In the advent of the environmentally conscious farmer, together with the Natural Capital land use revolution, there have been calls for Landlords to allow Tenants the freedom and ability to enter into Natural Capital schemes on tenanted land to drive commercial land use income for both the Tenant and the Landlord.
With the slow reduction to extinction of the Basic Payment Schemes and the uncertainty surrounding the availability of the Sustainable Farming Incentive scheme, it is no wonder that in-hand and tenant farmers alike are now looking to diversification of land use away from agriculture to generate income. This shift is driven both by the need to replace lost subsidies and by opportunities not previously available to them.
The Environment Act 2024 changed the Planning regime and requires developers to ‘pay into’ the improvement of the environment, either by on or off site biodiversity improvement. These obligations relate to Biodiversity Net Gain, Nutrient Neutrality offset and other environmental improvement and form part of the conditions attaching to any granted planning permission.
Until now, there has rarely been precedent, opportunity or necessity for those who own or tenant rural land to seize the opportunity to harness the financial potential of natural capital and other clean energy schemes to generate new income streams.
With the King’s long standing commitment to the environment it may not be surprising that the Crown Estate has set about producing a new form of environmental Farming Business Tenancy (“eFBT”) with natural schemes and environmental improvement a central part of the agreement.
In this article, our agribusiness experts provide commentary on various matters within the eFBT that raise more questions than they answer.
eFBT: a new form of environmental Farming Business Tenancy
Introduced in early Summer 2025, the much-trumpeted eFBT for the Crown Estate has been made available by the Crown Estate’s solicitors Burges Salmon. It is endorsed by the TFA who have hailed it a “huge breakthrough”. It is designed to balance food production and nature recovery and to provide a much more collaborative structure for Landlords and Tenants to work together in partnership, share profits and facilitate diversification. The venture has been described as the Crown Estate ‘falling back in love with farming’.
The standard form agreement is accompanied by a Farm Green Book and a Farm Partnership Book stating shared aspirations and assessing the role of the farm within the community. Tenants are encouraged to put forward ideas for diversification and are not restricted to agricultural use. Other institutions and owners have already shown interest in the model which is intended to be adopted in its entirety.
Use and scope of natural capital enhancements
The definition of “Use” for the Holding is for “farming and (if they are approved by the Landlord) natural capital enhancements”. Natural capital enhancement refers to the active improvement of nature’s assets – such as soil, water, air, biodiversity and ecosystems to increase the environmental and economic value they provide over time.
The eFBT records that the Landlord ‘hopes’ to enhance the environmental condition, carbon sequestration capacity and biodiversity of the Holding working with tenants to achieve this and create a shared new income stream. It is important to recognise that the income stream generated from a natural capital enhancement is ‘shared’ between the Landlord and the Tenant rather than the Tenant benefitting exclusively from the diversification of land use within its Holding.
Landlord and tenant rights in natural capital schemes
The eFBT makes clear that a Tenant does not have freedom to enter into any natural capital schemes of its own volition. Instead a Tenant will need to present proposals for natural capital enhancement schemes to the Landlord.
The Landlord is required to consider such proposals where the intention is to increase carbon sequestration within the Holding, increase the biodiversity of the Holding or which will bring about Environmental Enhancement (which generates or could generate benefits payments or credits). The Landlord is not bound to agree to any proposal from the Tenant and there is no reasonableness test applicable to the Landlord’s decision.
The Landlord is however required to provide a written decision within three months of the proposal being made either supporting or setting out reasons for not agreeing to the Tenant’s proposal.
Control, consent and collaboration
Notwithstanding the Landlord’s express reservation in respect of natural capital enhancement schemes the Tenant’s covenants in respect of the use of the Holding include an obligation for the Tenant to comply with such directions as the Landlord may reasonably issue with the aim of conserving, improving and increasing biodiversity, carbon sequestration, benefits payments and credits, pursuing good environmental practice and promoting sustainability.
This provision, whilst clearly aimed at environmental enhancement, provides the Landlord with the authority to compel a Tenant to farm in a particular way which may, without a formal scheme in place, create natural capital for the Landlord without the Tenant benefitting.
Length of term and termination provisions
Much has been made of the length of the term of the new eFBT – a minimum of 15 years, with 3-yearly breaks available for the Tenant. From a Tenant’s point of view, a term of this length is preferable to the average length of farm business tenancies of 3–4 years.
The Landlord does have the right however to serve a ‘Development Termination Notice’ if planning permission is granted in respect of the Holding, or part of it, or if the Landlord desires to use the Holding or any part of it for non-agricultural use for which planning permission is not required. This is similar to the Case B Incontestable Notice to Quit regime in the Agricultural Holdings Act (AHA) 1986.
Any Tenant giving up an AHA tenancy for an eFBT should of course be independently advised.
Risks in transitioning from AHA to eFBT
There is a note by the draftsman that this clause can be “flexed” on a transfer from an AHA tenancy to an eFBT. And so indeed it should be, as the Tenant’s position is considerably weaker than it would be under an AHA Agreement…
Although the definition of agriculture has been agreed to cover ELMS for tax purposes, it has not been amended yet for tenancy purposes, so agricultural use would not include some natural capital schemes for example under private markets.
Similar provisions provide that the Landlord may take back the Holding for the purposes of the sale of whole or part, for an “Environmental Enhancement” which is described very widely… although in this case there is a cap of 15% of the Holding.
Succession and tenant security
The Landlord also has the right to terminate the tenancy on the death or incapacity of the Tenant. There is no note, as with the Development and Environmental Termination Notice provisions, to draw attention to the ability to amend this provision if an AHA tenancy is being given up (which may or may not have rights of succession).
Nor is there any provision for the personal representatives of the FBT tenant to assign the residue of the fixed term on death of a Tenant to another party. This is a pretty stringent provision if, say, the Tenant, having invested in the joint venture, were to die early in the fixed term.
Code of Practice: clarity vs. landlord discretion
There is a statement that the tenancy has been prepared having regard to, and incorporates, the principles set out in the Agricultural Landlord and Tenant Code of Practice for England.
This is a voluntary code and advocates the three principles of clarity, communication and collaboration. It states that consents for new schemes should not be unreasonably withheld but the stark wording of clause 11.9(a) of the eFBT.
The “not to be unreasonably withheld” proviso does protect the Tenant however on the ability to enter schemes under clause 6.13. At present the right of an AHA tenant to call for arbitration if a Landlord refuses consent to enter a public finance scheme is not extended to an FBT tenant.
Carbon, minerals and future rights
One final point to note is whether the exceptions and reservations to the Landlord in the tenancy agreement include a standard mines and mineral reservation. Case law has held soil (and hence carbon) not to be a mineral so arguably carbon passes with the demise to the Tenant in the eFBT, even if sequestration rights may be fettered by clauses elsewhere.
Most recent long term eFBTs will contain a reservation to the Landlord that is widely drafted and will include not only rights to carbon but future carbon sequestration so this is a matter that Landlords should consider carefully and discuss with the Tenant.
If you are a landowner, tenant, developer or professional adviser, Russell-Cooke’s Agribusiness and Planning teams are well placed to work with you in respect of advising on all agricultural tenancy matters and in delivering natural capital schemes, particularly Biodiversity Net Gain and Nutrient Neutrality offset projects.
About Anita and Will
Anita Symington heads up Russell-Cooke’s rural and agribusiness team. She advises clients on all aspects of agricultural property law and agribusiness.
Will Bond is a senior associate in the same team, advising clients on a range of real estate transactions including acquisitions and disposals, landlord and tenant matters, development projects, real estate finance for institutional lenders and rural matters.
Get in touch
If you would like to speak with a member of the team, contact our rural agribusiness experts by email, by telephone on +44 (0)203 826 7689 or complete our enquiry form.
