Allowing horse owners to graze their animals on your land is one way of securing an income on underutilised pasture. Although many arrangements are organised on a casual basis, it is worth considering whether a more formal approach would be more appropriate.
This would ensure that you do not inadvertently give rise to a tenancy which will affect your control over the land and prevent you from claiming BPS. There are five principal agreements governing horse grazing arrangements: a grazing licence; a common law tenancy; a business tenancy (under the Landlord & Tenant Act); a farm business tenancy (FBT); and ‘profit à prendre’.
A licence allows a horse owner to graze their animals for a short period. It does not confer any rights over the land and you, as the landowner, remain in occupation. This means that you can continue to claim BPS on the land as well as retaining certain tax advantages (for instance a grazing fee counts as trade income rather than property income, enabling you to set more costs against a grazing fee than against rental income).
Traditionally grazing licences were used from April to October as a way of keeping the grass cropped; these days they can be renewed regularly so that the licence applies all year round – although it is worth inserting a clause stating that renewal is not automatic. A licence must not carry any obligations, such as repair to fences or hedges. Otherwise, it will be in danger of taking on the characteristics of a tenancy.
Common law tenancy
A common law tenancy covers the exclusive occupation of grazing land for horses used solely for recreational purposes. Such an agreement will outline any rights that accrue, for instance in relation to access, as well as specifying any restrictions: for instance, grazing land must not be used for exercising or training horses (such activity will evoke a business tenancy). It will also confer certain obligations on the tenant, such as requiring the proper maintenance of the fencing, removal of droppings, and notifying the landlord of the encroachment of noxious weeds such as ragwort.
A Landlord & Tenant Act business tenancy (LTA)
If the tenant wants to locate any part of their business on your land (which includes training and schooling), and the grazing thus becomes incidental to that business, you can grant a business tenancy. However, you should explicitly contract out of Part II of the LTA, to avoid creating security of tenure which is particularly important if the land has development potential or if you are likely to want to repossess the land for your own purposes.
Farm Business Tenancy (FBT)
A farm business tenancy can, in limited circumstances, be used for grazing agreements for horses which may be part of a wider commercial operation (such as a livery yard or riding school) but great caution should be exercised. A farm business tenancy can only be used where the main activity on the land is agricultural. Although grazing is considered agricultural, ancillary equestrian activities are not. Therefore a farm business tenancy would only be valid if the grazing is completely separate from the land on which the yard and facilities are sited. Therefore, if you agree to a farm business tenancy, you will need to be vigilant. If you allow any non-agricultural activities to take place on the grazing area (and that could be something as simple as a couple of show jumping poles or dressage arena markers) that will negate the farm business tenancy and give rise to a business tenancy. Generally speaking, we do not advise the use of a farm business tenancy for grazing horses, but each situation will depend on its individual merits.
Nonetheless, there are advantages, namely that a farm business tenancy does not confer renewal rights, the security of tenure or succession rights. For a rental term of two years or less, the agreement will simply expire on completion of the term with no requirement to issue a notice to quit. However, it does give the tenant exclusive possession of the land so you would not be able to claim BPS or various tax advantages (including APR). It is also worth noting that, under a farm business tenancy, tenants who make improvements to the land are, subject to conditions, entitled to compensation from the landlord.
Profit à Prendre
Last, but not least, this less commonly used agreement allows someone to take something (in this case, grass) from another’s land. You, as the landowner, retain occupancy of the land but, in return for a fee, you allow another person to graze their horses on what is essentially your crop of grass. Similar principles to grazing licences apply although there are more obligations on the landlord to ensure that the crop of grass remains in good condition.
Well drafted agreements keep everything above aboard
Having a formal agreement in place when you are letting your land for any purpose is good practice, particularly if the arrangement is likely to last for a number of years. By having something in writing, anyone inheriting or purchasing the land knows exactly what has been agreed rather than having to rely on anecdotal evidence – or other peoples’ memories. If you’re letting land to a recreational rider to graze their horses, you should consider a grazing agreement, a common-law tenancy or a Profit à Prendre agreement. If the horses are part of a commercial set up, a business tenancy (with the Part II opt-out) is the safest option, or you can consider a farm business tenancy but only if the grazing is wholly separate from the business. Regardless of the agreement you plump for, make sure it is correctly drafted to avoid problems further down the line.