Offering clear, pragmatic legal advice to the rural business community. The Agricultural Write newsletter brings you the latest news, updates, analysis and reports from the agricultural and rural sector.
If you require any further information on the items featured in this newsletter or indeed advice on any other agriculture or rural matter, please contact one of our agriculture solicitors.
To Lease or Not to Lease?
In this article, we look at issues to consider when deciding when and how to let land for grazing purposes and consider the most common forms of grazing arrangements.
The most common forms of grazing arrangements are:
- Grazing licences;
- Farm Business Tenancies; and;
- Grazing agreements or tenancies (for example a common law tenancy).
What is a grazing licence?
A grazing licence allows the grazier a right of access onto land for grazing animals. They are frequently used on short-term lets and where an informal arrangement is preferred. Although it is more common for grazing lets to be between the months of April and October, it is possible to have winter lets.
Grazing licences are useful where a landowner wants to keep grass cropped and at the same time receive some income from the land. They are also useful for a grazier who may need extra pasture for new-born or existing stock during the spring and summer months.
When to use a grazing licence When deciding which type of grazing agreement to use, there are a number of key questions that should be addressed:
- Is it important that the occupier can be removed from the land quickly?
- Does the landowner need to be in occupation of the land (for tax-planning purposes, for example)?
- Does the landowner wish to avoid losing government or agricultural subsidies?
What is a Farm Business Tenancy?
Farm Business Tenancies (or FBT’s) are more formal than grazing licences and certain statutory constraints apply to these types of arrangements. These relate to rent reviews, compensation for improvements and fixtures on the land.
An FBT must satisfy certain criteria (known as (1) the ‘Business Condition’ and (2) either (i) the ‘Agriculture Condition’ or (ii) the ‘Notice Condition’).
FBT’s fall into two categories: short-form and long-form arrangements.
When to use a Farm Business Tenancy
The key issues to consider when deciding whether an FBT is more suitable than a grazing licence are:
- whether the choice between a licence or an FBT would affect the landowner’s entitlement to grants or payments;
- where grazing land includes buildings;
- where a milk quota attaches to the land (or where the transfer of a Single Farm Payment is intended);
- where the activities to be carried out on the land go beyond the definition of grazing (for example, ploughing or planting);
- where the landowner wishes to impose repair or maintenance obligations on the occupier (inconsistent with the terms of a bare licence);
- where it is important to avoid the grazier having the right to remain on the land at the end of the original term of occupation;
- where tax-planning issues favour the use of an FBT rather than a licence.
Land let for grazing horses
Complications can arise where land is used for grazing horses. The key issue to understand is that, if grazing horses becomes an incidental use of the land, the tenancy agreement may not be an FBT (and may instead be a common law tenancy, which can give rise to unforeseen problems).
The reason for the complication is that, whilst grazing land is deemed an agricultural activity, horses are not considered to be “livestock” (unless kept for farm work). Horses kept for the purpose of rearing foals, riding, jumping or recreation, are not therefore considered to be livestock. Horses kept for stud purposes also fall outside the relevant definition.
The key question is how the land is to be used
If there will be no exclusive occupation of the grazing land by the occupant, then the arrangement is more likely to be deemed a licence, however if the occupant will be using the grazing land exclusively, then the arrangement is likely to be a tenancy. In this situation, if the grazing is for purely private purposes (i.e. not connected in any way with a trade or business, then the grazing tenancy will be a common law tenancy).
Where land is used just for grazing horses in connection with a trade or business, and the land is bare land (and does not contain any buildings used as a riding school or livery purposes) then it is more likely that the tenancy will be an FBT.
Where land is let for grazing horses but the grazing is incidental to some other main use of the land (such as a riding school), the tenancy will fall outside of the definition of an FBT (because the land is not farmed for the purpose of a trade or business) and will instead be a common law tenancy. In this situation, certain protective steps would need to be taken prior to the grant of the tenancy to ensure that no statutory rights are inadvertently granted to the tenant.
It is essential before allowing anyone into occupation of grazing land to consider carefully the nature of the occupation, any tax angles, security of tenure risks and the length of the arrangement and/or flexibility provisions. Simply labelling something as a ‘grazing licence’ or a ‘Farm Business Tenancy’ will not be enough.
One Day All This Will be Yours (or not) – More Disputed Farm Cases
Readers will know that the basic principle in English law is that you can leave your estate as you wish. Most of us would agree that if someone wants to leave their estate to the dogs’ home, that is his relatives’ bad luck.
No-one has a right to inherit. Even if the deceased has stated his intention to leave something to someone in his Will, he can change his mind if he wants to. Or can he?
The law will intervene to enforce a gift after death if the following conditions are met:
a) an actual promise is made by the deceased, with the intention that it will be relied on;
b) the person to whom the promise is made does rely on it;
c) and incurs loss (or detriment) as a result (for instance, working for low or no wages).
It is very easy to see how this could arise in the context of a farm, and in fact Gillet-v-Holt, one of the principal cases on this topic, is a farming case. In this case Mr Gillett met Mr Holt in 1952, when Mr Gillett was 12 and Mr Holt 38. They became friends and when Mr Gillett reached 16 he began working on Mr Holt’s farm, eventually moving there with his wife. The court accepted that, between 1964 and 1989, Mr Holt made a number of promises to Mr Gillett that the farm would be left to him. As a result, Mr Gillett never sought other employment, even though he was significantly underpaid and sometimes not paid at all. Mr Holt did indeed make a Will leaving his farm in its entirety to Mr Gillett.
However, sometime after 1990 the two men fell out and Mr Holt changed his Will to leave the farm to someone else instead.
The court held that all the conditions had been met and that it would be unfair (or “unconscionable” in legal terms) to allow the gift in the new will to stand; the old promise overrode the Will and would be enforced.
Since that case, a number of further cases have arisen on different aspects of the conditions. For instance, the case of Thorner v Majors concerned another farm where the younger man (“David”) worked for nothing. His elderly relative (“Peter”) was known to be a man of few words, and it was accepted that he never made an explicit promise that he would leave the farm to his young second cousin. However, it was also accepted that Peter’s conduct over many years was such that it was entirely reasonable of David to believe that the farm was going to be left to him. Indeed, Peter did make a Will leaving the farm to David and making some gifts of cash to closer relatives.
Unfortunately, Peter then fell out with his closer relatives and tore up his Will. He never made a new one, and when he died it was the closer relatives who were entitled to inherit the farm. The court held that all the necessary conditions had been met and the promise to David, albeit implied only, should be honoured.
The recent case of Bradbury-v-Taylor & Burkinshaw covers the issue of whether the person claiming the gift actually suffered detriment. In this case the elderly relative, Bill, owned a farm in Cornwall. After his wife died he persuaded his nephew, Roger, and Roger’s partner and children, to move from Sheffield to a separate house at the farm in Cornwall, to keep him company and to help him as required. Although Roger asked for a written assurance that the farm would be left to him, this was never given. However, a draft letter from that time was produced confirming that this was the arrangement.
Roger and his family did indeed move to the farm in Cornwall and helped Bill as he had suggested. In 1998, Bill made a Will leaving the farm to Roger on certain conditions. However, after that the relationship soured until in 2009 Bill made a Will which completely excluded Roger and his family. The following year, Bill went to court to get a declaration that Roger and his family had no interest in the farm. Bill died before the matter was heard, but his estate continued the action.
The barrister for Bill’s estate argued that Roger had not suffered any detriment or, if he had, it was outweighed by the advantages he and his family got from the move. However, the judge felt that the move in itself was a detriment and also that Roger had spent his own money improving the property, expecting to inherit it. Therefore all the conditions had been met and the promise would be enforced.
What these cases show is the danger of allowing assumptions to be made. It is always better for parties to be clear about their intentions and obligations. Legal agreements can cover virtually any situation so if you are dealing with a major as set it is probably worth giving us a call.
Agricultural Wages Board and Committees – The Future
In July 2010 the Government announced its proposal to abolish: (a) the Agricultural Wages Board for England and Wales (which sets the minimum wage rates for six categories of agricultural workers); (b) the Agricultural Wages Committees; and (c) the Agricultural Dwelling House Advisory Committees in England.
The Agricultural Wages Board was established in 1948. Since then employment legislation and protection for all workers has improved dramatically. Prior to 1993, there were 26 other Wage Councils in existence, covering a range of different sectors of the economy, responsible for fixing a statutory minimum wage. All of these other Wage Councils were abolished when the Employment Rights Act was implemented in 1993. However, at that time, it was decided that the Agricultural Wages Board should continue but that it should be kept under close review.
It is now widely acknowledged within the agricultural sector that the agricultural wages legislation is outdated and inhibits modern employment practices. For example, it has, in practice, dissuaded businesses from offering annual salaries. This is because the way the agricultural minimum wage is enforced means that an agricultural worker must not receive less than the agricultural minimum wage for the hours worked in each pay reference period.
The Government’s proposal is aimed at trying to remove unnecessary red tape and administrative burden. If these bodies are abolished it could result in agricultural workers in England and Wales being brought within the same regime for minimum employment terms and conditions as workers in all other sectors of the economy.
This may come as a welcome relief for some businesses as some of the activities carried out by farm businesses do not come within the definition of agriculture. Therefore, in practice agricultural and horticultural businesses have to operate both the agricultural minimum wage and the National Minimum Wage regimes. For example, where a farm business has diversified into non-agricultural activities, such as operating a farm shop, staff employed in the farm shop would be covered by the National Minimum Wage and not by the Agricultural Wages Order.
Therefore, there is, at present, a burden on employers to make an assessment of whether activities fall in or outside the scope of the Agricultural Wages Order and to ensure that remuneration is adjusted accordingly. If these proposals are implemented it is hoped that this will end the confusion relating to agricultural workers and the National Minimum Wage.
The requirement for farming businesses to operate dual regimes is seen by many as acting as a disincentive for on-farm packing and processing businesses to use home grown produce and encourages the use of imported food from abroad. The Government believes that the abolition of the Agricultural Wages Board would end these discrepancies and encourage growth of an integrated food supply chain which would offer better prospects for the agricultural sector as a whole.
The Government also believes that it is difficult to justify the continued existence and public expense of the Agricultural Wages Committees and the Agricultural Dwelling House Advisory Committees due to their reduced and limited functions. It is hoped that these proposals will, going forwards, simplify employment practices and enable the agricultural industry to adopt more sustainable and viable working practices.
Consultation – Have Your Say!
The Government’s proposals have been subject to consultation. Before making its final decision on the future of these bodies the Government asked for the views of interested parties. The consultation was open between 16 October to 12 November 2012. A copy of the consultation can be found here.