1 Freedom of Contract or Statutory Review?
3.107 When farm business tenancies were introduced, the intention was to give the parties greater freedom to agree rents (and rent reviews) without statutory interference. They are free to agree the initial rent without restriction, and there is no restriction on the taking of a fine or premium for the grant of the tenancy.
This is in marked contrast to the position obtaining under the Agricultural Holdings Act 1986, where protected tenancies can be subject, after the end of the initial fixed term, to arbitration on rent review every three years, and where the rent awarded by the arbitrator is governed by a complex formula reflecting the earning and productive capacity of the holding, and not just market rents.2173.108 The 1995 Act provides arbitration for the adjudication of disputes as to rent, but the statutory dispute procedure is intended as a fallback. The 1995 Act provides for arbitration on rent at three yearly intervals under a farm business tenancy, but only where the tenancy is created by an instrument that does not exclude statutory rent review in one of the five ways permitted by s 9. These exclusions are of paramount importance, and are discussed in detail in paragraph 3.110 et seq below. If none of the potential exclusions apply, and only in this case, the 1995 Act provides for 3 yearly arbitrations on rent in similar fashion to the position under the 1986 Act. The statutory arbitration mechanism will then apply, but in the case of a farm business tenancy the arbitrator is required to award a free market rent for the holding, calculated in accordance with a formula set out in s 13 of the 1995 Act. This is in marked contrast to the position under the 1986 Act, where the rent for an agricultural holding is calculated by reference to a complex formula including factors such as the holdings earning capacity and productive capacity218
3.109 The rent provisions were criticised by the Tenancy Reform Industry Group (TRIG) in its final report219 as unnecessarily complex.
The 1995 Act made it difficult to review rents on a basis similar to that for protected tenancies. This was perceived to be a disincentive dissuading protected tenants with 1986 Act tenancies from surrendering their tenancies in favour of farm business tenancies on better holdings. TRIG recommended the introduction of greater flexibility for landlord and tenant to exclude the statutory rent review procedure, and greater freedom for them to use an independent expert (rather than arbitration) to determine the rent. Where arbitration was applicable, the arbitrator should be able to fix the rent by referring to all the provisions in the tenancy agreement, including terms specifying the criteria for the review of the rent, rather than being limited to the free market valuation formula in the 1995 Act – for example provisions directing a review on terms similar to that applicable under protected tenancies, rather than a market valuation, should be enforceable. These reforms were implemented in 2006.220
More on the topic 1 Freedom of Contract or Statutory Review?:
- 2 Excluding Statutory Rent Reviews
- 1 Statutory nuisances
- 2 Statutory extension of tenure
- 4 Procedure on Rent Review
- Table of Statutory Instruments
- Weber on Objectivity and Value Freedom
- Interference from Above
- 1 Application of Agricultural Tenancies Act 1995
- Some initial characterisations
- 2 Tenancies of smallholdings