Duncan Sigournay gauges the government's response to proposals put by forward by the Tenancy Reform Industry Group that would affect the agricultural tenanted sector

Agricultural lawyers will recall the publication in June 2003 of the report by the Tenancy Reform Industry Group (TRIG) into possible reforms in the agricultural tenanted sector (see [2003] Gazette, 3 July, 43).

After much deliberation, the Department for Environment Food and Rural Affairs (DEFRA) has produced its formal response to the numerous legislative recommendations.

TRIG comprised the leading farming and associated professional organisations, and was re-established in November 2002 to advise on measures that would assist the general health of the tenanted sector within the agricultural industry, and in particular to encourage diversification.

The government accepted all of TRIG's legislative recommendations concerning both the Agricultural Tenancies Act 1995 and the Agricultural Holdings Act 1986.

In relation to the former, these comprised:

- Greater flexibility for landlords and tenants to agree the rent review provisions of a farm business tenancy (FBT), while retaining the exclusion of an upward-only rent review;

- Provisions concerning end-of-tenancy compensation to be amended to provide an option for parties to agree a limit on the amount of compensation payable;

- Removal of the 24-month upper limit on notice periods to enable the creation of 'rolling' tenancies, and;

- Statutory clarification of the circumstances whereby land and buildings can be added to a holding let under the Agricultural Holdings Act 1986 without removing the tenant's rights under that Act.

In relation to the Agricultural Holdings Act 1986, the TRIG recommendations included:

- Amendment of the criteria for statutory succession, so as to allow income derived from diversification projects undertaken with the consent of the landlord to be taken into account within the 'livelihood' test;

- Replacing the existing arbitration provisions with those contained in the Arbitration Act 1996;

- Removing the requirement for tenants to apply to the Agricultural Land Tribunal in cases of agreed successions.

Model clauses

Notwithstanding the recommen-dation concerning clarifying the circumstances in which land can be added to an Agricultural Holdings Act tenancy without loss of the protection afforded by the 1986 Act, TRIG concluded there may well be circumstances whereby the parties might wish to replicate the provisions of the 1986 Act in an FBT.

Accordingly, TRIG was given the task of preparing such 'model' clauses.

It is anticipated that these will be published shortly.

Though it must be remembered that it will not be possible to replicate the rent review provisions of the 1986 Act within an FBT until TRIG's recommendation - in relation to section 9 of the 1995 Act - has been enacted.

Another core TRIG recommen-dation accepted by DEFRA was the preparation of a code of good practice concerning diversification within agricultural tenancies.

The code is intended to provide a practical framework for tenants considering diversifying on their holdings.

The code will set out a step-by-step procedure for both landlords and tenants when diversification projects are being considered.

It includes details of the information to be supplied to the landlord, matters to be considered (funding, expertise, etcetera) and the formulation of a workable timetable.

The code also provides guidance on what are legitimate reasons for refusing consent to diversification.

Following publication of the TRIG report, work began in earnest on formulating the code.

It has now reached a stage where it is hoped that it will be formally launched in spring 2004.

DEFRA also accepted the associated recommendation of the establishment of a non-binding ombudsman scheme to consider disputes arising out of the use of the code.

Although the issue of funding remains to be finalised, it is anticipated that such a scheme will be established in due course.

Although ideally the code and adjudication scheme would have been launched at the same time, TRIG took the view that it was important for the code to be published as soon as possible - particularly as it is intended to promote better communication and co-operation between landlords and tenants.

Inheritance tax

Although time will tell whether or not the code is a success, it must be remembered that the government has indicated that if this approach reveals evidence that tenants' participation in diversification and agri-environmental schemes is being hampered by 'unreasonable' landlords, then it will consider additional legislative changes.

TRIG also made several fiscal recommendations concerning inheritance tax and capital gains tax aimed at removing artificial barriers to the growth of and flexibility in the agricultural let sector.

However, because of the Treasury's jurisdiction on such matters, no government response has yet been received in relation to the fiscal proposals.

Time will tell whether they are dealt with in the forthcoming budget.

The government has given its commitment to implementing the legislative reforms as quickly as possible.

Accordingly, it is intended to make use of the Regulatory Reform Act 2001.

This Act provides a relatively 'fast-track' approach to amendments to primary legislation.

Those familiar with business tenancy legislation will know that the Regulatory Reform Act was recently used to introduce some reforms to the Landlord and Tenant Act 1954.

Following publication of the requisite consultation document (including draft legislation and a regulatory impact assessment), the parliamentary scrutiny committees will each assess whether or not the consultation process was properly conducted and therefore whether the draft order should proceed.

All being well, the reforms will come into effect in the autumn of 2005.

TRIG has been conducting itself against the backdrop of the largest reform in common agricultural policy in recent years.

The great uncertainty caused by the ongoing subsidy reforms has undoubtedly affected the agricultural lettings market and will continue to do so until all the issues of the allocation method and associated implementing regulations have been finalised.

Similarly, the impact of the recently introduced stamp duty land tax should not be underestimated.

However, it is hoped that the practical reforms sought by TRIG and endorsed by DEFRA will in time help to revitalise the agricultural sector.

The full TRIG report and subsequent DEFRA response can be viewed at www.defra.gov.uk.

Duncan Sigournay is an associate solicitor at Thring Townsend's Newbury office and was formerly senior legal adviser at the Country Land and Business Association