A renewed and vibrant tenanted sector could bring innovation and fresh skills
Using the Agriculture Bill, in England the Government intends to remove direct payments over an agricultural transition period between 2021 and 2027. At some point the payments will be 'delinked' from the land so the legacy claimant will not need to remain in occupation. The Government may also allow farmers to take their payment stream capitalised into a single lump sum rather than declining annual amounts. These actions will create the opportunity for owner occupiers or tenants to take a lump sum and retire, leading to the occupation of their land changing.
At the beginning of 2019 a survey of Savills professionals, responsible for managing over 800,000 hectares of land, found that 84% thought that retirement and surrender from Agricultural Holdings Act (AHA) tenancies would become more common due to the withdrawal of direct payments. Increased owner-occupier retirement is expected too, with 55% thinking it would become more common. Use of Contract Farming Agreements (CFAs), share farming, stubble-to-stubble contracting and Farm Business Tenancies (FBTs) were all anticipated to increase in the future. Backing for CFAs was particularly strong, with 78% expecting them to become more common, although they are growing from a lower base than FBTs.
Defra’s agricultural tenancy reform proposals, published in April, would also help AHA tenants unlock retirement options. If implemented, AHA tenants could accept a payment from a new tenant in return for assigning a 25 year AHA to them; moving forwards the landlord would receive an open market rent for this tenancy. In the first instance the proposals give the landlord the right to buy out their tenant’s interest, so that they obtain vacant possession. Either way, this means that the current AHA tenant is able to receive additional capital to help fund their retirement.
Of course, it remains to be seen whether land occupancy reform attracts the calibre of new entrants that the Government wishes to see leading the industry in the future. Savills predicts that poorly performing tenancies may be consolidated into good ones, rather than re-let to new entrants, but with farmland typically only being sold once every 200 years, and the capital investment needed at an all-time high, the let land sector provides the best entry prospects for new entrants. A vibrant tenanted sector could bring innovation and skills at a time when they are needed more than ever.
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