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Natural Capital update: Making agricultural tenancies fit for purpose

Tom Warde-Aldam

There is a growing feeling that the current agricultural tenancy arrangements in England are being eclipsed by developments in the world of Natural Capital. 

Since 1948, legislation governing agricultural holdings has been firmly predicated on food production – growing enough to feed the population. However, as the post-war industry developed, the farming business tenancy (‘FBT’) regime needed change to accommodate certain levels of diversification and the Agricultural Tenancies Act of 1995 addressed this.

This has worked reasonably well, so that farming property can generally be taken out of a tenancy and used for other activities in the event of a successful planning permission.

The passing of both the Agricultural and Environment Acts in late 2021 has brought in a raft of changes, driven by both the exit from the EU and the need to react to climate change. Farmers now have to deal with issues such as sustainable farming, landscape recovery, biodiversity net gain and carbon credits.

Although we now have a statutory framework, the market is anticipating change will occur much quicker than the policy is being enacted. It is more than likely that we will see further measures aimed at achieving net zero, developed at pace, over the next decade.

For the most part, existing tenancy agreements, anywhere in the UK, did not contemplate these novel issues. For those already in place, there will be potential areas of uncertainty and, potentially, contention.

Many FBTs will be coming up for renewal, and there will also be new farms to let. How, then, should a landlord draft a new FBT to provide flexibility for the future? A simplistic solution would be to grant mainly short-term tenancies in order to safeguard against future changes. However, many landlords want to plan longer-term, not least to give young farmers the opportunity to set up a modern business with a reasonable security of tenure.

Industry bodies are working on ways around this, but the general consensus seems to be that trying to put anything meaningful to cover such a wide range of contingencies will always be a big challenge.

Might the answer be for landlords and tenants to move to joint venture-type agreements, probably on the basis of contract or share farming? Once seen principally as a means of taxation shelter, on a more practical level they do give an element of flexibility and the ability to adapt to emerging industry pressure and policies.

Such agreements are already in widespread use in arable farming, but they can also work well, assuming sufficient scale, for livestock arrangements. They invariably require a greater level of professional input, but this could well be a worthwhile investment to release flexibility and opportunities going forward.

If nothing else there needs to be an informed and imaginative dialogue between landlord and tenant at the outset of any tenancy.

• Natural Capital: The expert advisers at Galbraith guide our clients in realising value in all land uses – by assessing and measuring natural assets, furthering opportunities in biodiversity net gain, and ensuring stakeholders are rewarded fully for their investment in and contribution to delivering ecosystem services and net-zero outcomes.