10 Repairing and Insurance Obligations

(a)Repair – Choice of Liability

3.74 The parties are free to agree the allocation of repairing and insurance responsibilities between themselves. The 1995 Act makes no provision for these matters, which are left as a matter of free contract between the parties.

3.75 The parties to a farm business tenancy are free to agree a letting on a full repairing lease, or to agree that repairing obligations should remain with the landlord. Alternatively, in the case of a fully equipped holding, the parties may wish to expressly incorporate the model clauses set out in either the 1973 or 2015 regulations. If this is to be, or has been, done, then it will be important to ascertain whether the repairing obligations of landlord and tenant are to be governed by the 1973 or 2015 model clauses. The 2015 model clauses substantially modified the obligations of landlord and tenant, and uprated the amounts recoverable by the parties eg in the case of replacements carried out by the tenant to items which are the landlords responsibility under the tenancy. Conversely, the agricultural content of the 1973 model clauses is now somewhat out-dated.

3.76 Which of the two sets of model obligations will apply will depend upon: (i) when the tenancy as concluded and (ii) the precise wording of the clause incorporating the model clauses. The 2015 model clauses came into effect in England on 1 October 2015. If a farm business tenancy entered into on or after that date includes a clause in general terms incorporating the model clauses as to repair and maintenance of fixed equipment, then this will incorporate the 2015 clauses into the agreement. The only exception would be an agreement that (probably in error) expressly incorporated the 1973 Regulations. For the avoidance of doubt, it would be preferable to expressly incorporate the model clauses as set out in the 2015 Regulations and to include a ‘successor clause’ ie ‘or any successor or revision thereto from time to time applicable’ or wording to the same effect. In the case of a farm business tenancy concluded before 1 October 2015, a clause incorporating the model clauses will have taken effect on the grant of the tenancy as incorporating the (old) 1973 Regulations. Whether the obligations of landlord and tenant will be updated to reflect the 2015 model clauses will depend upon the drafting of the clause in question. If it includes a ‘successor’ clause then the agreement will from 1 October 2015 have been modified to incorporate the 2015 regulations and model clauses. If not, then the parties obligations as to maintenance and repair of fixed equipment will still be governed by the 1973 Regulations, which are now somewhat outmoded and obsolete.

3.77 Whether the 2015 or 1973 model clauses apply, it is worthy of note that the arbitration procedure and machinery for enforcing the Model Repairing Clauses under the Agricultural Holdings Act 1986 cannot be used in cases of dispute where they have been incorporated into a farm business tenancy.¹⁶⁰ There is some evidence from the practice that evolved under the 1995 Act, immediately following its introduction, that new farm business tenancies were being granted both on a full repairing basis, and on a model clauses basis, in roughly equal proportions.¹⁶¹

3.78 Whichever basis of liability the parties choose, it is important to make some express provision for repairs and maintenance in the tenancy agreement, for the following reasons:

(i)If the parties make no provision for repairs, then neither party will be legally responsible for repair and maintenance of buildings and fixed equipment. The tenant will be liable for waste only.¹⁶² The repairing obligations imposed on landlords granting short leases of less than 7 years, imposed by the Landlord and Tenant Act 1985,¹⁶³ do not apply to lettings under farm business tenancies.¹⁶⁴

(ii)Arbitration in disputes as to repair and maintenance of buildings and fixed equipment and buildings will only be available under s 28 of the 1995 Act if the parties make contractual provision for these matters.

(b)Repair: content of the obligation

3.79 In construing express terms in the lease the general law on the construction of leasehold covenants will be of relevance.¹⁶⁶ The courts no longer draw a distinction between lack of repair and inherent defects, and it is now clear that damage/deterioration to buildings caused by inherent design defects can engage the landlord’s liability for structural disrepair (for instance under the model clauses, above). For breach of the model repairing clauses, or of an express covenant, it is necessary that the structure of the farmhouse or buildings have deteriorated from some previously existing state or condition. In Post Office v Aquarius Properties Ltd¹⁶⁷ it was held that disrepair ‘connotes a deterioration from some previous physical condition’. It is not sufficient to prove loss of amenity or utility, so that if a building becomes unusable because of damp resulting from a defect in construction, there is no remedy if the structure has not deteriorated in any way.¹⁶⁸

3.80 If deterioration in the buildings has occurred, then it is a question of degree whether what needs to be done is properly to be called a ‘repair’, or whether it would involve the landlord receiving back something wholly different to that demised.¹⁶⁹ As a general rule the cost of the proposed work, as a proportion of the value or cost of the premises, can be used as a guide. So inserting a new damp course to replace a defective course placed below ground level will constitute repair, not improvement,¹⁷⁰ as will the replacement of piles supporting a building.¹⁷¹ Inserting new foundations may not, however, be merely a ‘repair’.¹⁷² The imposition by the model clauses of an obligation on the landlord to execute both repairs and replacements of a structural nature, means that the distinction in the general law between repairs and improvements is of diminished significance where the model clauses are incorporated.

3.81 By virtue of the rule in Proudfoot v Hart¹⁷³ a covenant by the tenant to keep premises in tenantable repair imposes an obligation to put them into tenantable repair and deliver them up in such a condition. In Post Office v Aquarius Properties Ltd¹⁷⁴ it was indicated that this only applies to property the condition of which has deteriorated from a (former) better condition in which they existed prior to letting.

(c)Insurance

3.82 The 1995 Act makes no provision for the allocation of the liability to insure fixed equipment and buildings, live and dead stock and harvested crops. Customarily, the liability to insure live and dead stock, and harvested crops, will be allocated to the tenant, while the liability to insure buildings falls to the landlord. Express provision for these matters should be made in the tenancy agreement. Where a covenant obliging landlord or tenant to insure the property exists, the Fires Prevention (Metropolis) Act 1774 requires the proceeds of the insurance claim to be spent on reinstatement of the property insured.