7 The ‘livelihood condition’

(a)The ‘Principal Source of Livelihood’ test

8.20 The livelihood condition has proved problematic, and has generated considerable litigation before the Agricultural Land Tribunals and courts.

‘Principal source of livelihood’

8.21 The Act directs attention to the applicant’s source of ‘livelihood’, not simply his or her income. Where the applicant for succession has diverse sources of income – some derived from work on the holding itself, and others from work elsewhere (for example contract farming for other enterprises) – then the different sources of income must be distinguished so as to establish what is the ‘principal’ source of the applicants ‘livelihood’. And ‘principal’ in this context means more than 50% of the applicants overall sources of livelihood.⁴¹

8.22 Not all income will contribute to ‘livelihood’, and some elements of livelihood can be contributed otherwise than in cash terms. A ‘source of livelihood’ was explained in Trinity College, Cambridge v Caines⁴² to mean ‘what the applicant spends or consumes on her ordinary living expenses from time to time in money and/or kind and … does not include money that she has available to spend but does not in fact spend for that purpose.’ If the applicant is entitled to more than s/he receives for agricultural work on the farm, but leaves it undrawn, it will not ‘count’. So, for example, income from agricultural work that is left undrawn and used to build up the applicants share of the farming partnership’s assets will not be relevant to calculating his ‘principal’ source of livelihood.⁴³ Undrawn profits from the farming enterprise clearly do not count as part of the applicant’s ‘livelihood’ in the required sense. The applicant’s income spent on household expenses is the relevant criterion, and not his work on the holding per se.⁴⁴

8.23 Benefits need not be wholly monetary, and benefits in kind will contribute to the applicants ‘livelihood’ provided they equate with ordinary living expenses.

8.24 The test causes particular problems where the household expenditure of the deceased tenant and the applicant were mixed, as will often be the case, eg where the deceased tenant and the applicant (a son for instance) lived together as one household. To correctly apply the livelihood condition, the tribunal must identify the applicant’s source of livelihood ie what proportion of the total expenditure on the livelihood of the household was attributable to the applicant, and what proportion was the deceased tenant’s. It will need to establish the value to the applicant of benefits in kind,⁴⁹ such as rent-free board and lodging, in order to establish what proportion of his/her overall ‘livelihood’ was derived from his/her work on the farm.

‘Agricultural work on the holding’

8.25 The applicant’s principal livelihood must have been derived from his/her work on the agricultural holding concerned or on an ‘agricultural unit’ of which the holding forms part.⁵⁰ Under the original terms of s 36, an applicant for succession had to show that s/he derived his/her principal source of livelihood from ‘agricultural work’ that was carried out ‘on the holding’. This imposed two restrictions on the satisfaction of the livelihood test: (i) the work from which the applicants livelihood was derived must be ‘agricultural ‘in nature; and (ii) it must be carried out on the holding to which the application related. This aspect of the test was reviewed by the Tenancy Reform Industry Group in 2003 and found to be unduly restrictive. Not only would it prejudice an applicant who carried out contact ploughing or other services for other agricultural businesses by jeopardising succession rights to their own holding, it also excluded consideration of income generated by non agricultural business activities. The test was therefore an impediment to business diversification by farm tenants.⁵¹

8.26 The Regulatory Reform Order 2006 widened the scope of the test. The reference to ‘agricultural work’ carried out by the applicant on the holding (or on an agricultural unit of which the holding forms a part) now includes:⁵²

•Agricultural work carried on by him from the holding or an agricultural unit of which the holding forms a part and

•Other work carried out by him from the holding or an agricultural unit of which the holding forms a part.

8.27 In both cases, however, if work carried out ‘from’ the holding (rather than actually on the holding itself) it is to ‘count’ then the work must be of a description approved in writing by the landlord after the commencement of the 2006 Order.⁵³

8.28 Where the applicant is the deceased’s wife or civil partner, it is specifically provided that the reference to agricultural work is to be read as a reference to agricultural work carried out by either the wife/civil partner or by the deceased (or by both of them).⁵⁴ A widow or surviving civil partner of a deceased tenant will therefore be able to aggregate his/her late partners work on the holding with their own for the purpose of satisfying this part of the eligibility test.

8.29 The widow or civil partner will also still have to establish his/her ‘suitability’ for succession (see below). To do so, s/he will (as we shall see) have to prove s/he has sufficient experience and training in agriculture to enable him or her to farm the holding satisfactorily.

For a ‘period of five years’

8.30 Within the seven years prior to the tenant’s death, the applicant is entitled to choose which five-year period (or periods amounting to five years) s/he wishes to rely upon during which his livelihood was derived from work on the holding.⁵⁶ He may, therefore, be eligible even if s/he does not work on the holding itself during the two years prior to the tenant’s death. Clearly, this allows considerable latitude to potential applicants to arrange their affairs so as to be sure of satisfying the statutory criteria.

8.31 For the purposes of calculating the five-year period required by section 36(4), any period during which an applicant was, during the seven years prior to the tenant’s death, attending a full-time course at a university, college or other further education establishment, is to be treated as a period throughout which his/her only or principal source of livelihood was derived from his/her agricultural work on the holding. Not more than three years’ attendance at an educational institution can be counted.⁵⁷

‘Derived’ from his work on the holding

8.32 The correct approach is to focus on the applicant’s drawings from the farm accounts, and the value of benefits in kind, and then ascertain the proportion their combined value bears to his total income. To be his ‘principal’ source of livelihood, such drawings – plus notionally costed benefits in kind – must amount to not less than 50% of his total expenditure on living expenses.

(b)Relaxation of the livelihood condition

8.33 Where the applicant cannot fully satisfy the livelihood condition, s 41 enables him/her to make an application to the tribunal to be ‘treated’ as eligible. The application must be made within three months of the tenant’s death, and at the same time and in the same form as the application to succeed to the tenancy. If successful, his application for a tenancy under s 39 is to be treated as if made by an eligible person.⁶¹

8.34 For s 41 to apply, a close relative must establish (i) that the occupancy condition is satisfied; and (ii) that the livelihood condition, though not fully satisfied, ‘is satisfied to a material extent’.

8.35 The key criterion is that the Livelihood Condition (above) must have been satisfied by the applicant to a material extent. In Littlewood v Rolfe⁶³ it was held that ‘satisfied to a material extent’ must be given a wide meaning, viz ‘material means substantial in terms of time and important in terms of value’.⁶⁴ The court envisaged that in suitable cases, where the income from the holding formed a large part of the applicant’s income, 50% satisfaction of the ‘principal source of livelihood’ test could be satisfaction to an extent that was material. It follows that an applicant can be ‘treated’ as eligible, in appropriate circumstances, with as little as two and a half years’ work on the holding.⁶⁵

8.36 The power to ‘treat’ applicants as eligible is of utility in two types of case:

(i)Value Cases

The power can apply where the applicant has worked on the holding for the required number of years but the value of the income derived from that work to him/her is not sufficient to make it his ‘principal’ source of livelihood. The correct approach in such cases was discussed in Wilson v Earl Spencer’s Settlement Trustees.⁶⁶ According to Hodgson J, the starting point must be the applicant’s ‘principal’ source of livelihood. To be a principal source of livelihood, the applicant’s work on the holding must provide at least 50% of his/her income spent on household living expenses, taking account also of benefits in kind. The correct test, then, is to ask whether the applicant satisfied the 50% requirement ‘to a material extent’. Adopting the wide definition of ‘material’ satisfaction sanctioned in Littlewood v Rolfe (above), the question in value cases is whether the income (including the value of benefits in kind) derived from the holding represents an important satisfaction of the 50% requirement of the applicant’s living expenses. This involves a comparison of the applicant’s total livelihood and his income from the holding. What constitutes an ‘important’ satisfaction of the test will be a question of fact for the tribunal, but clearly it could in appropriate cases sanction applications for succession from applicants who have derived as little as 25% of their total livelihood from the holding concerned. In Thomson v Church Commissioners,⁶⁷ however, an applicant was held to be ineligible where the income derived from her work on the holding fell 24% short of the 50% ‘principal’ livelihood threshold in every one of the five ‘best’ years of the seven preceding the tenant’s death. The High Court refused to overturn the finding on the facts of the Northern Area Agricultural Land Tribunal to this effect.

(ii)Time Cases

Section 41 also applies where the length of time the applicant has worked on the holding is less than the five years required by the livelihood condition. Raine’s Trustee v Raine⁶⁸ is a good example of ‘time’ cases of this type, as here the applicant had only worked on the holding for three years in the seven prior to the tenant’s death. Here Forbes J held that the correct test in ‘time’ cases, applying the guidance in Littlewood v Rolfe, is to ask whether the time spent working on the holding was a ‘substantial’ satisfaction of the five years required. Consequently, an applicant with as little as two and a half years work on the holding could in principle qualify for eligibility on this basis. The five-year period required by s 36(3) is the starting point: the correct question is not whether the applicant has spent a substantial period of time working on the holding, but whether he has satisfied the requirement of eligibility (ie five years’ work on the holding) to a ‘substantial’ degree. This is a question of fact for the tribunal.

(iii)Section 41(6) also provides that the section applies where the holding concerned is too small to provide the applicant with his principal source of livelihood. If the tenant had other farms or land, the applicant may also be assisted by the injunction to look at income derived from work on ‘a unit of which the holding forms part’.⁶⁹

Application: whether ‘fair and reasonable’ to proceed

8.37 Once the tribunal is satisfied that s 41 applies, and that the applicant has satisfied the livelihood test to a material extent, it must – before making a direction deeming the applicant to be eligible – consider whether ‘it would be fair and reasonable for the applicant to be able to apply … for a direction entitling him to a tenancy of the holding’.⁷⁰ This is in the nature of a procedural bar and enables the tribunal to take into account a wide range of factors. The enquiry is not open-ended however, and is directed to the merits of the tenant’s application and the extent to which he or she has satisfied the eligibility criteria (above). The impact on the landlord of allowing the application to proceed, or on the beneficiaries of the landlord trust, will not therefore be relevant. In Raine’s Trustee v Raine,⁷¹ it was held that issues of relative hardship as between landlord and tenant are irrelevant to whether the application should be allowed to proceed. If the landlord wishes to argue it will result in ‘greater hardship’ to his interest as landlord, he should therefore serve notice to quit. If the landlord does so, then the question of hardship will arise, later in the proceedings, when the tribunal considers whether a ‘fair and reasonable landlord’ would demand possession in the circumstances. Questions of relative hardship will become relevant at this later stage in the succession proceedings.