Entering into a Farm Business Tenancy (FBT) can create valuable opportunities for both landlords and tenants, but it also requires careful planning. The recently published Farm Tenancy Forum guidance on long-term farm business tenancies in England highlights that long-term arrangements can offer greater security, support investment, and help both parties plan for the future more effectively. The guidance also makes clear that these benefits are most likely to be realised where the parties take advice early and document their intentions properly from the outset.
Whether you are a landowner granting a tenancy or a farmer taking one on, an FBT is far more than a simple occupation agreement. It can involve property, regulatory, tax and commercial considerations, particularly where the holding includes dwellings, diversified uses, environmental aims or plans for long-term investment. The Farm Tenancy Forum recommends that parties obtain independent rural surveyor, legal and taxation advice before entering into a long-term agreement.
Why legal advice matters at an early stage
One of the clearest messages in the Farm Tenancy Forum guidance is that detailed Heads of Agreement should be negotiated before the tenancy agreement is prepared. These heads of terms should capture the principal commercial points, such as the term, any break rights, rent, capital investment, maintenance responsibilities, insurance arrangements, use of the holding, and any rights granted or reserved. The purpose is to ensure that both parties are clear about the deal from the outset, rather than relying on assumptions or a precedent document that may not suit the particular farm.
This is where legal advisers can add real value. A solicitor can help identify risk areas early, ensure the agreed commercial position is properly recorded, and make sure the final tenancy reflects the practical realities of the holding.
Key legal services involved in a Farm Business Tenancy
Preparing and negotiating Heads of Terms
Before the formal tenancy is drafted, it is sensible to agree the key commercial terms in writing. Legal support at this stage can help clients and their land agents with:
- agreeing the length of the term and whether break clauses are appropriate;
- clarifying rent provisions and review mechanisms;
- recording who is responsible for repairs, maintenance, insurance and outgoings;
- dealing with rights of access, services and any rights reserved to the landlord; and
- documenting plans for investment in buildings, fixed equipment or wider improvements.
Getting this stage right often helps prevent costly disputes later.
Drafting and reviewing the tenancy agreement
An FBT in England is governed by the Agricultural Tenancies Act 1995, so the legal drafting needs to work within that framework. The guidance note also stresses that precedent FBT agreements should not simply be used as they stand; they should be adapted to the parties’ specific needs and objectives.
A solicitor can advise on and draft provisions dealing with matters such as:
- the identity of the parties, including issues around partnerships, companies and guarantors;
- a proper description of the holding, supported by a clear plan;
- the permitted use of the holding;
- rules around assignment, underletting or sharing occupation;
- repair, maintenance and yielding up obligations;
- rights over tracks, yards, buildings, services and water supplies;
- default provisions, termination rights and dispute resolution mechanisms.
Advising on whether the tenancy properly qualifies as an FBT
For a tenancy to qualify as an FBT, it must meet the business condition (which can be likened to a minimum agricultural usage) together with either the agriculture condition (that the character of the tenancy is primarily or wholly agricultural) or the notice condition (whereby the landlord and tenant exchange notices before the commencement of the tenancy that it will remain a FBT even if the tenant diversifies their business).
The guidance highlights that this is particularly important where non-agricultural activities, diversification or subletting are contemplated. It also notes that parties commonly rely on the business condition and the notice condition, especially where non-agricultural uses are or may be involved.
This is a key area for legal advice. If the arrangement is not structured correctly, the parties may not achieve the tenancy they intended.
Dealing with permitted use and diversification
For many modern farming businesses, use of the holding goes beyond traditional agriculture. The Farm Tenancy Forum guidance says the permitted use clause should be clear and unambiguous, and that a simple “agricultural purposes only” clause may not be enough for more complex holdings involving dwellings, buildings or diversified activities. It also recommends that any process for changing use during the term should be expressly set out, because there is no statutory mechanism under the 1995 Act in England for a tenant to demand a change of permitted use mid-term.
This means legal advice is often needed where the tenancy may involve:
- holiday accommodation or residential lets;
- farm shops, equestrian uses or storage;
- renewable energy or environmental projects;
- habitat creation or land management schemes; or
- future diversification that may need landlord consent.
A solicitor can help ensure the tenancy is flexible enough for the intended business model while still protecting the landlord’s position.
Land registration and title checks
Where a lease is granted for more than seven years, it must be registered at HM Land Registry and must include prescribed clauses. The guidance also recommends that the parties check early on whether the land and property to be included in the tenancy is already registered, and that the agreement should deal with registration of the lease and removal of the registration when the tenancy ends.
Accordingly, property legal work may include:
- reviewing title documentation;
- checking boundaries, access and third-party rights;
- ensuring plans are Land Registry compliant where required; and
- dealing with registration formalities after completion.
Mortgagee consents and third-party approvals
If the holding is subject to a mortgage, the landlord may need the lender’s consent before granting a long-term tenancy. The guidance specifically flags this as an issue that should be checked before the lease is entered into.
Depending on the property, other third-party consents may also be needed, for example from superior landlords or where there are scheme, planning or regulatory restrictions affecting use of the land.
Improvements, fixed equipment and investment arrangements
Long-term FBTs are often attractive because they can support investment by the landlord, tenant or external parties. The Farm Tenancy Forum notes that, without prior agreement, opportunities for long-term investment may be lost. It also recommends that the agreement records fixed equipment and improvements carefully, together with responsibility for implementation, maintenance and cost.
Legal support is particularly useful where parties need to agree:
- who will fund buildings, infrastructure or fixed equipment;
- what happens to tenant’s improvements at the end of the term;
- whether consent is needed for future works; and
- how investment affects rent or other tenancy obligations.
Creating a management plan for the holding
One of the most useful points in the new guidance is its endorsement of a separate management plan. The guidance says this can be used as a detailed schedule dealing with the use and management of the holding within the framework of the tenancy agreement. It describes the management plan as a flexible and evolving document, which may be reviewed alongside the three-yearly rent review cycle, and says it can help parties address shared objectives such as cropping, habitat creation, soil health, environmental management, waste policies, improvements and collaboration.
This is particularly relevant where the holding has long-term strategic aims. Legal advisers can help ensure that the management plan works alongside the tenancy agreement, rather than cutting across it, and that any binding obligations are placed in the correct document.
Dispute resolution and exit planning
Even where landlord and tenant begin with a good relationship, disagreements can arise over rent, use, consent, compliance, repairs, environmental obligations or end-of-term arrangements. The guidance recommends that the agreement should provide for disputes to be resolved by an independent person, including arbitration or expert determination, and that the parties should consider mediation or other dispute resolution methods.
A well-drafted tenancy should therefore do more than deal with the start of the arrangement; it should also set out clear processes for handling disagreements and, ultimately, for bringing the tenancy to an orderly end. A landlord may wish to include a forfeiture clause within the FTB so that they can repossess the holding if the tenant defaults on their obligations.
How DTM Legal can help
At DTM Legal, we have agricultural specialists who work across a range of legal specialisms, helping clients navigate the practical and legal issues that can arise when putting a Farm Business Tenancy in place. Whether you are a landlord or a tenant, we can support you with the negotiation, drafting and wider legal considerations involved.
For more information about how we support clients in the agricultural sector, visit our Agriculture page. DTM Legal’s agricultural legal team includes members of the Agricultural Law Association and the Country Land and Business Association, with expertise drawn from across the firm’s legal service areas.
Are you looking for expert legal support in the agricultural sector? Contact us today to speak with one of our specialist solicitors. Call us on 01244 354 800 / 0151 321 0000
