The Land Reform Bill (the Bill) proposes a new overriding procedure for resumption of land from 1991 Act tenancies and introduces a new head of claim for tenant's compensation across all 1991 Act and fixed duration tenancies.
Whilst statute has always regulated the right to resume land from fixed duration tenancies, other than some common law matters and statutory requirements for compensation and rent adjustment, the landlord's ability to resume from a 1991 Act tenancy has largely enjoyed freedom of contract.
These proposals are significant and if passed will retrospectively alter existing 1991 Act tenancies and the law applicable to fixed duration tenancies.
Procedural changes
Currently, a lease must contain an express right to resume land from a 1991 Act tenancy. The Bill does not change that position and one might question whether the creation of a statutory right of resumption (in line with fixed duration tenancies) might have represented some form of quid pro quo for those 1991 Act leases which are silent on resumption.
A landlord must currently give a tenant not less than 2 months' notice of resumption and the lease may specify a longer notice period.
The Bill will require written notice to be given not less than 1 year before the proposed resumption date. This increased notice requirement will be retrospective in effect and will override any shorter notice period prescribed in existing leases. A copy of the resumption notice must also be sent to the Tenant Farming Commissioner (TFC) who will be involved in overseeing the resumption procedure.
The right to resume, on relatively short notice, has to date provided landlords with a mechanism to have sensible conversations with tenants about giving up areas of land which would be susceptible to the resumption process and, importantly, to give landlords comfort that they can obtain possession where, for example, a developer may be exercising an option. This longer statutory notice period removes that flexibility and, absent transitional provisions, may result in landlord's being placed in breach of existing option or other development agreements.
Within 28 days of receiving the resumption notice, the tenant is entitled to serve a counternotice to terminate the tenancy on the date on which the resumption was to have taken effect. Unless and until a counternotice is served, the landlord is permitted to withdraw the resumption notice but will be liable for losses or expenses incurred by the tenant.
If no counternotice is served and the notice is not disputed or withdrawn, we move to assessment of compensation.
New compensation for value
The changes to compensation for resumption apply to all types of agricultural tenancies.
Currently, a tenant is entitled to statutory compensation for heads of claim such as disturbance and also a rent reduction following exercise of a landlord's right of resumption. The Bill proposes an additional head of claim which equates to the tenant having a share in the capital value of the land to be resumed. The proposed mechanism for determining this sum is similar to the process undertaken where a tenant is relinquishing its interest in a lease.
Having received the copy resumption notice, the TFC will appoint an independent and suitably qualified valuer. If the appointment of the valuer is disputed, it will be decided by the Land Court. Although appointed by the TFC, it is the landlord who will bear the costs of the valuer's appointment even though the tenant will be compensated. The policy behind this is reflective of the fact that it is the landlord who initiates the resumption process.
The valuation process is detailed but the Bill expects it is to be completed within 10 weeks of the valuer's appointment.
In simple terms, the valuer must look at the vacant possession value of the land being resumed as against the value subject to the tenancy. The compensation payable to the tenant is to be 50% of the difference. There is a short appeal window of 3 weeks should either landlord or tenant wish to challenge any matter contained in the assessment and refer the matter to the Lands Tribunal for determination.
Conclusion
The proposed change in procedure for 1991 Act tenancies represents a significant departure from the usual contractual provisions on resumption and the new head of claim for all types of tenancies would be a very material alteration to the landlord's position. If such provisions are passed and have retrospective effect, landlords and tenants in existing leases and new ones to come will have to consider the implications for their arrangements.
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