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Articles 13th Nov 2018

Agriculture Newsletter – Autumn 2018

We are pleased to introduce Freeths’ Farms and Estates team’s Autumn newsletter for 2018. In this we manage to avoid the B word altogether and instead we present some interesting (we hope!) articles on a range of subjects. Firstly Sepideh Doostgharin analyses some of the consequences in a change of use from agricultural to residential use when developing land with some warnings to take note of. Next, Rosalyn Shephard has highlighted some of the points to consider when an AHA tenant is late in paying their rent. Sonal Parmar discusses a very important point which we should all consider. What would happen to your business and managing your personal affairs should you become incapacitated? A Power of Attorney is a very useful and, arguably, imperative document to have to enable your trusted attorney to manage your affairs in such a situation. Finally, we just wanted to make you aware of a particular specialism Freeths has which may be useful those looking to hedge their prices in the year to come.

Adam Wood has recently joined the team and his experience includes working on complex derivative and structured finance transactions involving the world’s leading investment banks, private equity funds, project finance companies, hedge funds (and investment funds) and Sovereigns (in respect of asset backed sovereign debt). He is building a practice which will (amongst other things) provide advice to businesses and funders in respect of their hedging/risk mitigation documentation which seeks to hedge against, for example, interest rate, currency rate and commodity price risks.  If you would like to discuss any aspect of this new service, please do not hesitate to contact Adam on 0845 271 6797 (mobile: 0797 083 4294) or adam.wood@freeths.co.uk. We have a few uncertain  months before us and Adam may be able to help you in introducing some certainty.

All the best from the Farms and Estates Team.


Changing the use of property from Agriculture to residential or commercial

Landowners seeking to develop their agricultural land into residential or commercial property will need to consider the implications of doing so on their neighbours. They also need to consider whether easements and other rights benefiting the land, will continue to exist post development.

The drainage of surface water away from the development is a main concern. The drainage system often runs across neighbouring properties, making the situation trickier. While the landowner is developing their property, the neighbouring land is likely to remain agricultural in nature for many years to come. An increased level of liability is therefore on the landowner, who is seeking to develop their land.

If the drainage is through open ditches, then a landowner would need to ensure that nothing impacts nitric levels within the water or pollutes the ground water going through land that is downstream. In practical terms, this could affect the servient landowners by contaminating their land and water, thus putting them in difficulty when applying for farming subsidies and Environmental Schemes. This opens the landowner who is developing their property to possible civil proceedings.

In this case, it is also worth noting that even if the development is downstream from neighbouring agricultural land, as commercial developments are covered predominantly with hard surfacing, it is likely that rainwater and particularly storm water will run off the land more quickly into the drains and ditches; this is in comparison to agricultural land which would soak up rain water more readily. This will intensify the amount of water that the drains need to carry significantly. Where existing ditches and drains cannot cope with the increased speed of flow, there is an increased chance of flooding.

In general terms, an easement must not grant any additional rights to a person than was originally intended. One cannot therefore expect the same easement, which benefited bare land, to apply to, a large residential estate or a business park.

The test is a complicated one, with contradictory precedents muddying the water further. Essentially, the two main tests are the following:

  1. Does the development of the property qualify as a “Radical Change” to the character of the land in questions (as opposed to intensification of the use alone) and
  2. Does the new redeveloped land burden the servient land significantly more than before?

Once both points above are satisfied, the landowner’s right to the easement will automatically be extinguished and they will need further express easements or other remedies, e.g. construction of a new drainage system, to be in place. Alternatively, the landowner may be able to negotiate and obtain guarantees and indemnity from servient owners that rights currently enjoyed by the land will continue in the future.

With regard to test 1 above, it would be reasonable to expect that the development of agricultural land would satisfy the test; the fundamental characteristic of the farm will have changed and the land will be used for residential or commercial purposes. As regards the second test, the increase in burden will depend entirely on the facts. Once the first test is satisfied however, the chances of the same applying for the second is high.

Whether you are a landowner wishing to develop or you are a farmer/landowner neighbouring property you believe is about to be developed, it is always a good idea to run issues of easements, particularly the exhaustion of them as well as the liability you would have to your neighbours, passed your lawyers. Freeths are lucky enough to have an experienced team of agricultural lawyers who will be able to advice you on this specialist area. Please do get in touch with a member of the Agricultural Property team if you do require assistance.

Sepideh Doostgharin
Solicitor
0186 578 1218
sepideh.doostgharin@freeths.co.uk


The risks of late rent for an AHA tenant

At Freeths we regularly come across issues relating to non-payment of rent or late payment. For commercial and residential properties the consequences are not always draconian. However, when an Agricultural Holdings Act (“AHA”) tenant fails to pay rent on time this could have very serious, and costly, outcomes for them.  There are special rules and procedures that relate to AHA tenancies, of which every landlord and tenant should be aware.

The basics

An AHA tenancy is one that relates to land, which is to be used for the purposes of agriculture. The tenancy agreement will usually provide that it is for two years or more, and the land shall be let year to year until it is determined. Since 1 September 1995 it has been impossible to create a new AHA tenancy. However, AHA tenancies that were created before this date still continue to exist.

AHA tenancies can be extremely valuable to tenants and less attractive for landlords. That is because if an AHA tenancy is in place, it will mean the tenant has security of tenure, and the landlord can only regain possession in certain limited circumstances. AHA tenancies created before 12 July 1984 will normally carry succession rights, so that when the tenant dies or retires, a close relative can apply to succeed the tenancy. There can be two successions after the original tenant. AHA tenancies created on or after 12 July 1984 generally do not carry succession rights, but there is still security of tenure for the tenant’s lifetime.

Failure to pay rent on time

One of the circumstances in which a landlord may be able to regain possession from an AHA tenant is if the tenant fails to pay rent on time. There is a two stage process for the landlord wishing to regain possession:

  1. The landlord must serve a notice to pay (which requires the tenant to pay within two months of service of the notice). If the tenant complies with this notice then the landlord will not be able to take any further steps.
  2. If, however, the tenant fails to adhere to the notice to pay within two months of service, the landlord can then serve a notice to quit known as a Case D Notice.

There is still then the option for the tenant to challenge the Case D Notice, either by referral to arbitration, or by challenging the validity of the Case D Notice itself (e.g. if the Case D Notice is unclear or not valid at common law). If however, the landlord does not fall down on any technicalities, and the rent is unpaid, it is difficult for a tenant to successfully challenge a Case D Notice relying on non-payment of rent, meaning ultimately the landlord could terminate the AHA tenancy.

There are a number of technicalities / potential pitfalls for the unwary landlord or tenant when dealing with failure to pay rent on time, which could mean that either (a) the landlord is unsuccessful in its attempt to regain possession, or (b) the tenant who tried to pay rent is still faced with a valid Case D Notice. Some potential issues to bear in mind (though this is by no means a non-exhaustive list) are:

  • Has the landlord given notice to the tenant providing details of its address for service? Rent will not be payable until this is done.
  • Is the notice to pay in the statutorily prescribed form? If it is not, then the landlord will not be able to rely on it.
  • Is the amount of rent claimed by the landlord correct / has the landlord incorrectly included a claim for other monies as well?
  • Have the notices been served correctly by the landlord?
  • Are the notices clear?
  • If the tenant wants to challenge a Case D Notice served by the landlord, has the tenant referred the matter to arbitration in time?
  • Has the tenant complied with the notice to pay in time?

Disputes can arise where the tenant makes payment on or shortly before the expiry of the notice to pay, which means that the landlord does not receive payment until after the deadline. The general position is that the tenant must make payment in cash to the landlord within the notice to pay period. Arguments can arise however, where the tenant argues that the landlord has accepted an alternative course of dealings (e.g. where the landlord accepts rent by cheque put in the post on the due date).

Conclusion

If you are a landlord, you should ensure that you comply with all of the requirements for the notice to pay and Case D Notice. It is all too easy to fall down on what may be perceived to be a minor element, but which invalidates one of the notices served. This is particularly important given a landlord’s limited ability to ever terminate AHA tenancies.

If you are a tenant, it is not advisable to leave payment to the last minute, as this is likely to create risky arguments about whether you have paid on time. In addition, whilst there may be some arguments about the validity of the notices, or whether rent is due, in general, the safest position is simply to comply with the notice to pay. The alternative may be running the risk of losing your tenancy altogether.

Our agricultural disputes team regularly advises both landlord and tenants on these issues, and other circumstances in which AHA tenancies may be terminated. If you would like to discuss a problem please do contact:

Rosalyn Shepherd
Associate
0186 578 1023
rosalyn.shephard@freeths.co.uk

Clare Bellis
Director
0186 578 1058
clare.bellis@freeths.co.uk


What is an LPA?

A Lasting Power of Attorney (LPA) is a legal document which allows any person over the age of 18 who has mental capacity (the donor) to nominate another individual or individuals (attorneys) to make decisions on their behalf.

What decisions can be made?

There are two separate types of LPA allowing attorneys to deal with decisions on health and welfare and the other on property and finance affairs. One or both types of power can be created.

Health and welfare decisions include:

  • Day to day care
  • Consenting or refusing medical treatments on the donor’s behalf

Property and finance decisions include:

  • Managing income and paying bills
  • Buying and selling property
  • Opening and closing bank accounts

Who should be attorney?

The donor should choose individual(s) they trust and who have the right skills to help them. These may include friends and relatives.

The same individual or different individuals may act under each power.

Under a property and finance affairs power, the chosen individual must not be an undischarged or interim bankrupt.

Attorneys have important responsibilities which are set out in the Mental Capacity Act (accessible via www.gov.uk/government/publications/mental-capacity-act-code-of–practice). The donor must choose someone who they believe will act in their best interests.

Can I choose more than one attorney?

Yes. There must be at least one attorney but there is no maximum number. The arrangement should be workable in practice.

If more than one attorney is appointed, you will need to consider how they must take decisions. You can direct that attorneys must act jointly (must agree unanimously on decisions) or jointly and severally (your attorneys can take decisions on their own or together), or a combination of the two depending on the decision to be made.

When can the attorney act?

The LPA must be registered with the Office of the Public Guardian (OPG) so that the attorney has power to act and make decisions.

With the financial power the donor can choose to allow the attorneys to make decisions:

  • as soon as the LPA has been registered with the OPG; or
  • only when the donor loses mental capacity

The health power can only be used when the donor loses mental capacity to take decisions for themselves.

Why is this relevant to my business?

Nobody has an automatic legal right to manage another person’s affairs, including a business.

Should you become incapacitated and unable to run your business, by completing LPAs you can ensure that someone you trust will have day to day control and the ability to take decisions on your behalf.

If you lose capacity and you do not have a financial LPA in place then those needing to take financial decisions on your behalf would have to apply to the Court to be appointed as a Deputy. This is a time consuming and costly process at an already stressful time.

It can take 6 months to a year to have a Deputy appointed, can cost several thousand pounds, and there can be dispute about who is going to be appointed. When you put LPAs in place you make the decision on who to appoint as your attorney(s) and the attorney can act and take decisions immediately.

There is no provision for another person to take health and welfare decisions on your behalf if you lose capacity and you do not have a health LPA in place. Decisions would be taken by health professionals who would act in your best interests.

If you wish to discuss LPAs in further detail, or if you would like assistance with putting them in place, please contact Claire Bendle in our Private Client team.

Sonal Parmar
Trainee Solicitor
0186 578 1059
sonal.parmar@freeths.co.uk

Claire Bendle
Director
0186 578 1107
claire.bendle@freeths.co.uk


The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
Rosalyn Shephard, Associate

Author: Rosalyn Shephard

Associate

Author: Adam Wood

Associate

Clare Bellis, Director

Author: Clare Bellis

Director

Claire Bendle, Director

Author: Claire Bendle

Director

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