Resumptions – what you need to know
In his latest blog, Bob McIntosh, the Tenant Farming Commissioner, looks at what you need to know about resumptions and how they could affect your business.
All landlords and tenants of agricultural holdings, and those planning to create a new tenancy, should be alive to the issue of resumption – that is to say, the ability of the landlord to take back all or part of the land and/or buildings within the tenancy before the lease has expired for whatever reason. A resumption that is of significant scale could affect the viability of the tenant’s business, and in extreme cases could result in the tenancy coming to an end. This situation has long been recognised and successive agricultural holdings Acts have sought to achieve a balance between the tenant’s desire for security and the landlord’s desire for flexibility. A distinction has to be made between secure (1991 Act) tenancies and fixed duration tenancies such as the Short Limited Duration Tenancy (SLDT) and the Modern Limited Duration Tenancy (MLDT) as different rules apply.
In the case of a secure tenancy where there is no written lease or the lease does not contain a resumption clause, the landlord has no power to resume. Where a resumption clause is included in the lease, it will normally state the conditions under which resumption can take place and most such clauses will provide the landlord with the power to resume for non-agricultural purposes. It is possible for the lease to provide for resumption for an agricultural purpose, but in such cases the tenant may be able to serve a counter notice on the landlord, contesting the resumption, and the landlord would then have to apply to the Land Court to have the resumption approved. Even if the resumption is for non-agricultural purposes, the tenant has the ability to contest it if it represents a ‘fraud on the lease’. That would come into play if the Land Court determined that the scale of the resumption was such that it affected the viability of the holding and was contrary to the good faith of the original agreement made between landlord and tenant. There is no hard and fast definition of what scale of resumption would constitute a fraud on the lease and each case would have to be considered on its own merits. Where a resumption clause is able to be exercised by the landlord, the tenant is entitled to compensation based on: (1) a rent reduction that is proportionate to the degree of resumption, (2) a payment to cover disturbance and which is equal to one year’s rent or more if the tenant can make a case, (3) a reorganisation payment that is equal to four times the annual rent of the area resumed, (4) an early resumption payment based on the net profit which the tenant would have earned if they had had the use of the land for a further 12 months.
In the case of fixed duration tenancies, the legislation is different. The landlord has a statutory right to resume land if, and only if, the resumption is for a non-agricultural purpose for which planning consent has been obtained over the land in question and where the lease does not expressly prohibit a resumption for that purpose. So a landlord may be able to resume land for housing if planning consent has been obtained, but not for forestry as this a non-agricultural purpose which is not subject to the need for planning consent. The landlord is required to give at least one year’s notice of the intended resumption and compensation is available to the tenant based on a rent reduction and to an amount in respect of any depreciation of the value to the tenant of the remainder of the land.
A tenant faced with a resumption, and a landlord considering a resumption, are both advised to take appropriate professional advice on the legitimacy of the resumption proposal and the potential compensation implications.
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