Farm businesses are facing continued pressure on margins, with arable profitability and cash flow particularly challenging over the past three years. While some sectors including sheep and beef have experienced stronger prices in recent years, the overall picture remains challenging with all businesses facing their own pressures, from disease risk to disappointing yields.
For tenants, this raises an important question – is the rent still affordable for my farming business? For landlords, the focus remains on ensuring that their investment produces a return.
Start the conversation early
Early engagement and communication between tenants and landlords are positive for both parties and can help take the perceived sting out of the rent review tail. It provides an opportunity for both tenants and landlords to be clear about their positions and collaboratively work towards a result. The Agricultural Landlord and Tenant Code of Practice for England provides a useful framework, built around three principles: Clarity, Communication and Collaboration.
Some practicalities for both parties are to:
- Understand the tenancy terms and rent review procedure.
- Ensure notice is served in good time – a minimum of 12 months for both AHA and FBT rent reviews.
- Agree a timetable for discussions.
- Be clear about expectations and the evidence being relied upon.
- Discuss other areas of common interest, such as investment, repairs and diversification.
- Use agents and advisers wisely.
- Record any agreed outcome in writing.
Affordability V Market Value
One of the key challenges of rent reviews is being aware of the difference between what land is worth in the market and what a farming business can realistically afford to pay.
As advisers we are finding that the budget for many farm businesses at rent review suggest a decrease in rent is needed, whereas comparable properties in the market may show rents at higher levels.
If a tenant seeks a reduction, they need to demonstrate affordability. If a landlord seeks an increase, they need to demonstrate justification.
What if negotiations stall?
Negotiation should always be the starting point, with the Code encouraging parties to do so constructively and in a timely manner.
Where discussions begin to stall, the options available will depend on the tenancy terms. These may include:
- Arbitration – an independent arbitrator considers the evidence from both parties and makes a binding decision on the rent.
- Expert determination – an independent expert considers the evidence and determines the rent, usually based on their specialist knowledge of the market.
- The Simplified Arbitration Service can offer a quicker, less formal and potentially lower-cost route to resolving a dispute, with an independent arbitrator considering the evidence from both parties.
Conclusion
These are challenging times for farming and this can make rent reviews more difficult, making early engagement more important than ever. This autumn, perhaps tenants need to take the initiative: in discussions or more formally act upon a landlord’s notice or serve one on a landlord.
The best rent is not simply the figure that looks good on paper — it is one that allows the holding and the business on it to remain productive and sustainable.
For advice on farm profitability, speak to David Meredith (david@theruralbusiness.co.uk).
For advice on the rent review process and serving notice, speak to Emma Gwilt (emma@theruralbusiness.co.uk).
For advice on arbitration, speak to Ruth Farrell (ruth@theruralbusiness.co.uk).
DJM Consulting, “helping your business to prosper”, 01746 714089