8 The Occupancy Condition
8.38 A person is not eligible to succeed to a tenancy if he is the occupier of a ‘commercial unit of agricultural land’.72 The policy underlying this limb of the eligibility test is to ensure that only applicants who have no other viable agricultural concerns should be entitled to succession.
The disqualification only applies, however, where the applicant ‘occupies’ a commercial unit, and not where he simply manages it on behalf of a third party.738.39 A ‘commercial unit of agricultural land’ is defined74 as a unit of agricultural land which is capable, when farmed under competent management, of producing a net annual income of an amount not less than the aggregate of the average annual earnings of two full-time male agricultural workers aged twenty or over. This is an exercise in assessing the notional stocking or cropping capacity of the holding when farmed under ‘under competent management’. The decision on what stocking and/or cropping regimes is optimum, and what levels of stocking or cropping might be appropriate for the land in question, is a matter for the expert opinion evidence brought before the tribunal.75 If the tribunal arrives at a decision that the claimant occupies a commercial unit of land, other than that subject to the application for succession, then it has no discretion to allow an application for succession and must dismiss it.76
8.40 The Minister prescribes units of production for the purposes of calculating the productive capacity of a unit of agricultural land and the net income it is capable of generating. These are prescribed in a statutory instrument that is periodically updated.77 DEFRA also publishes regularly the average annual earnings of different classes of worker, including full-time males aged 20 or over. At the request of any person eligible to apply for succession, or of the landlord, the Minister must carry out a commercial unit assessment of land and issue a written statement of his views to the person making the request.
The statement issued by the Minister is not conclusive and binding on the tribunal as to the commercial unit status (or otherwise) of the land in question, but is evidence of any facts stated in it as facts on which the Minister’s view is based.78(a)Satisfaction of occupancy condition
8.41 In Jackson v Hall,79 the House of Lords ruled that the applicant must satisfy the occupancy condition at the date of the tenant’s death, at the date of application and at the date of the tribunal hearing. An applicant cannot render himself eligible by divesting himself of a ‘commercial unit’ between the tenant’s death and the tribunal application. Similarly, the acquisition of an interest in a commercial unit during this interval will disqualify the applicant.
8.42 In Williamson v Thompson,80 the House of Lords further decided that a joint occupier of a commercial unit was also ineligible, even where the commercial unit was not capable of generating a notional income sufficient to support all of the joint occupants. The potential injustice of this rule was addressed by the Agricultural Holdings Act 1984, which amended the rules to allow for division of the potential income of a unit in appropriate cases. It is now provided that81 where agricultural land is jointly occupied by an applicant for succession and one or more other persons either as:
(i)beneficial joint tenants,
(ii)tenants in common,
(iii)joint tenants under a tenancy, or
(iv)joint licensees
8.43 Then while the survivor is still deemed to be occupying the whole of the land, the tribunal must assess his ‘appropriate share’ of the net income that the land is capable of producing. If his appropriate share of its income is less than the aggregate of the average annual earnings of two full-time agricultural workers, then he will not be treated as occupying a ‘commercial unit’ of agricultural land. The appropriate share of income attributable to the survivor is ascertained:
(i)Where he is a joint tenant, by dividing the net annual income which the land is capable of producing by the total number of joint tenants or licensees for the time being; or
(ii)Where he is a tenant in common, by dividing the net annual income in such a way as to attribute to him and the other tenants shares of the income proportionate to the extent for the time being of their undivided shares in the land.
(b)Anti-avoidance provisions
8.44 The commercial unit test causes problems where a holding comprises land of mixed tenure, eg part may be freehold, and the remainder rented. If the tenant farms in partnership with close relatives, and the latter occupy as licensees or under a partnership tenancy, then if the freehold land so occupied is a commercial unit, succession to the tenancy of the rented land will be in jeopardy. Conversely, attempts to evade the occupancy condition have not been unknown, often by arranging for a commercial unit to be occupied under a bare licence, or for any interest in such land to be transferred by a potential applicant to a third party or company (the applicant often remaining in possession).
8.45 The underlying policy of the commercial unit test is to reserve statutory succession to cases where applicants have no other viable agricultural business on which to rely. In order to clarify its operation, and to discourage avoidance, the 1986 Act82 specifies in some detail those types of legal interest by which land is held that will ‘count’ for the purposes of the condition (and those which are exempt). It also lays down anti avoidance provisions that impose ‘deemed’ occupation in some instances. The rules are complex.
(c)Occupation that does not ‘count’
8.46 Occupation of land in any of the following capacities is to be disregarded for the purposes of the occupancy condition:83
(i) Farm Business Tenancies
8.47 Occupation of land ‘under a farm business tenancy for a period of less than five years (including a farm business tenancy which is a periodic tenancy)’.84 Where an applicant for succession to an ‘old’ AHA tenancy occupies other land under a farm business tenancy, then if the latter is a periodic tenancy, or is a fixed term tenancy of less than five years, this will not ‘count’ to disqualify him from succession. This is an important exclusion, as all new lettings since 1 September 1995 will be farm business tenancies and many will be for short terms falling within this exception.
Taking additional land under a farm business tenancy will in most cases not, therefore, disqualify an applicant from applying for succession to an old style AHA tenancy.85 The provision is unclear in its application to periodic tenancies.86 The exclusion reflects the fact that a periodic farm business tenancy is inherently insecure, and can be terminated on notice at any time.87 This provision therefore follows the same logic as the others (below) that discount various types of insecure interest from counting for the commercial unit occupancy test. Nevertheless, if a periodic tenancy in fact runs for longer than five years then the exclusion would still seem to be applicable. This may be open to abuse, for example if a potential applicant disposes of land which comprises a disqualifying ‘commercial unit’ with a leaseback arrangement on a periodic farm business tenancy.(ii) Insecure Interests
8.48 The occupation of additional land under several other classes of short term letting arrangement will not disqualify a potential successor. These are of diminishing importance, as most of the exempted interests cannot be granted after 1 September 1995, when the Agricultural Tenancies Act 1995 came into force. Occupation of land under any of the following arrangements will not count for the commercial unit test:
•Occupation under a tenancy granted with Ministry consent, or under an exempt grazing or mowing agreement,88
•Occupation under a tenancy for more than one but less than two years (a ‘Gladstone v Bower tenancy’),
•Occupation under any other tenancy not having effect as a contract of tenancy under the farm tenancy legislation,
•Occupation under a tenancy for between two and five years, which does not continue as a yearly tenancy because the parties obtained Ministry consent to the grant of the tenancy,89
•Occupation as a licensee ‘only’.
8.49 A licence confers no interest in the land and is inherently insecure, and subject to contractual termination at any time.
It should be remembered, however, that if the licence was granted before the Agricultural Tenancies Act 1985 came into force on 1 September 1995, then it may have been subject to statutory conversion into a protected annual tenancy by s 2 of the 1986 Act.90 In Harrison-Broadley v Smith,91 it was held that the 1986 Act converts any contractual licence that confers exclusive possession into an annual tenancy with statutory security of tenure. It follows that, in the case of licences granted before 1 September 1995, only a commercial unit occupied under a gratuitous or unenforceable licence, or one of a non-exclusive nature, will be exempted from the commercial unit occupancy condition. In Brooks v Brown92 it was held that occupation by an applicant as a partner in a family farming partnership was not occupation as a licensee ‘only’. The exclusion is intended to exclude only interests conferring no security in the land. Although a licensee, a partner’s position is protected by the Partnership Act 1890,93 which continues the applicant’s partnership authority after the tenant’s death ‘so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished’ at the time of the dissolution. Query, there is an argument that the reference in the exclusion to occupation as a ‘licensee only’ was intended to distinguish between bare licenses and those converted by s 2 into annual tenancies with protection. The decision has been criticised.94•Occupation as an executor, administrator, trustee in bankruptcy or person otherwise deriving title by operation of law.
8.50 These are all categories of agreement which were normally exempt from the operation of the 1986 Act, and therefore occupation of a commercial unit in any of these capacities will not disqualify the applicant from applying for succession to tenanted property elsewhere. In the case of grazing and mowing lets, or Gladstone v Bower tenancies entered into before 1 September 1995, these agreements may well, if still continuing today, have been statutorily ‘converted’ by the 1986 Act into fully protected annual tenancies.95 If this is the case, occupation of land on that basis will disqualify a potential successor, as this is not an ‘exempt’ form of letting.
(d)Deemed occupation
8.51 For the purposes of the commercial unit test, occupation by either the spouse of a survivor of the deceased, or by a body corporate controlled by a survivor of the deceased tenant, shall be treated as occupation by that survivor.96 The exclusions of occupation listed above do not apply in the case of a licence or tenancy granted to a survivor of the deceased by his spouse or by a body corporate controlled by him.97 The Act also tries to block evasion by a survivor granting an interest exempt from the operation of the legislation to a third party, where the latter does not gain security of tenure. Where land is held by a third party under one of the excluded classes of agreement or licence (above) and that interest was granted by the survivor or a ‘connected person’ himself entitled to occupy under an excluded class of tenancy or licence, then the survivor is deemed by Sch 6 to be in occupation of the whole of the land.98 A ‘connected person’ for these purposes means either the survivor’s spouse or a corporate body controlled by the survivor. A company is to be treated as ‘controlled’ by a survivor if he and/or his spouse have power to secure that the affairs of the company are conducted in accordance with their wishes either:
(a)By means of holding shares or possessing voting power in that or any other company (for instance a holding company), or
(b)By virtue of provisions in the company’s articles of association or any other document regulating the company’s affairs.99
8.52 These complex provisions go some way to preventing abuse of the commercial unit test. They contain a number of loopholes, however, several of which should be noted. Occupation is only attributed to a survivor where an interest in a commercial unit is held by that survivor’s spouse or civil partner. Schedule 6 does not cover the case where an interest in a commercial unit is held by some other relative of the applicant, eg a brother/sister or child of the survivor. Avoidance of the test will still be possible if an interest in a commercial unit is transferred to such a relative prior to the tenant’s death, with the survivor/applicant remaining in possession under an unprotected interest. Schedule 6 does not, similarly, cover the case of a family company controlled by brothers/sisters of the survivor, and not by his spouse. Likewise, if control of the company is maintained other than by a majority shareholding or by provisions in the company’s articles of association, evasion may still be possible. Neither does the Schedule cover the case where control is maintained by a looser system of related shareholdings held (for instance) by trusted agents or by brothers, sisters and other relatives (excepting the survivor’s spouse).100