In this section
A written licence for valuable consideration will by virtue of s.2 AHA 86, be converted into an annual agricultural tenancy unless it was approved by the Minister beforehand or is a grazing or mowing licence exercisable during some specified period of the year. A gratuitous licence is not enforceable as such and therefore cannot come within the section. An unwritten licence would be treated in the same way as a written one once the intentions of the parties have been established.
The DV should always insist on seeing the agreement (or a photocopy) and any supplementary agreements relating to rent or other matters which may be in force at the date of transfer.
Where it is claimed that a tenancy existed at the date of transfer CTO will endeavour to obtain from the parties all available evidence. If they are satisfied that a tenancy did in fact exist, the DV will be instructed to value subject to that tenancy, the main terms of which (eg rent and the date from which it runs, the period of the tenancy, responsibility for repairs etc) will be set out or confirmed by CTO when forwarding the papers to the DV. Where it proves impossible to agree the basis of occupation with the parties or if it is considered that the basis suggested by CTO is incorrect, the papers should be referred back to CTO for clarification - see Section 9 para 9.10
Although there may be no written evidence thereof, nevertheless an enforceable tenancy may exist. In such cases CTO will give precise instructions to the DV. In the absence of such instructions if a tenancy appears to exist the DV should clarify the position with CTO before proceeding. The essentials required to establish the existence of a tenancy are:-
- it must have been the parties' intention to create a valid tenancy;
- such a tenancy must be for a specific period, although it may subsequently have been renewed;
- the subject must be clearly identifiable;
- the occupier must have exclusive possession;
- an unequivocal act of part performance must have taken place, such as the regular payment of a genuine rent, in consideration of the occupation of the land. In this context a genuine rent is one which is ascertainable from the terms of the agreement (even if oral) and care should be taken to exclude variable rents such as a share of profits (which may never accrue). For this purpose it is not significant whether or not the rent is (or ever was) a rack rent; even a nominal rent will suffice.
It should be noted that under s.6 AHA 1986 both the landlord and the tenant have the right to refer to arbitration for a "written agreement" containing the rights and obligations of the parties.
It should be borne in mind that there are four common forms of occupation of agricultural land which do not constitute tenancies and care must be taken to distinguish them. These are:-
- Gratuitous licences. It has already been noted above that gratuitous licences are unenforceable. An agreement which provides for the division of profits (which will vary according to the success of the business) between owner and occupier would be regarded as embracing a gratuitous licence to the occupier.
- Grazing or mowing licences under s.2(3a) AHA 1986.
- Occupation as agent. Circumstances may occur where a farming company is in occupation of an agricultural unit in a management capacity and may be in receipt of a fixed fee or a party to a profit sharing arrangement. It is unusual to find that the company occupies under a tenancy and a written agreement should always be available where such a tenancy exists.
- Partnerships between owner and occupier without any tenancy. This is now a common method of avoiding the creation of an agricultural tenancy. It has the added advantages from the owner's point of view that the income is taxed as earned and IHT relief can be claimed at the higher rate. However, the partnership must be genuine, involving participation in the venture by both parties, not merely a sham.
An owner of land cannot grant a tenancy of it to himself, nor can two or more owners grant a tenancy to themselves jointly: Rye v Rye (1962) AC 496. It had been accepted that an owner of land could grant a tenancy of it to a nominee and thus effectively to himself despite the decision in Rye v Rye. However, in Kildrummy (Jersey) Ltd v IRC (1990) STC 657 the Scottish Court of Session has held that such a lease cannot be validly created. The IR Solicitor has advised that this decision is of persuasive authority though not binding on English Courts.
Consequently where a DV suspects that a tenancy has been granted to a nominee, and the matter does not appear to have been addressed by the CTO in their instructions, the case should be referred to CEO via the RD.
An owner may grant a tenancy in writing to himself and his partner or partners. Joint owners cannot lease to themselves exclusively even by deed. However, they can lease to one or more of themselves provided they do not lease to all, or they can lease to all of themselves together with another or others.
A tenancy may continue where unity of identity of landlord and tenant is reached after its grant eg A grants a tenancy to himself and B who subsequently dies. There is a presumption against the merger of A's interests and if it is considered that a merger has occurred it has to be proven. The Court will imply an intention against merger from the mere fact that its absence is of benefit to the person in whom the two estates have become vested.
Therefore in cases where unity of landlord and tenant is reached the interests remain separate in the absence of a clear indication of the parties' intention that they have merged. However, where the interests of landlord and tenant are in the same estate it may be appropriate to value the two interests together as a single unit. (See Package Valuations 9.13-9.17).