1 The Legal Framework for Compensation

4.46 As we have seen, the Agricultural Tenancies Act 1995 is based on ideas of freedom of contract between landlord and tenant, and seeks to encourage the development of greater diversity in farm based businesses away from exclusive reliance on traditional agriculture.

The legal regime for compensation on termination has particular importance for farm diversification. In order to diversify successfully, it may be necessary to obtain planning consent for new buildings and for facilities intended for non-agricultural use, or for change of use of existing farm buildings. And, of course, substantial financial investment in new buildings and facilities may be needed. The tenant is not likely to consider this without guarantees as to compensation for the increased rental value generated by his improvements, and the financial institutions are unlikely to provide risk capital without an adequate legal framework for compensation underpinning the tenant’s investment. The 1986 Act gave tenants considerable rights to compensation, including the right to go to the first tier tribunal in some instances if consent to agricultural improvements was withheld by the landlord.¹⁰⁷ The tribunal procedure applied to most important agricultural improvements, including the erection or alteration of buildings, giving the tenant the right to compel the landlord’s consent if the improvement at issue was in the interests of efficient agriculture. The agricultural holdings regime approaches the compensation issue by listing those improvements for which compensation is available, in some detail, in Schedule 7 to the 1986 Act. The improvements there listed are almost exclusively agricultural in nature, although some (for instance the erection alteration or enlargement of buildings) could confer compensation rights for improvements intended for a diversified business use.

Even if the improvement can be categorised within the statutory list, however, the measure of compensation available is limited to the increase in the rental value of the holding ‘as a holding’ ie the increased rental value of the holding as an agricultural enterprise. This would not, arguably, confer compensation rights for increased rental value for business (as opposed to agricultural) use of the land and buildings. The compensation rules under the 1986 Act were therefore a disincentive to farm diversification.¹⁰⁸

4.47 This problem is recognised in the 1995 Act, which casts the tenant’s rights to compensation at the end of the tenancy in a different and more flexible way. Under a farm business tenancy the tenant’s right to compensation for improvements at the end of the tenancy is widened, and is not restricted to improvements of an agricultural nature.¹⁰⁹ The measure of compensation payable is the resulting increase in the value of the holding ‘as land comprised in a tenancy’, a formula which seeks to recognise the possibility of the land no longer having a solely agricultural use at the end of the tenancy.¹¹⁰ The tenant will also be entitled to compensation for any increase in rental value attributable to planning permissions which he has obtained and which relate to the holding. Compensation for development value arising from planning consents is not available under the 1986 Act. The 1995 Act also gives the tenant the right to claim compensation for ‘intangible advantages’, other than planning consent, which attach to the holding as a consequence of this efforts. This is intended to give compensation rights for eg the value of EU quotas obtained by the tenant, or certain environmental designations. The 1995 Act also gives the tenant much greater freedom to remove tenant’s fixtures provided by him in the course of the tenancy.

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Source: Rodgers Christopher. Agricultural Law. Bloomsbury Publishing,2016. — 914 p.. 2016

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1 The Legal Framework for Compensation

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