Switching tenancy terms without losing security or succession rights

Since the recent changes in agricultural law, there are further possibilities in certain circumstances to switch secure tenancies (i.e those created before 1st September 1995 and under the Agricultural Holdings Act 1986) into new tenancies which retain the security of tenure given by the 1986 Act.

This "switch" could be used where the landlord and the tenant remain the same, and there is also the same or substantially the same property let under the arrangement.

The resulting lease may not trigger a charge to Capital Gains Tax if it meets certain conditions, including changing only the rent and the length of term granted.

This device could be useful where, for example, rent reviews from September/October 2008 are currently being referred to arbitrators. It could help parties settle on terms, to reach agreement, and avoid further arbitration costs. The advantage to a landlord would be 100% relief from Inheritance Tax in certain circumstances, as it is a post 1 September 1995 tenancy, unlike a 1986 Act "old" tenancy which would have 50% relief.

For this "switch" to be successful, there will need to be a large element of trust between the landlord and the tenant, else a motivating reason for doing the switch, such as a rent review or tax relief.

Agriculture partner Gareth Williams advises that in all tenancy situations, first ask what the parties want to achieve. "If the parties' objectives fit into the statutes, which are now clearer, and also the objectives will not trigger a capital gain tax bill, then the "switch" should be seriously considered".

For further advice and details, please contact Gareth Williams.