5 September 1997

Compensation time bomb is ticking…

COMPENSATION for tenants improvements will be the source of confusion when FBTs end, warn agents.

"A time bomb", says Jeremy Procter of Bidwells. Uncertainty exists because the new law no longer contains a prescribed formula.

Compensation will now be based on the increased rental value of the farm, following the improvement – something which can be difficult to calculate and predict.

"Landlords fear they may give consent for the tenant to spend, say, £5000 – only to find that they have to give, say, £10,000 in compensation."

This could, for example, be the case with irrigation – the cost of installing which is often far less than the enhancement in the value of the land.

"Landlords may prefer to carry out the work themselves, rather than let the tenant do it and possibly have to pay open-ended compensation."

At the very least, the two parties should discuss any potential improvement, before work begins, says Mr Procter.

Smith Woolleys Paul Ainscough says calculating tenants right payments – such as for the value of lime in the ground – could also pose problems.

Landlords could suffer a "double-hit", paying it to the outgoer of an old-style tenancy, while not recovering it from the incomer on a new agreement, he says.