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Farm Business Tenancy vs Grazing Licence – The importance of having the right agreement

Farm Business Tenancy vs Grazing Licence – The importance of having the right agreement

Amelia Dare, Tiverton Professional ServicesProfessional Services Apprentice Surveyor, Amelia Dare, explains why having the correct agreement for your property is important, and looks at the differences between a Farm Business Tenancy and a Grazing Licence.

Whether you are the landowner or the occupier, having the correct agreement is crucial. Not only does a written agreement clearly set out each parties’ responsibilities but for the landlord it can also be an important document in relation to inheritance tax.

Broadly, modern day agreements for agricultural land fall into two brackets; Licences and Farm Business Tenancy (FBT) agreements. Street vs Mountford (1985) set out principles that provided clarity as to the factors that distinguish a licence from a contractual lease. The case established the importance of exclusive possession which means having a legal right to occupy land to the exclusion of others.

An example of a licence agreement is a Grazing and Mowing Licence which typically allows a farmer to graze and/or mow land during a season, often between April and the end of October. The agreement can specify what stock is permitted to graze the land and/or how many cuts of silage/hay is permitted to be taken during the licence period. The main difference to a FBT is that the landowner retains the responsibility for all management tasks, including maintaining hedgerows, applying fertiliser and controlling weeds which deems them to be the ‘active farmer’. For Inheritance Tax, this can be beneficial in supporting a potential claim for Agricultural Property Relief (APR) on both the land and house. The landowner is treated to be in occupation of the land so is able to claim APR after 2 years of ownership.

On the other hand, a Farm Business Tenancy is an agricultural tenancy created on or after 1st September 1995 and is governed by the Agricultural Tenancies Act 1995. This agreement can be for a Term agreed between both parties and it can be tailored to suit your specific requirements. From a tenant’s perspective, a tenancy can provide a higher level of security due to the longer term which therefore enables businesses to plan ahead. It sets out clearly each party’s repairing and maintenance responsibilities.

Land let under a FBT will generally benefit from Agricultural Property Relief (APR) at a rate of 100% on the agricultural value. However, because the landowner would not be considered as being in occupation of the property, the property must have been owned and used for agricultural purposes for at least 7 years.

For more information or guidance on the licences above, or any property legal agreements, please contact our Professional Services team on 01884 235701 or email