Farming Talk: Rent revisions reflect rises in landlord costs

Land agents have been busy in recent weeks settling spring 2012 rent reviews after spates of notices were served by landlords 12 months ago.

During that 12 month period we have seen wheat at over £200 a tonne (again), oilseed rape at over £400 a tonne, store cattle making up to and over £1,000 a head and fat lambs up to £100 a head.

With costs also starting to creep up again and the combination of ELS, HLS, Single Payments and increasing real profits from most agricultural enterprises, it is inevitable that landlords are seeking rent revisions.

The recent Scottish legal case of Morrison-Low -v- Paterson has clarified a number of areas which caused contention between landlords and tenants.

It concluded that the Single Payment ought to be treated as income and therefore should be included in calculations on the rent, regardless of who owns or holds the entitlements.

The judge also confirmed that comparable rents offer the best possible evidence.

One of the difficulties facing landlords, tenants and their agents is ongoing market evidence.

We all know that there are no new lettings under the 1986 Agricultural Holdings Act and therefore the only evidence we will see in that market is from rent reviews achieved by agreement or at arbitration.

Farm Business Tenancies are a challenge as rents achieved via tendering are at astonishing levels of up to £275 per acre for arable land.

On face value such bids must be unprofitable for the prospective tenant but it is important to consider whether there is any marriage value with the tenant's existing holding.

In livestock areas one should consider whether NVZ pressures require additional land almost at any cost, if there is a genuine prospect of long term occupation and whether the bids included 'key money'.

These factors distort the market and cannot really be seen to be representative of rents which would be expected under farm business tenancy agreements.

To further complicate matters we are again in limbo with the European Union's proposed Common Agricultural Policy reform.

Many pundits feel that the current regime is likely to continue for at least another two or three years and possibly beyond that.

The Single Payment is currently providing a hard core profit in most farming businesses so some certainty over this income is vital to the industry.

In all, rents are almost certainly set to rise this spring but landlords should be wary of the enormous rents achieved by tender, which may not prove to be all that they seem.

Richard Scriven, partner at Fisher German chartered surveyors