricultural purposes. This philosophy is represented, in particular, by the ‘rules of good husbandry’ – a set of statutory guidelines which require the tenant to maintain optimum levels of agricultural production using farming systems appropriate to the holding and the fixed equipment provided by the landlord.
The rules, set out in the Agriculture Act 1947,46 are not directly enforceable, but non compliance can be the basis of possession proceedings under the 1986 Act, and the rules are also used as a yardstick to assess the tenants performance in eg arbitrations on rent review and proceedings on notices to remedy breaches of tenancy.47 A tenant wishing to diversify into non agricultural business use could face a number of problems, not least the possibility that the protection of the 1986 Act might be lost altogether if substantial diversification takes place and the character of the holding ceases to be agricultural. The potential impact on the tenant’s legal rights could constitute a disincentive to effective diversification.1.31 This clearly runs counter to modern public policy which, as we have seen, places considerable emphasis on the need to encourage the diversification of rural enterprises so as to create a more broadly based rural economy which is less reliant on traditional agriculture. The introduction of farm business tenancies in 1995 was intended to provide an appropriate legal medium for diversification by tenant farmers, while at the same time encouraging a revival in the tenanted sector by removing restrictions on farm lettings. Research into the economic impact of farm business tenancies published in 200248 found that the majority of new tenancies granted under the 1995 Act were of small areas of land and comprised solely bare land, with only 9% of new tenancies overall being of complete holdings (including both land and a dwelling). The research found that the median length of bare land letting on farm business tenancies was two years, with three years for tenancies that included buildings and 10 years the norm for the (relatively few) lettings of complete holdings with dwellings.49 While there was evidence that the introduction of farm business tenancies had revitalised the market and brought greater volumes of land onto the market for rent,50 the evidence for its role in promoting diversification was less clear cut,51 and the evidence as to bare land lettings ran contrary to government objectives, which were to encourage complete holdings wherever possible. Most tenants taking on farm business tenancies were found to be existing tenants, and only 9% were new entrants to the farming industry.52 The overall conclusion was that the 1995 Act was failing to deliver two of its key objectives ie to increase opportunities for new entrant s to farming, and to promote economic efficiently by making the market for rented land more flexible and more responsive to market forces. This research informed and (in part) prompted the most recent move to reform farm tenancy law, discussed below.