Post Brexit referendum farm buiness tenancies notice periods
Finally, after nearly 7 months, Mrs May has set out her approach to Brexit negotiations and the Supreme Court has cleared the legal fog on constitutional issues. The way now seems clear for the Government to push through the necessary Act of Parliament so allowing the signing of Article 50 in March, thus triggering the 2 years of negotiation leading to the UK leaving the EU in March 2019.
It would seem highly unlikely that direct subsidy payments to farmers will last long once exposed to the UK media and scrutiny at Westminster, where such payments enjoy minimal support. A crumb of comfort was provided by Mrs May when she talked of avoiding economic cliff edges by providing transitional payments. Let’s hope that this is applied to agricultural support, but for how long?
She also stated that she plans for the UK to leave the single market in order to control immigration. Unless there is a free trade agreement in place at the point of exit, which seems unlikely, UK agricultural exports to the EU (our biggest market) could be severely disrupted. The export of agricultural commodities could then fall under World Trade Organisation rules, which would involve significant tariffs, which would be bound to impact farm gate prices.
With that cheery outlook, flexibility would seem the key for all participants in Farm Business Tenancies (FBTs). Luckily, the legislation allows for considerable flexibility in FBT agreements. However, it must always be remembered that such flexibility does not exist when it comes to notice periods. Failure to comply with statutory obligations on notice periods could be an expensive mistake for landlords or tenants (or the relevant Agent!).
FBTs that run from year-to-year can only be terminated by giving written notice at least 12 months before the term date, with termination on the term end date. Life is sort of simpler with FBTs of 2 years or less as no notice is required and they expire at the agreed term date. However, if the tenant is treated as a tenant after this term date (ie rent accepted) a new licence or tenancy could be created and life could get complicated.
FBTs that run for more than 2 years will roll on from the term date unless the landlord or tenant gives at least 12 months’ notice in writing ending on the term end date. In the absence of effective notice the FBT will automatically convert to a periodic FBT normally a year-to-year tenancy. In effect, this can extend the FBT significantly. As there is now no maximum length of notice, it may be advisable to serve the notice at the commencement of the FBT.
Given the uncertainty for agriculture post 2019, it would seem sensible to include the opportunity to break the fixed term. For FBTs of less than 2 years, the break clause can provide for a notice period of any length. For longer FBTs, at least 12 months’ notice must be given but it can end on any date and not just a term date.
In summary, the flexibility of FBTs should allow both parties to ride out the uncertainties ahead, but do be mindful of the notice requirements to ensure that the agreements operate as intended. As ever if in doubt take advice especially if getting your land back or getting out is time critical!
If you would like any further information or to discuss any rural related matter, please contact Tom Wills, head of the agriculture & estates department at Sintons.