Farm Business Tenancies: What they are and how to surrender one
A Farm Business Tenancy, often shortened to FBT, is one of the most common ways in which agricultural land is let in England and Wales. For many farming families, landowners and rural businesses, it is a practical arrangement which allows land to be farmed without a sale taking place. When such an arrangement needs to come to an end, it is important that both landlord and tenant understand what they are dealing with and record their positions.
What is a Farm Business Tenancy?
An FBT is a tenancy of agricultural land governed by the Agricultural Tenancies Act 1995. In broad terms, it applies where land is let for use in a farming business. The land may be bare arable land, pasture, buildings, or a wider holding.
FBTs are different to Agricultural Holdings Act tenancies, often granted pre-1995. They can be granted for short or long periods. They may include break clauses, and often contain detailed provisions about rent reviews, repairs, permitted use, environmental schemes, fixtures, and compensation.
Tenancies tend to be granted in writing, but despite this, tenancies can be granted verbally. Such verbal agreements are enforceable but can be ambiguous owing to the omission of key points such as term length, rent review and termination mechanics.
How does an FBT come to an end?
An FBT may come to an end in several ways. It may expire at the end of a fixed term, be ended by a valid notice, be brought to an end using a break clause, or be surrendered by mutual agreement. The correct route will depend on the wording of the tenancy and the circumstances at the time.
If your FBT is for a fixed term, it will often end automatically on the contractual expiry date without any notice being required. This is known as effluxion of time. In practice, you should review the written tenancy well in advance of the term date to confirm whether anything else must be done.
Some FBTs contain express continuation or hold over provisions that convert the fixed term into a periodic tenancy if the occupier remains in possession and the landlord accepts rent. If the tenant remains in occupation and the landlord obliges by continuing to accept rent, a new periodic FBT can arise. Periodic tenancies commonly run on a rolling year-to-year basis and create what is commonly known as an annual periodic FBT.
Because the legal consequences of holding over can be significant, the tenancy should be carefully checked for any automatic renewal clauses. Plans should be made by both parties several months before expiry for ending the tenancy. If the intention is for the tenancy to end on the fixed date, you should review the tenancy to ensure that there is no contractual trigger that would unintentionally cause the tenancy to continue on a rolling year-to-year basis.
Where you are party to an annual periodic FBT, the usual route to termination is a notice to quit. Under the Agricultural Tenancies Act 1995, the general position is that at least 12 months’ written notice must be served. Unless the agreement provides otherwise, the notice must expire at the end of a tenancy year or on another contractually specified termination date. The tenancy year is commonly measured from the date the periodic tenancy started or as defined in the agreement.
If, for example, the tenancy year runs from 1 November to 31 October, a valid notice must expire on 31 October of a given year. It will be important to get your timing right and the Fraser Dawbarns’ agricultural team can assist with such specifics.
A surrender is different from simply serving notice.
What does ‘surrender’ mean?
In plain English, surrender means that the tenant gives up the tenancy, and the landlord accepts it back. It is a consensual ending of the tenancy. In other words, the landlord and tenant agree that the tenancy will end, usually on agreed terms and often on an agreed date.
Once the surrender has taken effect, the tenant’s right to occupy the land ends and the landlord is entitled to vacant possession, subject to the agreed terms.
A surrender can be express or implied. An express surrender is usually documented in writing and, in most cases, should be completed by deed. An implied surrender can arise from the conduct of the parties, for example where a tenant leaves and the landlord clearly accepts the tenancy has ended. Relying on conduct alone may lead to future disputes as the parties may later disagree about what was intended at the point of surrender.
Why use a Deed of Surrender?
A Deed of Surrender records the agreement in a clear and legally effective way. It helps avoid uncertainty about the surrender date, the land being given back, the condition in which it must be left, and whether any money is payable by either party.
For a landlord, the deed can help secure vacant possession and reduce the risk of an argument later. For a tenant, it can protect any agreement about compensation, crops, fixtures, improvements, rent adjustments or time needed to remove equipment.
Issues to consider before agreeing terms
Before agreeing to surrender an FBT, both parties should think carefully about the practical and financial consequences. Points to consider include:
- the exact land and buildings being surrendered
- the date on which occupation will end
- whether the tenant must leave the holding in a particular condition
- whether there are outstanding rent, service charge or insurance payments
- whether the landlord alleges dilapidations or disrepair
- whether the tenant has a claim for compensation for improvements
- what happens to growing crops, livestock, machinery, fixtures and fittings
- whether any environmental, stewardship or subsidy obligations are affected
- whether third parties, lenders or family farming partnerships need to be involved
- the tax consequences of any surrender payment.
Compensation and payments
Money is often one of the most sensitive parts of a surrender. A tenant may have made improvements to the holding, invested in buildings, or built up value in the tenancy. A landlord may say that repairs are needed before the land is handed back. Sometimes these competing claims can be negotiated together as part of an overall settlement.
Tax should not be treated as an afterthought. A surrender payment may have Capital Gains Tax, Income Tax, Inheritance Tax or Stamp Duty Land Tax implications, depending on the facts. Early advice can help avoid an agreement that looks sensible commercially but creates an avoidable tax problem.
Practical steps in a surrender
Although every holding is different, a sensible process will usually include reviewing the tenancy agreement, checking the legal status of the occupation, agreeing heads of terms, dealing with valuation and tax advice where needed, preparing a deed of surrender, and planning the physical handover of the land.
It is also wise to record the condition of the holding at handover. Photographs, schedules of condition, meter readings, keys, access codes, and confirmation of what has been removed can all help when drafting the terms of the surrender.
If there is a poor landlord and tenant relationship, it may be more difficult to agree on the terms of the surrender.
A word of caution
A surrender should not be rushed. Once completed, it is difficult to undo. Tenants should be clear that they are giving up the right to occupy, and landlords should be clear that all necessary arrangements have been dealt with before they take the land back.
Both sides should also avoid informal arrangements that are intended to be temporary but may have unintended legal consequences. If the parties want the tenancy to end, that should be documented. If they only want to vary the tenancy, this can similarly be documented.
How we can help
FBTs sit at the point where property law, farming practice, family succession, tax and commercial reality all meet. Whether you are a landlord seeking vacant possession or a tenant considering giving up a holding, taking advice early can make the process clearer and reduce the risk of dispute.
Our agricultural law team can advise on the terms of the tenancy, negotiate the surrender, prepare the necessary documentation and help you work through the practical issues involved in bringing the arrangement to an end.
For individual advice please contact us through one of our offices – in King’s Lynn, Downham Market, Ely, March and Wisbech – or by completing the enquiry form below and we’ll be in touch.
How To Contact Us:
To contact a member of our team, you can fill in our online enquiry form, email info@fraserdawbarns.com, or call your nearest office below. If you’d like to speak to a member of our team at one of our offices across Norfolk and Cambridgeshire, visit our offices page.
Wisbech: 01945 461456
March: 01354 602880
King’s Lynn: 01553 666600
Ely: 01353 383483
Downham Market: 01366 383171
This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.