Business tenancies for farmers: Avoid the pitfalls

 

Business tenancies not directly concerned with agriculture or even agribusiness occur more frequently than you would think on farms. Sandy commercial property Brian Hall gives an overview.

Here is a typical scenario. A farmer has a number of unused buildings and wants to make use of them and generate some income. 

He thinks of letting them out and finds a tenant for one of them who wants to use it for business use. The building does not need to be where the business is actually carried on. Often the use is for storage for the purpose of a business carried on elsewhere, but this would still classify as business use, and the usage is important in this context.

The farmer and his new tenant write down and sign some basic heads of agreement but cover only the bare bones i.e.
a. Which building the tenant is to occupy
b. What the rent is to be
c. The initial term – say 12 months, but informally they agree that this is really a ‘rolling agreement’ with either side being able to give two months notice if one or other party wants to terminate the arrangement.

This is not an untypical set-up in the farming context and also elsewhere but has, notwithstanding the written terms, created a protected tenancy under the Landlord & Tenant Act 1954.

This comes with a whole lot of statutory provisions and protections for the tenant that is automatically imported into the arrangements. Unless a specific procedure is adopted before the agreement is entered into, which excludes the protection provisions of the 1954 Act, certain consequences will follow.

Basically, a fixed term tenancy which is for more than six months in duration is not a fixed term even if the written agreement says so. The tenant need not vacate when that initial period expires, but is allowed to hold over. The landlord can only terminate in accordance with statutory procedures which involves giving at least six months notice to quit.

Also the grounds on which a notice to quit can be effective are quite limited.

These will include:
a. persistent failure to pay rent – this does not include a bounced rent cheque or a bank slip-up on the odd occasion
b. allowing the property to fall into disrepair
c. the landlord intends to re-develop – note the burden of proof of the intention to develop extends well beyond the landlord’s initial thinking and would be expected to include having plans drawn up and perhaps applying for planning permission
d. consolidation of a number of small leases
e. the tenant being offered suitable alternative accommodation
f. the landlord requiring the premises for the purpose of his own business.

There are some other rarely used reasons but these are the main ones. In each situation, the landlord must prove his case and some of the grounds are, in any event, allowable only of the discretion of the Court. Therefore, the dangers of setting up an informal arrangement or one which is not fully drafted should be of major concern when a landlord takes on a new tenant.

It is possible to exclude the protective provisions of the 1954 Act provided that the landlord, before the tenancy arrangement is concluded, serves notice in a specified form. Receipt of this notice has to be acknowledged by the tenant and the requirement is there to ensure that the tenant specifically accepts that at the end of the term, the axe comes down and the landlord can require possession.

The landlord does not have to give any form of notice - the tenancy expires purely by effluxion of time. In effect, by serving the special notice in advance of the tenancy, the tenant is given a cooling
off period and a warning that ‘fixed term’ means fixed term.

If the tenant, despite the fixed term notice, simply continues in occupation after the end of this fixed period, (and the landlord may be happy with this for some time) the tenant becomes a ‘tenant at will’ and can be asked to leave at any time. The only concession is that a reasonable amount of time is given for the tenant to remove any goods, equipment or furniture that may be in the premises. From the tenant’s point of view this is an uncomfortable position to be in so should be avoided wherever possible! 

Of course, it is essential to consult a solicitor when drafting tenancy agreements to make sure you avoid the pitfalls allowing tenants to stay on after their fixed term ends.

For more information

Please contact Brian Hall, commercial property solicitor in Sandy.

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