News
9th Jun

2020

TFA Blog #9 – Time to Plan for Autumn Rent Reviews

This blog is the full (unedited) piece, written by George Dunn, TFA Chief Executive, for The East Anglia Daily Times, published on 30 May 2020.

Leaving aside the impact of Covid-19, 2020 was already going to be a difficult year for many farm businesses.  The exceptionally wet autumn, winter and early spring put paid to many cropping plans for the coming season and although there has been a degree of compensatory spring sowing, ironically there are now concerns that the conditions are too dry for many of those crops to thrive.  The loss of more chemistry, particularly neonicotinoids, has caused a major rethink on crop rotations as oilseed rape has become a no-go crop for many producers and sugar beet becomes much more difficult to grow.  Taken together with the unique challenges of Covid-19, these factors must cause a fundamental reappraisal of farm budgets and cash flows and in turn, impact autumn rent reviews and tender rents for new Farm Business Tenancies (FBTs).

For those farm tenants renting under secure agreements regulated by the Agricultural Holdings Act 1986, there is a broad formula to which rent reviews must adhere.  The criteria are to assess the rent that would be paid by a prudent and willing tenant to a prudent and willing landlord taking into consideration all relevant factors and in every case; the terms of the tenancy, the character and situation of the holding, the productive capacity and related earning capacity of the holding and finally rents being paid on comparable holdings let under similar terms.  In the prevailing circumstances, there is every expectation that rents properly reviewed in their cycle three years ago should see a reduction this year.  However, inevitably there will be some inertia as tenants are often reluctant to take the initiative to push for rent reductions, unlike landlords whose agents are keen to press their advantage when they believe increases are a possibility.  All tenants should be considering now whether it is the prudent thing to do this year to trigger a rent review.

Rent reviews for those renting FBTs under the Agricultural Tenancies Act 1995 are more of a challenge as they lack the formulaic approach of 1986 Act agreements.  Instead, they require consideration of what a willing tenant would pay to a willing landlord in the open market.   The players in that market are not even required to be prudent.  It is the case that we have seen a large amount of imprudent letting in recent times.  Tender rents have reached eye watering levels across all grades and types of land, outstripping the economic returns that could be reasonably expected to be obtained from farming that land.  If there is any year that this must change, surely this is the year.

Despite the heady heights of reported FBT tender rents, it is interesting that the annual survey of farm rents conducted by DEFRA, records the average arable FBT rent to be just above £100 per acre.  As with all averages, there will be rents in the marketplace which will be higher than that but there must also be those which are lower.  So, rather than landlords agents pointing to some of the more ridiculous levels of rent that have been tendered by individuals who have not adequately thought through the financial consequences of their decisions, care should be taken to consider why an FBT rent should differ considerably from the average within the DEFRA survey.

Individuals looking to take on land must also take a more prudent approach.  Their decisions are not just mere private matters between themselves and their landlord, they are used as evidence in the wider sphere for rent reviews taking place on other agreements.  The economics of farming justify the need for farm rents to fall this year, but it will require both prudent tenants and landlords to make that happen.

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