Farm Business Tenancies Revisited
12 December 2007
Is your tenancy really a farm business tenancy? Take time to check it out against the following criteria.
1 Farm Business Tenancy (FBT)
In order for a tenancy to be a FBT it must:
1.1 be a tenancy
1.2 meet the business conditions
1.3 meet either the agriculture condition or the notice conditions
2 Tenancy
FBTs can be fixed term or periodic tenancies. They may be oral, written or created by deed. Exclusive possession is required, but there is no need for payment of rent.
3 Business conditions
3.1 All FBTs must meet the business conditions, i.e.
• that all or part of the land comprised in the tenancy is farmed for the purposes of a trade or business and
• that since the beginning of the tenancy all or part of the land so comprised has been so farmed.
3.2 The business conditions must be complied with at all times. If there has been any period, however short, when they were not complied with, the tenancy will not and can never again be an FBT. This means the loss of compensation for improvements for the tenant and will endanger the landlord's right to obtain vacant possession.
3.3 At least part of the land must be farmed for the purposes of a trade or business (but not necessarily the same part throughout). The farming activity must be commercial. The rest of the land may be farmed for hobby purposes or used for non-agricultural and non-farming activities, subject to the requirements of the notice conditions and the agriculture condition.
3.4 Whilst only part of the land needs to be farmed throughout the tenancy, it is necessary (whether the agriculture condition or the notice conditions are relied upon) to show that the tenancy is primarily or wholly agricultural at the outset. "Primarily or wholly agricultural" is to be decided as a matter of overall impression taking into account all relevant factors.
4 Notice conditions
4.1 The notice conditions require:
• two written notices – one from landlord to tenant and one from tenant to landlord. The notices must be properly served within a given time frame.
• that at the beginning of the tenancy the character of the tenancy is primarily or wholly agricultural.
4.2 Thus, once valid notices are served then (subject to compliance with the business conditions) it does not matter if there is diversification on the holding.
5 Agriculture condition
5.1 The agriculture condition, unlike the business condition, is fulfilled provided that the character of the tenancy is primarily or wholly agricultural at the time the status is challenged and past non-compliance is irrelevant. It is possible for a tenancy, where valid notices have not been served, and part of the land is farmed throughout, to slip into and out of the FBT regime and the business tenancy regime.
5.2 In reality, the agriculture condition should be viewed as a sweep-up provision designed to apply when valid notices have not been exchanged. The agriculture condition does not allow for diversification on any major scale. Thus, the recommended course of action is always to serve notices. Once those notices are served, and provided that the business conditions continue to be fulfilled, this will prevent the tenancy from leaving the FBT regime, and avoid the problems referred to in paragraph 3.2 above.
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