AGRICULTURAL RENT REVIEWS OVER MICHAELMAS 2021
Peter Cole
May, 05 2022 4 min readMichaelmas 2021 brought about some contentious rent reviews following the rising cost of inputs, reductions in BPS payments, and the continued uncertainties surrounding ELMS.
We were instructed to assist with a number Agricultural Holding Act (AHA) Tenancy Rent Reviews. This resulted in some interesting conclusions through the negotiation and arbitration process.
Whilst the number of AHA tenancies are reducing, expert advice is still required. We thought we would provide some of the take aways from our negotiations over Michaelmas 2021.
Value for Money
If the dispute process is not clearly known and set out at the start of negotiations, then it is likely to result in the negotiations being protracted and the real winners being solicitors and surveyors.
It is important that the parties get clear advice on the process and timing of instructions of advisors and agree a strategy for negotiations. Where tenant’s have insurance for such disputes, this can assist in meeting some of the costs incurred during the process.
Residential Properties
The 1986 Act is not prescriptive in how to deal with the valuation of houses. Accordingly, the approach to calculating the rental value of the farm, and particularly the farmhouse, is left open to the parties, their agents or the arbitrator. Therefore this is often an area of contention and dispute.
The mixture of personal and business interests of a farmhouse also provides the question of farmhouse value more difficult to assess. Unless used for a bed and breakfast or other enterprises, the farmhouse itself does not generate an income within the business for the tenant. On the contrary, the farmhouse can cost the tenant a lot of money in maintenance. Often it will be too big for the reasonable requirements of the tenant and yet it can have a significant benefit and value to the tenant. It is this value that must be taken into account as a relevant factor when assessing the rent properly payable for the whole holding being let. The high rents achievable under Assured Shorthold Tenancies (ASTs) in the private residential sector adds further fuel to the fire of dispute.
There has also been a significant degree of volatility around a very low base for farm incomes making it difficult for any rent increase to be justified by landlords on agricultural economics alone. We found that other matters have been brought into the debate to a more significant degree and these include not only the value of the farmhouse but sub-let cottages, diversification activities, off-farm income and farm support payments.
How Best to Prepare
When carrying out an AHA rent review, the act states:
“the rent properly payable in respect of a holding shall be the rent at which the holding might reasonably be expected to be let by a prudent and willing landlord to a prudent and willing tenant, taking into account all relevant factors, including (in every case) the terms of the tenancy (including those relating to rent), the character and situation of the holding (including the locality in which it is situated), the productive capacity of the holding and its related earning capacity, and the current level of rents for comparable lettings…”
We found that comparables and the analysis of the productive and earning capacity of the holding pump out different figures and therefore where the weight should lie is one to consider. The conclusion of our discussions was that where good comparables are available and they can be well appraised (all the information can be provided), then these would probably add more weight than the other methods. However, as described in the act, there is no hard and fast rule on where the weight should be put.
If budgets are to be presented, they need to reflect the average competent tenant, what the holding comprises and what the earning capacity is. Therefore budgets should be detailed and a true reflection of the holding if they are to carry any weight.
Comparables are particularly helpful when looking at a breakdown of land and allocation of figures to any buildings or houses. For a tenant, it is important to gather comparable evidence of rents being paid on the same estate or elsewhere which are similar including the terms under which they are let. Therefore, it should be encouraged to try to talk to other landlords and tenants, if possible, on the same estate/in the same area.
What do you Hope to Achieve?
If you are thinking of serving a rent review notice, consider what you are trying to achieve. Not every rent review is about rent. It can be an opportunity to engender a discussion between landlord and tenant surrounding succession, infrastructure, diversification etc. Before doing anything, do take advice as this could prove to be very cost effective in the long run.
