Changes to Tenancy Succession
My husband, Steve, and I (along with our two boys, although they are of little help at the moment, unless you want a two minute job to last 22!!) have recently taken on as the second generation of a National Trust AHA Tenancy. 200 acres of a beef, arable and sheep farm which have been worked and lived on by his family for over 100 years. The juggle is real, with the farm, work and two VERY active boys, but we wouldn’t change it – we feel very fortunate to have the opportunity to do what Steve loves and is most passionate about, and what better place to raise two Tractor Ted mad boys.
We are very lucky to have taken on an Agricultural Holdings Act (AHA) tenancy, which feels like finding a mermaid’s purse at the moment. Currently, a person wanting to succeed to an Agricultural Holdings AHA tenancy must be both eligible and suitable, for which there are several tests.
Eligibility - this first requires the successor to be a close relative of the retiring or deceased tenant, meaning that they must be a child, spouse or civil partner, or someone treated as a child of the tenant. To further prove eligibility, the applicant’s only or main source of income during five of the past seven years must result from their agricultural work on the holding in question – this is known as the ‘livelihood test’. No problems there – we have taken over the tenancy from Steve’s dad, and Steve having worked on the farm full time since he was 18 (excluding two lambing seasons in New Zealand) has more than passed the five out of seven year test.
They must also not occupy a commercial unit of agricultural land, separately from the holding in question – the “commercial unit” test. A commercial unit is deemed so if it can sustainably employ two full-time agricultural workers.
Suitability – currently, to be suitable to succeed an AHA tenancy, you must be able to show that you have sufficient training and experience to take on the tenancy and run the farm, as well as suitable health and financial standing. Again, no problems there either (although you could argue whether anyone is healthy when they live with two children who bring all manner of bugs home from nursery).
However, from the 1 September 2024, the ‘commercial test’ will no longer apply. The test was deemed unfair, as it discriminated against potential successors who had gone out and been innovative, which is exactly what a potential landlord would want in a new tenant.
Unfortunately, what they’ve given with one hand, they’ve taken away with the other. The suitability test has been ramped up, with potential successors needing to demonstrate that if the tenancy was available on the open market, they are of a standard that a landlord would be willing to shortlist them for the tenancy.
Regardless of the changes next year, the Tenant Farmers Association (TFA) have noted that landlords and their agents are asking for more detail to satisfy the ‘livelihood test’, so it is recommended that tenants and their families take the time now to ensure that everything is in place to put forward the best possible case.
It is also important to note that, for applications after 1 September 2024 where the former tenant died or retired before that date, the previous (current) rules apply.
So, for arguments sake, you have the opportunity to take on an AHA tenancy from a retired family member, you’ve been deemed eligible and suitable, and the paperwork has been signed – what else should you be considering?
Housing - Who is going to live where? Often AHA tenancy agreements require the tenant to live in the farmhouse, or at least on the main holding. So, does the retired family member(s) have somewhere to live that suits their requirements and will provide security and happiness in their retirement?
Borrowings - Does the business have any borrowings? Are you comfortable in taking on this debt and are you confident you will be able to keep up with the repayments.
Investment - Consider what needs investment in the short term, and what can wait. It’s very easy to think that you’ll overhaul the farmhouse, or replace the perfectly reliable tractor with a brand spanking new one, but will either benefit you right now? Think about what the business really needs investment in and work from there.
Future plans – many businesses are having to diversify to find new and sustainable ways of generating income to support their family’s needs. If this is something you are considering, first gain consent from your landlord, and thoroughly read your agreement to ensure that by diversifying, you wouldn’t be in breach of your tenancy.
Advice – for many young farmers, taking on the family business can be exciting but daunting. Do you have the right circle of advisors in place to point you in the right direction should you need it? There are many organisations who can provide useful advice and guidance on areas of concern, including the NFU, your accountant and organisations such as the Tenant Farmers Association.
There are, of course, many other considerations to think about when it comes to taking on a new tenancy, and each case is different. Take heed of the changes happening - September 2024 will be here before you know it.
Ellie Hammett FCCA
Office Manager
Ellie started with Evolution ABS in April 2010 and became a fully qualified as a Chartered Certified accountant in December 2015. Ellie manages a portfolio of agricultural clients and enjoys assisting clients in all aspects of accountancy and taxation.
Ellie grew up on her parents’ dairy farm in Dorset before her family moved to Devon in 1998. She now lives with her husband and two boys on their family beef, sheep and arable farm in East Devon.
In her spare time (although with two young sons, this is rare!), Ellie enjoys spending time with her family and friends and enjoys the odd bit of retail therapy when time allows. She spends a lot of time outside with the boys, who currently share the same passion for farming as their Dad!
Ellie can be contacted in the office on Mondays – Thursdays.