Successful succession for tenant farmers
From significant claims that threaten the very existence of a farm business, to an irretrievable breakdown in even the closest of relationships, the consequences of lack of effective succession planning can prove devastating.
Plus, when we consider that a different approach to succession is needed when it comes to owner occupied versus tenanted farms, it’s clear there’s no one-size-fits-all answer.
Here, we look at one specific aspect: the benefits of assigning the tenancy in a tenant’s lifetime, in line with Scotland’s tenant farming commissioner, Bob McIntosh’s, recently published succession guide.
Assignation in life
The benefits of successful assignation in life are —
- Knowing matters have been settled and having the security the tenancy has safely transferred to the next generation
- Maximising tenancy value in the event of a landlord approach to acquire it in whole or part, specifically ensuring the tenancy won’t naturally reach its demise when the older family member dies
In the first instance it’s important to know what sort of tenancy you have and what rights and prohibitions are in the lease, if there is a written lease.
It’s best to take professional advice, especially as any lease may have been amended.
When you’re clear who the parties are, it’s important to check if there are any provisions prohibiting its bequest on a tenant’s death and to decide on a strategy to best achieve the correct outcome on the tenant’s death. It’s sometimes thought, if there is no such prohibition, the best way to name a successor is to stipulate them in the tenant’s will.
The major problem here is that statutory timescales and procedures for the executors to follow on such a bequest are stringent.
It’s sadly all-too-common to see the loss of long-held farm tenancies because of a missed deadline or the wrong process being followed.
When a bequest is prohibited
If the lease does prohibit a bequest of the tenancy, or the decision is taken not to formally make a bequest of the tenancy in their will, the tenant can still retain it until death, and the surviving family members and executors can rely on the intestate provisions of succession law to pass the tenancy on.
Often, the tenant can have a letter of wishes prepared stipulating who they’d like the tenancy to pass to, and then it would be for the executors to follow the instructions of the deceased and abide by the legislative process to ensure the correct notices are served and procedures followed.
Again, whilst the timescales are not as tight as they are for a bequest, there are pitfalls and professional advice should be sought early on.
Assignation in life
The best approach is to involve a specialist agricultural solicitor to report on the lease and the tenant’s position, and then to have open and frank discussions with the family on what happens next.
Secure 1991 Act tenancies can be worth a considerable amount of money, particularly on a negotiated partial or total surrender. If the tenancy is given to one particular family member there can be concern amongst other family members that they might lose out on money in the future.
However, provisions can be put in place prior to the assignation to remove this barrier by ensuring that if there is any increase in tenancy value that a clawback on this uplift is paid to family members who aren’t tenants when it’s given up, either in whole or in part.
There are many good reasons to address the succession to a secure tenancy in life, not least to avoid the pitfalls and stress of leaving it until after the tenant has passed away. Plus, failure to follow the correct procedures may, in some cases, lead to the tenancy’s termination.
This article previously appeared in The Courier in October, 2019.