7 User Covenants

3.67 In old tenancies granted under the 1986 Act the rules of good husbandry were paramount, and it was not uncommon for the tenancy agreement to prohibit all non-agricultural uses of the land let.

3.68 Alternatively, the tenancy agreement might be drafted to permit some types of agriculture, and not others. If, for example, the holding is to be used for specialist horticultural crops, it will be possible to restrict the use to the production envisaged. Similarly, user can be restricted to the production of arable crops, to livestock farming or to dairy farming, as need be. Where non-agricultural use is to be permitted, the parties will have to choose whether limited, specified, non-agricultural uses are to be permitted – or whether the tenant is to have freedom to diversify into non-agricultural use without restriction.

(a)Preserving Tenancy Status

3.69 By virtue of s 1(8) of the 1995 Act any use land in breach of the terms of the tenancy, any commercial activities carried on in breach of those terms, and any cessation of user in breach of the terms of the tenancy, is to be disregarded when assessing whether the tenancy meets the business or agriculture conditions viz. the qualifying conditions for farm business tenancy status. As we have seen, where the tenancy is granted under the agriculture condition, any significant non-agricultural use could result in it ceasing to be a farm business tenancy, and becoming a business tenancy within the Landlord and Tenant Act 1954. This can be prevented by prohibiting any non-agricultural user of the land let, as any user in breach of covenant is disregarded under s 1(8). Where the notice facility is used to create a farm business tenancy, on the other hand, the parties will often have diversification in mind, and different considerations will apply. It must be remembered, however, that (i) the letting must be primarily agricultural at the start of the tenancy and (ii) that even where diversification is intended the business condition requires some of the land let to be farmed for the purposes of a trade or business at all times since the grant of the tenancy.¹⁴⁴ While future non-agricultural use may be permitted by the tenancy agreement it will be important to expressly provide, therefore, that some of the land let be retained in agricultural production at all times during the tenancy. If a covenant in this form is included, section 1(8) will protect against the letting losing its farm business tenancy status following substantial diversification.

(b)Compensation for Improvements

3.70 An appropriately drafted user covenant will also be important in providing against claims for compensation for inappropriate tenant’s improvements. Compensation for improvements is only available if the landlord has given written consent to the improvement in question.¹⁴⁵ A tenant aggrieved by a refusal to give consent can, however, refer the landlord’s refusal (or the conditions subject to which consent has been given) to arbitration under the 1995 Act. When deciding whether to give consent the arbitrator must have regard inter alia to the terms of the tenancy.¹⁴⁶ The user clause will therefore be of considerable importance. If the improvement is to be provided in connection with a use not permitted by the agreement, an arbitrator is unlikely to give consent. The inclusion of well drafted user clauses will be important, therefore, in protecting against the provision of unwanted improvements for which the landlord will be liable to pay compensation on termination of the lease.