Tenancy planning for landowners
What plans can be put in place by farmers and landowners to mitigate the potential impact of Brexit?
As politicians continue to wrestle with Brexit, there is obviously significant uncertainty.
What we do know is that Brexit – if it happens – will bring changes, and landlords and tenants alike should be prepared. There could be changes to financial support, markets or labour supply, with 2021 looking like a key date marking major changes in the subsidy regime and the Basic Payment being phased out by 2027.
What measures should you take? The keyword has to be ‘flexibility’ so both parties are able to respond once the shape of future agricultural policy becomes clearer. With ongoing uncertainty over the level of support and what it will cover (eg funding for environmental improvements, innovation, training and collaboration, rather than simply based on farm size) it is vital to prepare for all eventualities. Without flexibility, both parties could be locked into an agreement which is not financially viable.
It is vital to check break clauses and whether both parties have a right to implement them. These are the most straightforward way to Brexit-proof and allow parties to renegotiate terms, in particular rent. However, be aware at least 12 months’ notice might be needed to trigger a break clause.
Scrutinise the fine print for rent review provisions and their timing. In uncertain periods, regular rent reviews give both parties the opportunity to hold open and practical discussions about the current volatility. There may be merit in considering a rent variation provision, with the formula linking rental value to commodity prices or support payments.
As tenants look at securing alternative sources of income, clauses can be included to permit diversification but prevent it straying too far from agriculture. Tenancy agreements might need to be tailored to permit diversification projects, subject to the reasonable consent of the landlord.
If support schemes are to continue in some form, provisions will be required to address the submission of claims under relevant schemes and compliance with new rules. New schemes may require a one-off application, rather than an annual one. Tenancy agreements should be scrutinised to check whether they give the necessary permission for tenants to enter land into grant and environmental schemes and whether it is appropriate that this permission should be subject to landlord consent. It is also worth understanding the existing clauses relating to quotas and entitlements, to establish if tenants can accept lump sum payments and potentially walk away from tenancy agreements.
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