Agricultural Transition – How will proposals for a lump sum exit scheme affect a landlord’s Farm Business Tenancy negotiations and drafting?

DEFRA’s Agricultural Transition Plan 2021-2024 provided some clarification of the proposals for a lump sum exit scheme.  Here are some considerations as to how these proposals might affect Farm Business Tenancy negotiations and drafting, from a landlord’s perspective.

Tellingly, DEFRA now refers to the lump sum proposal as a “lump sum exit scheme”.  This is now clearly intended as a retirement incentive.  This would be a lump sum payment in place of the direct payments (whether or not delinked) that the farmer would be otherwise entitled to receive during the remainder of the agricultural transition.  This would be limited to some farmers who meet conditions including leaving the sector.  The rules are expected to be confirmed following consultation in 2021.

DEFRA’s current intention is to offer lump sum exit payments in 2022.  The timetable in the Agricultural Transition Plan suggests that this may only be available in that one year.  Given reducing direct payments, there would potentially be greater sums available earlier in the transition period to make the sum more worthwhile.  But how much of an incentive will this be? 

There are significant unknowns including the eligibility conditions, the likely amount of the payment and its tax treatment.  It is not yet clear what “leaving the sector” means, what timing requirements there might be and how this might apply where a partnership or company rather than an individual holds any entitlements.  We also do not yet know the implications for the landowner or future occupier of the holding if a tenant takes a lump sum payment.  We expect greater clarity on the details in the consultation due in February - May 2021.

Some considerations for negotiating and drafting tenancy agreements from a landlord’s perspective in the meantime include:

• How long is the tenancy?  Will it end during the transition period (i.e. before 2028)?  Is there scope for the tenant to choose to terminate it early and retire?  Or for the landlord to choose to terminate it early?
• If a tenant who is entering into a tenancy arrangement continuing beyond 2022 might want to consider retiring shortly if the lump sum exit payment is sufficiently attractive, how far do you provide for this possibility when we do not yet know the conditions, and in particular any timing requirements, for leaving the sector?
• Is the taking of a lump sum by a tenant something that is prohibited under the terms of the tenancy or would this require landlord consent? 
• Would there be circumstances in which a lump sum received by the tenant ought to be split with the landlord?  If so, when and on what basis? 
• How does the lump sum get factored into tenancy surrender discussions?

If you would like to discuss drafting tenancy agreements or tenancy surrenders with our agricultural specialists, please contact Zoe Atkinson or Emma Folkes.