The 2012 round of rent reviews has seen an incredible amount of activity with some astonishing rents being agreed. In some instances Agricultural Holdings Act 1986 (AHA) rents have shattered the £100/acre mark, when one would wholly expect the rental to be in and around the £80/acre mark. Some tenders received in respect of some average quality bare land in Yorkshire were in excess of £230/acre – are things really this good?
From a tenant’s perspective the approach being taken by those seeking an increase appears to be as varied as ever with some of the larger estates being satisfied to accept a 5 – 10% increase, whilst others are asking for a 30% increase. However, the assessment of increases on a percentage basis is never an ideal way in which to assess one settlement against another. In the context of reviews undertaken in accordance with Schedule 2 of the AHA, it does appear that some tenants have not taken into full consideration the impact which a continued rise in variable and fixed costs will have on the bottom line, as we move forward through the 3 year cycle; very little thought appears to have been given to the volatility in the world commodity markets, and just how sensitive that break even point is.
A compartmental approach to a review has become an accepted approach by many, which if considered in conjunction with the Schedule 2 provisions can lend itself to a sensible discussion. Typically this includes a separate assessment of the value of the farmhouse. Careful consideration needs to be given to the wording of the agreements and provisions that might compel a tenant to personally reside in the house. This might open discussions to a variation of the terms of the agreement where appropriate.
The Rent Review cycle should be viewed as the opportunity to step back from the farming unit and assess both parties’ positions to identify where opportunities lie to consider structural reform of an agreement – i.e. succession of an agreement, surrender and regrant, repairs and improvements etc
Farm Business Tenancy (FBT) rents continue to perform strongly when land is put out to tender. This is true of all sectors, with arable rents regularly achieving in excess of £150/acre where competition exists, and grassland capable of being used for forage fluctuating wildly dependent on location, access and the quality of the grass.
The opportunity to tender for land has been further impacted by the Common Agricultural Policy changes and the lack of clarity from the Rural Payments Agency (RPA) on the protection of the 2011 User Status.
With an increasingly complex and wide range of influences on the assessment of rent (as challenged in the recent Scottish ‘Moonzie’ Rent Case), taking advice has never been more relevant to managing discussions based on due process and fact, rather than measured on hearsay and emotion.