The recent Call for Evidence, issued as part of the Agricultural tenancy consultation, suggests a desire to give agricultural landowners more flexibility in dealing with their land, together with more protection from enforcement. If the proposals are implemented, this could reduce lenders' control.
The Call for Evidence asks for information on two issues that concern lenders:
Currently, a landowner with a mortgage over its agricultural land must obtain the lender's consent before granting any tenancies on the land. The Government asks why this is necessary – do lenders need to give permission? The Call for Evidence also suggests that such a restriction may deter agricultural land owners from letting out land and could, therefore, restrict the availability for agricultural tenancies.
In our view, some form of restriction is required so that the lender can ensure that the value of its security is retained.
If a borrower fails to make mortgage payments it will find, where it is a sole trader or structured as a partnership (as is the case for most agricultural businesses in England), that the lender can appoint a receiver. That receiver has power to take possession of the assets over which the borrowing is secured. There is some protection for cases where the agricultural land includes a dwelling-house.
The Call for Evidence asks whether the process for taking possession of the land, where there is no dwelling-house, is appropriate and fair. This is of particular relevance now, as we start to move out of the Common Agricultural Policy, and enter a very uncertain time for agricultural businesses. Should lenders be required to apply to court for a possession order? This would enable the courts to consider the circumstances and decide whether the borrower should be given more time to make repayments. However, it may increase the costs for everyone involved.
Responses should be provided by midnight on 2 July 2019. The Welsh Government has a similar Consultation and Call for Evidence open to elicit views on the future of agricultural tenancies in Wales.
We will monitor and report on developments. It will be interesting to see whether any changes will boost the agricultural sector, or will result in an unwillingness to finance agricultural interests.
Contributor: Alexandra Holsgrove Jones
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at May 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.
The FCA has set out how it proposes to replace the Approved Persons Regime by extending the SM&CR to the whole financial services sector by 9 December 2019. Almost every FCA regulated firm is affected, in particular any...