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A landowner may be approached by a neighbour looking to graze livestock on an unused field for part of the year. The arrangement is often seasonal, the payment modest, and the understanding informal. In many cases, it feels like a practical solution that benefits both parties and requires little more than a conversation and a degree of trust.
Yet arrangements of this kind can carry consequences that extend well beyond the grazing season. What is intended as a straightforward permission to use land can, if structured incorrectly, result in the unintended creation of a tenancy. The distinction between a grazing licence and a tenancy is not merely technical. It affects who is regarded as being in occupation of the land, how much control the landowner retains, and how easily the land can be recovered if circumstances change.
For landowners, failing to recognise where that boundary lies can lead to a loss of flexibility, unexpected legal protections arising in favour of the occupier, and difficulties that only become apparent when the arrangement is no longer working as intended.
Grazing licences in practice
A grazing licence is, at its core, permission to use land rather than a right to occupy it. It allows livestock to be placed on the land for a defined period, commonly during the grazing season, without transferring possession to the grazier. The land remains under the landowner's control throughout.
That control is the defining feature. Under a genuine licence, the landowner remains responsible for managing the land, including decisions about fertilisation, maintenance of boundaries, and weed control. The grazier's involvement is limited to grazing livestock in accordance with the agreed terms. The landowner retains the ability to enter the land and continue to use it, and remains the party regarded as being in occupation for legal purposes.
This structure makes grazing licences attractive where flexibility is important. They are commonly used for short-term arrangements and can usually be brought to an end at the conclusion of the grazing period or on relatively short notice. They do not need to be registered at the Land Registry and are not subject to stamp duty land tax.
When properly drafted and operated, a grazing licence can provide a practical way of allowing temporary use of land without compromising long-term plans or control.
How a licence can drift into a tenancy
Difficulties arise where an arrangement intended to operate as a licence begins, in practice, to resemble a tenancy. This often happens gradually, particularly where the arrangement continues over time and the occupier takes on a more active role in the use of the land.
A tenancy is created where exclusive possession of identifiable land is granted for a term in return for rent. The concept of exclusive possession is critical. If the occupier has the right to use the land to the exclusion of others, including the landowner, the legal character of the arrangement is likely to be that of a tenancy.
The courts have consistently made clear that the label applied to an agreement is not determinative. Describing an arrangement as a "licence" will not prevent it being treated as a tenancy if the substance of the arrangement points in that direction. Where the occupier controls when and how the land is grazed, determines stocking levels, or assumes responsibility for managing the grass, the risk of a tenancy arising increases significantly.
In many cases, these changes are not deliberate. They reflect a natural loosening of involvement by the landowner and a growing reliance on the occupier to manage the land. However, the legal consequences can be considerable.
Farm Business Tenancies and security of tenure
Where land is used for commercial agricultural purposes and exclusive possession is granted, the arrangement is likely to constitute a Farm Business Tenancy governed by the Agricultural Tenancies Act 1995. These tenancies provide tenants with statutory protection that goes well beyond the scope of a grazing licence.
A Farm Business Tenancy cannot usually be brought to an end without at least 12 months' notice. Where the agreed term exceeds two years, the tenancy will generally continue as a yearly periodic tenancy unless proper notice is served. The tenant may also be entitled to compensation for qualifying improvements made during the tenancy, such as drainage or fencing works.
It is important to recognise that not all grazing arrangements involving horses fall within agricultural tenancy legislation. Horses kept for recreational purposes will not usually constitute agricultural use. However, where horses form part of a commercial enterprise, such as a riding school or breeding operation, different statutory regimes may apply, and the occupier may acquire business tenancy protection.
Why the distinction matters in practice
The consequences of inadvertently creating a tenancy extend beyond legal classification and can have a material impact on a landowner's wider affairs.
From a tax perspective, remaining in occupation of land under a grazing licence may support claims for Agricultural Property Relief for inheritance tax purposes. Certain capital gains tax reliefs, including rollover relief, may also be available where the landowner has not granted a tenancy. These reliefs can be lost where land is let under a Farm Business Tenancy.
Entitlement to agricultural subsidies and payments is another important consideration. Under the Basic Payment Scheme and its successor schemes, the claimant must be in occupation of the land. Where a tenancy exists, that entitlement will generally pass to the tenant.
Perhaps most significantly, the distinction affects a landowner's ability to recover possession. A grazing licence can usually be brought to an end with relative ease, allowing the landowner to regain control promptly. A tenancy, by contrast, confers security of tenure. Even where the arrangement was never intended to be long-term, a landowner may be required to wait at least 12 months before possession can be recovered, and in some cases considerably longer.
This loss of flexibility can be problematic where a landowner later wishes to farm the land personally, sell it with vacant possession, or respond to changing commercial or personal circumstances. The potential obligation to compensate a tenant for improvements can also result in substantial and unexpected financial liabilities.
Structuring grazing arrangements carefully
These risks do not mean that grazing arrangements should be avoided. With careful planning and appropriate advice, they can be structured in a way that reflects the landowner's objectives while protecting their position.
Where flexibility and ongoing control are important, a properly drafted grazing licence can achieve this, provided that the terms are reflected in practice. Retaining responsibility for land management and avoiding the grant of exclusive possession are essential. Regular involvement with the land can be just as important as the wording of the agreement itself.
Where a longer-term arrangement is contemplated and greater security for the occupier is acceptable, a formal tenancy may be the more appropriate structure. In those circumstances, the terms should be clearly negotiated and documented, with careful consideration given to rent, repairs, improvements and termination.
What should be avoided is reliance on informal understandings or assumptions. An arrangement entered into on a handshake, or described casually as a licence, can still give rise to a tenancy if the legal characteristics are present.
Taking a considered approach
Every grazing arrangement should be assessed in the context of the landowner's wider plans for the land, tax position and long-term objectives. What begins as a helpful or practical solution can create lasting complications if the legal framework is not properly understood.
Taking professional advice at the outset can help ensure that the structure of the arrangement reflects what both parties intend, avoids unintended security of tenure, and protects the landowner's ability to manage and recover their land when required.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
