Dudley Peverill

Farm Diversification on Tenanted Farms

The tiered reduction of Basic Payment Scheme (BPS) subsidies and the ongoing lack of clarity surrounding the Environmental Land Management subsidy grow increasingly prevalent as time progresses towards 2027. As a result, non-agricultural income in the form of diversification appears to be increasingly appealing as a means of reducing financial risk.

Owner-occupied farms, obviously, are not limited by prospective tenure constraints. Tenant farmers, on the other hand, must be cognizant of the potential limitations and responsibilities that come with introducing non-agricultural operations to their tenanted farms.

So how do you diversify as a tenant farmer? Read on to find out. Alternatively, contact us today and we’ll gladly help guide you through the process. 

It is the norm for current farm tenancies, from Agricultural holdings act 1986 agreements (AHA) to Agricultural Tenancies Act 1995 agreements (FBT) to contain stipulations requiring the holding to be utilised solely for agricultural purposes, so explicitly prohibiting farm diversification without gaining the landlord’s consent. This can place tenant farmers in a precarious position when planning to diversify.

Tenant farmers must first handle this issue before moving on to the myriad other dangers and difficulties that even owner-occupied farms face while diversifying.

Thankfully, this is a recognised issue, and will hopefully be rectified by the UK government at some point in the future, by revising farm tenancy agreements.

Lets discuss the logical steps to take when considering farm diversification in the UK, as a tenant farmer.

Evaluate the Terms of Your Tenancy Agreement

The first step, is to check the terms within your tenancy agreement. This will inform you as to what the conditions are, and how much scope there is with regard to diversification. It is important to fully understand if, and what limitations are in place prior to approaching your landlord. If you are unsure, ask your solicitor to review the document.

You must not, under any circumstances breach the terms of your tenancy, such as in this case, diversifying the business away from agriculture without consent. This will likely have ramifications and could lead to an early termination of the tenancy. 

Approach Professionals and Advisers for Assistance

Prior to any next steps, you should seek advice from external professionals. Similarly to the above, it would be wise to engage with your solicitor initially, but also your land agent. These advisers will help you in evaluating options available, as well as helping mediate negotiations between yourself and your landlord.

You may also wish to approach a financial advisor, or your accountant. These advisers will prove particularly useful when business planning the farm diversification enterprise. A strong business plan will strengthen your resolve with regards to negotiations with your landlord.

We have experience in mediation and have various preferred professionals. If you require assistance at this stage, don’t hesitate to contact us.

Create a Business Plan

Once you have understood the position your tenancy agreement terms places you in, and you have attained sufficient and ongoing advice, a business plan should be created.

Firstly, as with any farm diversification, its important to consider:

  • Who will carry out the day to day operation of the enterprise? Do they or you have the necessary time and skillset?
  • Is planning permission required?
  • Can the enterprise be implemented and run without disrupting the core agricultural business?
  • What is the market environment like for your proposed enterprise?
  • How much capital is required, and how will you raise it?

It is also important to consider the following, more pertinent to tenant farmers:

  • Could the enterprise be considered as sub-letting? If so this may be a breach of the agreement terms.
  • Are any required works permitted? How will this effect your tenancy and rent?
  • How long do you have left within the lease term? Is this enough time to gain a return on your investment?
  • Are there any farm diversifications that suit the confines of your tenancy better? For example, another agricultural enterprise. 

If you are unsure as to where to start with a business plan, please do get in touch and we will gladly assist you.

Approach and Negotiate with Your Landlord

Once you have completed the above steps, including writing a strong business plan, it is then time to approach the subject with your landlord.

Use the information and advice provided to you from your advisers. Remember, even though the terms may dictate solely agricultural use of the estate, the landlord may be willing to compromise. Good communication here is paramount. Discuss your ideas and business plan with your landlord, and attempt to portray its benefit to not only yourself and the farm, but to him/her.

Issues usually arise when landlords consider inheritance tax implications of a change of use, with regards to agricultural property relief. As always, when negotiating a deal or trade off, consult your advisers.

To conclude, farm tenancies are not always the be all and end all to farm diversification. Careful negotiation can pay off! Unsure how to go about farm diversification on your tenant farm? Contact us  today for a free, no obligations initial consultation.

Unsure of what farm diversification enterprise is for you? Use our free diversification discovery assistant. Simply fill out the short questionnaire and receive a free review of what farm diversifications may suit you and your business, including key considerations.