Farmers should be wary of ‘gentleman’s agreements’, says Norfolk rural property agent
PUBLISHED: 15:00 24 October 2018 | UPDATED: 15:05 24 October 2018
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Farming businesses that rely on “gentleman’s agreements” are risking an uncertain future, says CHARLOTTE WEBSTER, senior rural surveyor at Irelands, the agricultural and rural property division of Arnolds Keys.
Rural communities tend to be pretty close-knit, with everyone willing to help each other out where possible.
But that helpful attitude could just come back and bite farm businesses, so it always pays to put those favours on an official footing to avoid problems in the future.
We often find farms where unused buildings are being used by neighbours or other contacts on the basis of a “gentleman’s agreement”. The buildings’ owners tend to believe they are allowing the occupier to use the space – for storage, perhaps – on an informal basis, and if they need to take back possession of that space, they can. Unfortunately, this is not always the case.
If an occupier has exclusive possession of a building, or a distinct part of a building, then they may accrue tenancy rights under the Landlord and Tenant Act 1954, whether they have an official tenancy agreement or not and getting them to leave if you want that building back could be tricky.
Farmers who do this are also risking problems with planning. Unlike a proper tenancy agreement, many of these informal agreements don’t specify how the asset will be used. And if that use is outside the permitted planning parameters, it is the building’s owner, not the occupier, who is liable for any consequences.
There may be health and safety issues to consider as well, such as whether the electricity supply is tested. Again, liability could fall on the owner.
This isn’t to say that many such “gentleman’s agreements” don’t work out fine; when the owner wants his building back, the occupier leaves and all is well. But even in these cases, the lack of a proper contract can leave a hole in the business’s records, and in some cases where income from the informal agreement isn’t declared, might constitute tax fraud.
In the current climate of uncertainty, it is sensible to look holistically at your assets and think about how to maximise income from those which you are not currently using. But if it’s certainty that you’re looking for, an informal, unwritten agreement isn’t going to provide it – and it could lead to all sorts of problems down the line.
As ever, putting things on an official footing requires expert advice, and might seem like overkill to a community used to doing things on the basis of a handshake. But the world has moved on, farms increasingly need to act in a more business-like manner – and, whilst good in theory, the “gentleman’s agreement” has no place in the modern farming world.