A view from the Bar: Agricultural Landlord and Tenant Code of Practice for England – practical considerations for litigators

The Agricultural Landlord and Tenant Code of Practice for England was launched on the 8 April 2024, and has been endorsed by numerous organisations across the agricultural sector. Whilst the Code will be of interest to all of those involved with agricultural tenancies, this article, written by Annie Higgo, focuses in particular on the predicted areas of impact that the Code will have for litigators.

Nature of the code

One thing to bear in mind as a litigator when approaching the Code is that it is voluntary, and, in its own words, “does not extend the law or create new legal obligations.” We are unlikely to see immediate impacts of the Code in litigation, as we would say for a statutory change. However, it is likely to have a bearing on Farm Business Tenancy (“FBT”) drafting going forwards, whether that is by an express commitment from both landlord and tenant to adhere to the Code recorded in a contractual term (which will obviously have direct legal implications for the tenancies themselves), or by providing an intended behavioural framework for negotiations; it will be interesting to see how far the Code has this intended impact in practice.

New schemes

The section dealing with new opportunities, schemes, and agreements states that “consent for new schemes should not be withheld unreasonably”. The Code then specifies several grounds which could be considered as reasonable justification, including “effects on taxation status, rental income, capital value, terms and conditions of any outstanding mortgages, and long-term estate plans.”

The language in this section will be familiar to those of us that work in property litigation generally; the reasonableness of withholding consent has been the catalyst for countless legal claims regarding property, particularly in relation to alterations and assignments in both commercial and residential tenancies. It is conceivable, therefore, that similar questions will apply here, particularly if the drafters of new FBTs adopt the language of the Code as part of the contractual provisions concerning entry into schemes or diversification of use.

The factors set out in the Code would be a useful starting point when acting either for landlords or tenants in assessing the strength of a party’s argument as to whether such consent has been unreasonably withheld. Arguably these specified factors could form a useful baseline against which to analyse when advising parties whether or not it is worthwhile (or even commercial) for any scheme to be pursued or to be objected to. Although the factors aren’t exhaustive, given their inclusion in this code and its adoption by the major agricultural associations, it’s not implausible that judges or arbitrators will look at the effect of entering into any scheme in the context primarily of these factors, unless others are drawn to their attention.

The Code also states that any reasons “should be explained to the extent necessary.” One of the conflicts that the Code has to mediate is that between the need for clarity between parties to tenancies and commerciality. In my view “to the extent necessary” reflects this; explanations should be as open as possible whilst keeping in mind the importance of confidentiality and commerciality, which may be particularly relevant if there are competing natural capital schemes or development plans between the landlord and the tenant.

The Code discourages blanket bans on participation in environmental and other schemes, and the same applies to user clauses that restrict diversification. If this aspect of the Code is implemented as an express term by those drafting agreements going forwards, it is conceivable firstly that there will be substantial litigation about whether consent has been reasonably refused (given it is likely that most tenancies will retain some conditional veto for the landlord on the entry into these schemes). Secondly, an area of litigation that may well develop from this is consideration of whether environmental schemes have the effect of taking land out of “agricultural” use, and varying the statutory protections afforded to tenants. Serious thought needs to be given to whether environmental schemes can be properly categorised as being ancillary to agriculture, or whether they fundamentally change the character of the use of land. A possible corollary of the Code aiming to give tenants more diversification opportunities within tenancies is fortifying this arena for disputes. There are also potential breaches of covenant claims to be made in relation to agricultural user clauses if these schemes are taken up to the extent that the use of the holding can no longer be categorised as agricultural, which litigators should keep an eye on in the forfeiture sphere.

This is likely the area where the competing commercial interests of landlord and tenants is most difficult to balance, not just by the Code but generally in the relationship between the parties. How these provisions and expected standards start to evolve in once the Code is more established will be watched closely by all interested parties in the tenanted agricultural sector.

Costs

On costs, the Code states as follows: “Dispute resolvers who have the opportunity to make costs awards may wish to take into account whether the parties and their advisers have acted in accordance with this code when making awards as to costs where they have the legal discretion to do so.”

In my view this is likely to be a significant factor for litigators to consider when advising clients on various courses of action, or when preparing costs submissions in any dispute. Code compliance (or lack thereof) may well become a powerful motivating factor in encouraging negotiations; if a landlord has entirely failed to comply with the Code and risks recovering slim to none of their costs, they may well be more amenable to a negotiated solution and keeping any dispute away from the making of such a potential order. Equally, if a tenant is aware that their landlord has been entirely open, clear and has complied with the Code in all aspects, the potential of a greater costs order may encourage vacating a holding more quickly or remedying breaches. The Code and its cost consequences can be deployed as a litigation tactic in complying with the same, and it will be interesting to watch the application of the same by those making decisions on costs as the Code beds in.

Equally, for those preparing submissions on costs the phrasing in the Code will encourage focus to be drawn to compliance with the same. Whilst the Code is not law, and so it would be too strong to predict that adhering to its principles would have the same effect as complying with pre-action protocols in a formal court process, it is a framework that all litigators would be wise to bear in mind when considering cost consequences in all their forms.

There is specific provision in the Code that parties involved in disputes “should at all times seek to minimise the cost of formal dispute resolution and ensure that their approach is proportionate to the dispute at stake.” This emphasis on proportionality reflects the general approach that courts take to assessing costs on the standard basis, but it is a useful reminder for parties that if they wish to have good prospects of cost recovery in light of the Code, they need to ensure that they are limiting the costs incurred in any event to a level that reflects the complexity and financial value of a matter.

The emphasis on the costs of “formal dispute resolution” and that “parties are encouraged to consider alternative forms of dispute resolution where appropriate” is a familiar reminder to parties that the resolution of disputes can take many forms. Given part of the emphasis of the code is on collaboration, it seems that the emphasis on alternative forms of dispute resolution here is not saying refer everything to arbitration to keep it outside of the formal court process, but rather that parties need to attempt to negotiate their disagreements as far as they can before resorting to formal processes, be it court/tribunal proceedings or arbitrations, depending on what forms of dispute resolution the specific tenancies provide for. The benefit of moving away from formal dispute resolution processes is that the approach adopted can be more flexible to account for the specific pressures facing agricultural tenants that cannot be factored in. For example, hearing dates falling in the middle of lambing would be obviously unfeasible for a small family farm, however, a listing office is unlikely to take much notice of this. Whereas, resolving a dispute through alternative means can create a process that appreciates the particular timing challenges for different farming tenants. This will be useful for litigators to bear in mind when considering the approach to take when disputes first arise in trying to mitigate any cost implications.

Conclusion

The Code has currently been in place for just over a month, so plainly any comments on its expected effects are speculative. However, it will be interesting for litigators in the agricultural sector going forwards to take note of the direct and indirect impact of the Code, both in terms of helping clients to comply with the same and the corresponding effects that it has on our practices.

 

This article was first published by Practical Law here.