Agricultural Property Refresher: Farm Business Tenancies

At its very core, a farm business tenancy (FBT) does exactly what it says on the tin; it is an agreement between a landlord who owns agricultural land and a tenant who, by paying rent, exclusively occupies that land (including any buildings on it) for the purpose of operating a farming business.

FBTs are regulated by the Agricultural Tenancies Act (ATA 1995) and applies to the majority of new agricultural tenancies granted after 1 September 1995.  Unlike a full agricultural tenancy (also known as an 'AHA' tenancy), which forms the majority of agricultural tenancy agreements prior to 1 September 1995, FBTs provide greater flexibility for both landlord and tenant, giving them the freedom to agree specific terms between themselves with less statutory restraints. For an FBT to be deemed valid, the 'business conditions' and either the 'notice condition' or the agriculture condition' must be met. These are defined more clearly below:

1. The 'business conditions'

In order to meet this condition, all or part of the land included in the tenancy must be 'farmed' for the purposes of a trade or business throughout the agreed term. Under the ATA 1995, the term 'farming' refers to any type of agricultural activity, which includes the breeding and keeping of livestock as well as the grazing of land.

2. The 'notice condition' and the 'agriculture condition'

The notice condition is fulfilled when the proposed landlord and tenant exchange notices confirming that the tenancy will be (and remain) a farm business tenancy throughout the term. This condition usually applies when the tenancy is inherently agricultural at the outset.

The agriculture condition, on the other hand, is fulfilled when the business tenancy (not necessarily at the outset) becomes primarily or wholly agricultural.

A certain level of care is required to ensure that the above requirements are properly observed. Failure to do so may lead to a landlord inadvertently granting a business tenancy instead, giving the tenant security of tenure under the Landlord and Tenant Act 1954. This means that at the end of the contractual term, the tenant becomes entitled to a new lease. On the subject of renewal, it is worth noting that if an FBT is for a fixed term that lasts for more than two years, at the end of the term, the landlord must serve the tenant at least one year's written notice to terminate the tenancy. Failure to do so will lead to the tenancy becoming a periodic one. This is important to remember in instances where the landlord only intends for occupation to last for the agreed contractual term. An FBT is one of many grazing arrangements made available to a landowner looking to generate profit from their agricultural land. Depending on several factors, for example tax reliefs or farming incentives, a landowner may instead opt to grant a licence over their land rather than an FBT, which requires exclusive possession.

For further information or specific advice about FBTs or other grazing arrangements in general, please contact Farm & Estates team.