3 The Notice Conditions

3.14 The Notice Conditions provide a flexible, and widely used, mode of creating a farm business tenancy. In order to use the notice facility both parties – landlord and tenant – must give written notice to each other, either before or at the time the tenancy is granted, stating that the tenancy is to be a farm business tenancy, and that it is to remain such even if its character ceases to be wholly agricultural.

(i)The landlord and tenant each give each other a written notice identifying²⁴ the land to be comprised in the tenancy or proposed tenancy and containing a statement to the effect that the person giving the notice intends that the tenancy or proposed tenancy is to be, and remain, a farm business tenancy (the first notice condition); and

(ii)That, at the beginning of the tenancy, having regard to the terms of the tenancy and any other relevant circumstances, the character of the tenancy was primarily or wholly agricultural (the second notice condition).²⁵

3.15 There is no specified form for the notices. The notice must, however, be in writing, and one must given by each party to the other on or before the relevant day ie the beginning of the tenancy,²⁶ or the day on which the parties enter into any instrument creating the tenancy (other than an agreement to enter into a tenancy on a future date), whichever is the earlier.²⁷ The written notice cannot, however, be included in any instrument creating the tenancy.²⁸ If the agriculture condition is satisfied (see above) the tenancy may still qualify as a farm business tenancy under that head, but with the disadvantage that any significant diversification into non agricultural business use may take the tenancy outside the 1995 Act.

3.16 The notice facility is intended to encourage farm diversification while avoiding the legal pitfalls encountered by tenants under the Agricultural Holdings Act 1986. Where a tenancy is governed by the 1986 Act, it will be an agricultural holding if the whole of the land let, subject to such exceptions as do not substantially affect the character of the tenancy, is let for use as agricultural land. This is assessed by reference to the terms of the tenancy, the actual or contemplated use of the land at the time of letting, and ‘any other relevant circumstances’.²⁹ Some non-agricultural use is permissible without impugning the character of the tenancy, but the substantial user must remain agricultural if it is to remain within the Agricultural Holdings Act. The courts have, however, adopted a liberal interpretation of the 1986 Act provisions in cases of cesser of agricultural use. Evidence of a settled intention to abandon agricultural use of the land is required, and in one leading case it was suggested that abandonment for at least two years prior to notice to quit would be required.³⁰ Where the character of the tenant’s business has itself ceased to be mainly agricultural the court will have regard to the gross turnover of the business, and the land uses generating it. In Short v Greeves,³¹ the leading case under the 1986 Act, the tenant had developed a garden centre business during the course of the tenancy, to such an extent that 60% of the business’ gross turnover was derived from retail sales of produce bought in. The court reinforced the presumption against a tenancy that is agricultural at the outset ceasing to be such, by holding the change of use to be insufficient to take the tenancy out of the 1986 Act.

3.17 Under the 1995 Act the position is entirely different. If the notice facility is used then even if the substantial user ceases to be agricultural, the tenancy will still qualify as a farm business tenancy – provided always that some of the land continues to be farmed in the course of a trade or business (the business condition). The Act does not specify how much land must continue to be farmed but, clearly, if the relevant notices are given at the outset a tenancy which has ceased to be agricultural in substance could still qualify as a farm business tenancy. This will remove the unpredictability generated by case law under the 1986 Act in cases like Short v Greeves (above), where the issue was whether the ‘substantial’ user of a farm had ceased to be agricultural. In Farm Business Tenancies covered by the 1995 Act, the user can cease to be substantially agricultural without the status of the tenancy being affected. If the tenancy is not covered by the notice provisions it may well be a business tenancy within the Landlord and Tenant Act 1954,which is considerably more advantageous to the tenant than the 1995 Act regime (the tenancy will, for example, carry statutory renewal rights). The serious consequences of non – compliance, particularly for the landlord, dictate the use of considerable care in both serving and retaining proof of service of the relevant notices.³³

(a)Reletting following Farm Diversification

3.18 For the notice provision to be available it is necessary for the character of the tenancy, having regard to the terms of the tenancy and other relevant circumstances, to be wholly or primarily agricultural at its commencement.³⁴ This will cause problems for the landowner wishing to relet after diversification has taken place under a farm business tenancy – for where the proposed user of the land to be relet is mixed agricultural and business use, the 1995 Act provisions will be inapplicable to create a second farm business tenancy.³⁵ The Landlord and Tenant Act 1954, Part I would instead govern the new tenancy.

(b)Retaining the Agricultural Link

3.19 For the tenancy to remain a farm business tenancy it is necessary for some of the land comprised in the tenancy to continue to be farmed for the purposes of a trade or business (the business condition).The term ‘farmed’ was included intentionally, and is generally thought to be of wider application than the traditional definition of agriculture.³⁷ It would, for example, allow for the inclusion of new types of agricultural production developed from time to time, and therefore adds flexibility to the farm business tenancy concept. Despite this undoubted benefit, an element of uncertainty surrounds the precise definition of ‘farming’. Two issues may arise – the maintenance of continuity of some agricultural use, and (secondly) the nature of any residual land use to which land retained in agriculture must be put to qualify.

3.20 No assistance is offered by the 1995 Act in defining ‘farming’, except for the (somewhat unhelpful) observation in s 38(2) that references to farming of land ‘include references to the carrying on in relation to land of any agricultural activity’. While this may be of wider import, the link with the statutory definition of ‘agriculture’ is maintained, and it is by no means clear how much wider the courts will extend the definition of farming beyond the parameters of the definition of agriculture in s 38(1) of the Act. The courts have construed ‘inclusive’ definitions of agriculture in other statutory contexts, and have shown a distinct reluctance to extend its meaning and scope. So, for example, in Hemens v Whitsbury Farm and Stud Ltd.³⁸ the House of Lords ruled that inclusive definitions of agriculture must be construed in the agricultural context in which they occur, and by reference to those matters expressly admitted as to qualify as ‘agriculture’ by reference to the statutory definition. In the context of the Rent (Agriculture) Act 1976 a similarly inclusive definition has been held to include all operations involved in the farming of land for commercial purposes, but not to extend to all rural activities.³⁹ The work of a farm mechanic has, accordingly, been held to be agricultural as it is an operation necessary to the commercial farming of the land, and should not be viewed in isolation.⁴⁰ Growing weeds for the purpose of testing weed killers has, on the other hand, been held not to amount to ‘agriculture’although applying an ejusdem generis approach this would presumably qualify as ‘farming’ because of its potential utility in arable land management.

3.21 Just how much further the courts will go in widening the definition remains uncertain. Indeed, in one respect ‘farming’ may be of narrower scope than the statutory definition of ‘agriculture’. ‘Farming’ is an active verb, and may not encompass passive land uses that are commonly encountered in modern agriculture. Consider the set aside of arable land. Some forms of set aside may qualify as ‘farming’ while others may not. Putting set aside land to continued food production is clearly not required, but to amount to ‘farming’ the set aside land must be put to a use that is recognised as agricultural in nature. The extraction of minerals or peat on set aide and would clearly not qualify as ‘farming’ for these purposes. On the other hand, the set aside of arable land to rotational fallow would undoubtedly qualify by virtue of the link between fallow rotation and traditional forms of arable land management. Putting land into ‘environmental ‘ forms of set aside under one of the EU agri-environment schemes might arguably not be ‘farming’, however.⁴¹ Neither would the leasing of production quotas, such as dairy quota, however financially lucrative to the enterprise.⁴² It would therefore seem that, if substantial diversification is to take place within a farm business tenancy, the portion of the holding to be retained in agricultural use should be given over to a readily defined and uncontroversial use which is clearly ‘agricultural ‘ by reference to the statutory criteria eg. for use as grazing land, arable or for livestock breeding and keeping.

3.22 If the tenancy is to remain within the farm business tenancy regime it will be essential to ensure that some land is retained in agricultural use at all times. This requirement, together with the idiosyncratic definition of ‘agriculture’ in the Act, can cause unforeseen problems and requires careful consideration when preparing the tenancy agreement. In some cases any realistic link with agriculture may be lost, without the tenancy moving out of the farm business tenancy regime. The use of land for grazing is, for example, per se an agricultural user, even if the animals grazed are not ‘livestock’. The retention of a field for grazing racehorses would therefore satisfy the business condition in the Act, even if all other agricultural use had ceased – and even though keeping racehorses is not in itself ‘agriculture’.⁴³ Additionally, it should be recalled that the tenant must farm at least part of the land let for the purposes of a trade or business if the business condition in s 1(2) is to be satisfied. It follows that keeping some of the land to graze recreational ponies will not qualify, unless they are grazed as part of an agisting trade or business. If this is not the case, then the agricultural link will be broken – even if the land is later returned to commercial farming. The tenancy agreement must be drafted with this in mind eg by including a stipulation requiring the tenant to retain a specific portion of the holding in agricultural business use. The 1995 Act assists the landlord by making special provision for the case where the farm business tenancy expressly forbids non agricultural use on the whole or part of the holding.⁴⁴

(c)Surrender and Regrant

3.23 The parties may have entered into a farm business tenancy, and served the requisite notices, and later agree a variation in the terms of the tenancy or the land let under the agreement. There may be an express surrender and regrant of the tenancy, or there may be an implied surrender and regrant, consequent upon a variation in the terms of the tenancy. Implied surrender and regrant is the more problematic, and identifying situations in which the doctrine of implied surrender operates may not always be easy.⁴⁵ There will be an implied surrender and regrant, for example, where the parties vary the term for which the holding is let or where additional land is added to that originally let.⁴⁶ Where some other variation in the terms of the tenancy is agreed, however, the court will normally require evidence of an intention that it should take effect as a surrender of the existing tenancy and a regrant on the new terms. Where the parties intend that the tenant take a new tenancy of the premises, but on different terms from those of his former tenancy, an implied surrender and regrant will be effected, whether or not the parties realise that the law will analyse their agreement as having the effect of constituting a grant of a new tenancy and the surrender of the old one.⁴⁷ It is clear, however, that a variation in the rent paid under the original tenancy will not affect surrender and regrant,⁴⁸ even if (as in one case)⁴⁹ the parties increase the rents for two separate agricultural holdings and then combine them. Finally, it should also be noted that the withdrawal of a validly given notice to quit operates as a regrant by operation of law – even though the parties will usually be unaware of this.⁵⁰

3.24 Section 3 of the 1995 Act contains deeming provisions which dispense with the need to serve fresh notices on the regrant of a farm business tenancy, but only if the following conditions are met:

(i)the new tenancy must be granted to the person who was, immediately before its grant, the tenant under the old farm business tenancy.⁵¹

(ii)the old tenancy must be one in respect of which the notice conditions in s 1(4) of the 1995 Act had been satisfied.

(iii)the terms of the new tenancy must be ‘substantially’ the same as those under the old tenancy,⁵² except for changes in either of the following situations. These are the changes that can be made without triggering the need for service of fresh notices:

situation 1 – there are changes in area which are small in relation to the size of the holding and do not affect the character of the holding, or

situation 2 – the old tenancy and the new tenancy are both fixed term tenancies, but the term date under the new tenancy is earlier than the term date under the original tenancy.

3.25 Thus, the effect of the deeming provision is to dispense with the need to serve fresh notices where the parties bring forward the term date of a fixed term tenancy, or where the terms are varied to make small changes in the area of land let under the tenancy. The deeming provision applies whether the surrender and regrant takes place expressly, or impliedly by operation of law. In all other cases of surrender and regrant, however, fresh notices will have to be served if the new tenancy is to qualify as a farm business tenancy under the 1995 Act. There will also have to be an investigation to establish that, at the time of regrant, the character of the letting was primarily or wholly agricultural.⁵³ Alternatively, the parties will have to fall back on the agriculture condition (below). In either case, this could be problematic where a substantial degree of diversification has taken place since the original tenancy was granted.