What does the Environmental Land Management Scheme (ELMS) mean for agricultural tenants?
As the industry holds its breath for the phasing out of the Basic Payment Scheme, farmers look to alternative income streams to secure the financial future of their farms, whether through the Environmental Land Management Scheme (ELMS) or other non-agriculture diversification projects.
In this article Kathryn Boyd, solicitor in our Agriculture, Estates and Rural Property team, explains what the change means for agricultural tenants.
What is the Environmental Land Management Scheme (ELMS)?
The Department for Environment, Food and Rural Affairs (Defra) has rolled out ELMS, through which farmers and land managers can be paid to enhance the natural environment alongside food production.
The aim is to make environmental improvements as part of a large-scale project.
What does ELMS mean for agricultural tenants?
Given that over 60% of England’s land is farmed by tenants, they play a vital role in the future success of the agricultural sector and yet they face significant hurdles.
Tiers 2 and 3 of ELMS require long-term commitments to land management, and despite concerns being raised across the sector, the question remains as to whether such schemes are accessible to tenant farmers on year-to-year tenancies or relatively short term farm business tenancies (FBTs).
There is also little incentive for tenants to engage in diversification projects which require heavy capital investment if they do not have the security of a long-term tenancy agreement.
What is the Rock Review?
The Rock Review, published by Defra on 13 October 2022 aims to address the above concerns and has recommended that the Government take immediate action to ensure that the schemes are accessible and open to tenant farmers.
In practice, this would mean aligning current tenancy legislation with the government policy of delivering long term environmental benefit.
The report has highlighted that more should be done to incentivise longer term FBTs and simplify the process of obtaining landlord consent for entering new schemes and diversification projects.
Can agricultural tenants diversify farm income?
There are still numerous stumbling blocks for tenants when considering alternative forms of diversification.
Most AHA tenancies limit use of the holding to ‘agricultural only’. Many forms of diversification, from equestrian use to glamping businesses or woodland planting risk breaching the terms of the tenancy.
A variation to the tenancy, or a diversification licence is then required from the landlord, along with permission to enter into any planning applications.
A move away from agricultural use may also have tax implications, something which The Rock Report recommends for review.
Recommendations for agricultural tenants and landlords
Until the Government issues its response to The Rock Report, collaboration between landlords, tenants and their advisers is key to ensuring that the best agreement is reached to maximise long term environmental benefit whilst offering security for tenants and landowners.
Care should be taken when drafting tenancy agreements to consider the future of the holding and the potential for diversification.
For more information and advice about agricultural tenancies, contact Kathryn Boyd using [email protected] or 0191 211 7720.