Rent review? Make sure you plan ahead.

With pressure on farm incomes over recent years, rent reviews of both Agricultural Holdings Act 1986 and Agricultural Tenancies Act 1995 have been few and far between.

We saw rent review notices being served and later withdrawn by landlords and the agricultural industry fell upon harder times. This extended the rent review periods beyond the common three year cycle. This longer period of a static rent is then something to be cautious of when a rent review does occur. Some Agricultural Holdings Act tenants were even successful in having a rent reduction.

With a minimum of 12 months’ notice required to instigate a rent review, landlords may well be thinking about serving a notice between now and September 29 allowing the rent to be reviewed from September 2018. With the uncertainty of commodity prices, and the continuing unknown that Brexit is bringing, it would be a guessing exercise to predict what rental values will be in 18 months’ time. However, it is best to plan ahead and consider the impact that a change in rent would have on your farming business. If it was to rise, could you sustain the additional outgoing?

With rents not having been reviewed for a number of years, it is likely that there will be some increases for Farm Business Tenancy rents. Our advice is to not presume that rents will remain static and to ensure that you have a plan in place if rents do rise.

A new way to work out your rent: The Agricultural Tenancies Act 1995 allows for freedom of contract between the landlord and tenant. This means that the normal rent review procedure of following market rents need not apply. A more creative rent formula could be implemented that could suit both parties reflecting the statutory rent formula that was in place in the 1986 Act. This could be on a commodity price basis so that the rent payable was linked to the price of cereals, for example. If you are entering into a new tenancy agreement, it may be worth negotiating the terms on which the rent will be reviewed.

New FBT? How about a Brexit clause?: If you are currently in negotiations about a new Farm Business Tenancy, or likely to be entering into a new agreement, it may be worth discussing the inclusion of a “Brexit clause”. This is a clause in the agreement that can result in a change to either rights or obligations of the parties dependent upon an event or action caused by Brexit.

The clause would detail a potential Brexit-related event and the changes to the contractual obligations or rights as a consequence. This can provide protection against a potentially adverse impact of Brexit. With this comes the challenge of being able to predetermine the potential consequences of Brexit and at this stage, it may be too early to say. However, as Brexit negotiations progress, it may be worth bearing in mind.

James Neame, Nock Deighton Agricultural LLP