Landlords - beware of compensation claims

One little known element of the Agricultural Tenancies Act 1995 is that tenants of Farm Business Tenancies are, in certain circumstances, entitled to claim compensation in respect of improvements they have made to the leased property.

Perhaps even more alarmingly, it is not possible for a landlord to contract out of the obligation to pay this compensation.  The Act is clear that any attempt to do this will be invalid.

However, there are still options open to a landlord seeking to avoid a nasty surprise at the end of the tenancy.

A change in the law means that landlords are able to agree an upper limit to the amount of compensation payable.  Where the parties agree that there should be a limit, but are unable to agree on the amount of that limit, the amount is the cost to the tenant of making the improvement.

It is crucial to note that for the cap to be enforceable there must be a written agreement to that effect, which is signed by both parties.  It is therefore essential for any landlord who intends to allow improvement works on his leased property to enter an agreement with the tenant and to make sure that the agreement is appropriately drafted.

A further consideration is whether the tenant can claim the improvements they have carried out amount to a tenant’s fixture at the end of the tenancy.  If the works do amount to a tenant’s fixture, the tenant will have the right to remove them when the tenancy ends.  As above, a clause will need to be inserted into the farm business tenancy to counteract this possibility.  It is crucial that suitable wording is used to ensure that there is no room for doubt.

For more information on Farm Business Tenancies, please contact our rural business team.

Emma Coke
01206 217629
[email protected]