Farm Tenancies: Flexibility for Brexit?

Flexible farm business tenancies (FBTs) could help both landlords and tenants handle the challenges posed by Brexit, according to the Central Association of Agricultural Valuers (CAAV).

“When it comes, Brexit will bring changes and though it is not certain what these might be, landowners and tenants should be prepared for whatever the future might throw at them,” says Jeremy Moody, Secretary and Adviser to the CAAV. “This could be to changes to labour rules, financial support or markets – and any changes are likely to have implications for tenant farmers and landowners alike. Thankfully, the law for FBTs allows flexibility for this, especially when settling a new tenancy agreement.”

Most ordinary economic changes can be handled simply through a rent review but given the uncertain political climate it is not clear when the right time for that might be, says Mr Moody. “Even if we leave the EU in early 2019, it will take time to develop a clear perspective, especially if any changes to support or markets are transitional rather than sharp.”

Since a rent review requires at least 12 months’ notice; with a minimum of three years between reviews, or to a date set out in the FBT agreement, thinking ahead is vital, warns Mr Moody. “While existing tenancy agreements cannot be changed, parties agreeing a new tenancy can decide how they want to provide for the potential changes. That might mean considering when a rent review might be most appropriate or whether a possible change would be such a threat that it would be best to end the tenancy.”

Some businesses, especially those in horticulture, dairy, pigs and poultry, are likely to be concerned about the potential for restrictions on labour from the rest of the EU, he explains. “Even if all EU workers who are here at the point of Brexit can stay on, the fall in sterling has already reduced the value of what they can remit home, making working in the UK less attractive. While we can hope that future access to foreign workers might be kept, the negotiation of a tenancy now gives the chance to prepare for the alternative. Where a tenant fears his business will fail without that labour, he might want a break clause to escape the tenancy.”

However, it’s hard to be precise about what changes might actually happen so it may be better to focus on when an issue might arise, says Mr Moody. As the law requires any conditions to be clearly met for a break clause to be used, it would be more practical to think of:

  • What event might trigger a change – whether the expiry of the Article 50 notice or an exit from the EU, the single market or the customs union; – and
  • how long after that event it would be before the position might become clear.

“Remember that, for FBTs, a break clause, once served, must give at least 12 months’ notice.”

Although there cannot be a standard answer, making a practical allowance for business flexibility is the most sensible course of action, he adds. “We are operating in a world where the future is uncertain but when drafting agreements we can consider providing the flexibility to handle it.”

 

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