Sunday, November 19, 2017

Landlords unclear when terminating tenancies

November 30, 2016 by  
Filed under Property

Farm business tenancies can be terminated – but landlords must abide by their obligations, says Charlotte Benjamin.

More than 20 years have passed since Farm Business Tenancies (FBTs) came into being with the Agricultural Tenancies Act 1995.

But many people remain unclear when it comes to the minimum notice period required to bring an FBT to an end and the length of time for which a FBT must be granted before it can be terminated by a minimum of 12 months notice, expiring either on a term date or on another date specified in a break clause.

A FBT granted for any period of up to two years will be a fixed term tenancy ending on the term date or on whatever other terms the parties agree. There is no minimum length of notice required in order to validly exercise a break clause contained in a tenancy of two years or less.

A break clause can therefore be incorporated which provides for short notice to be given of, say, three months at any time during the term or, if the parties wish to be more specific, following the grant of a planning consent or on the death of a tenant. Notice to be given by a tenant would be subject to the same considerations.

Upon the two year fixed term coming to an end, the FBT will expire by effluxion of time. No security is given to the tenant.

But as soon as a tenancy is granted for a period of two years or more, although the tenant will still have no security once the tenancy is terminated, either the landlord or the tenant will have to serve a minimum of 12 months written notice on the other party in order to bring the tenancy to an end. Failure to comply with these requirements will mean the notice is invalid and tenancy will continue.

Where the FBT contains a break clause allowing notice to be served, for example, after the death of the tenant or following the grant of planning consent, the notice can be given once the relevant event has taken place.  As long as at least 12 months written notice is given, and any pre-conditions have been complied with, the tenancy will end on the date of expiry of the notice.

Where the FBT does not contain a break clause however, it can only be terminated by at least 12 months notice expiring on the term date. This means that in some cases it could be nearly two years before the landlord can obtain vacant possession of its land. For example, a landowner obtaining planning consent in October 2016 for development of land let under a fixed term FBT of five years which commenced on 29 September 2014 and which did not contain a break clause, would not be able to terminate the FBT until 28 September 2018 even if notice was served in the period between October 2016 and early September 2017.

In a development scenario where most planning consents have to be implemented within three years from the date of grant, this timescale can lead to difficulties for the landowner.

While there is nothing in the 1995 Act to prevent parties agreeing a surrender of an FBT, in order to retain flexibility a landlord is well advised either to grant short term FBTs of two years or less, or to include one or more break clauses exercisable on 12 months written notice where a fixed term FBT is granted for a period of longer than two years.

Charlotte Benjamin is a rural land specialist solicitor with Woodfines. For details, call 01767 680251 or email cbenjamin@woodfines.co.uk.

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