In Farmers Weekly’s Business Clinic, experts tackle readers’ business questions on financial, management, insurance and legal issues.
Here Johnny Dudgeon of Savills advises on how tenants can build a case for a rent reduction and the procedure to follow.
Q: We are a mainly arable mixed farm with some sheep and beef on an estate with three let farms. Our landlord served a rent review notice on our AHA tenancy last September – I assume he intended to seek an increase from September 2015.
Since then we have heard nothing more but output prices have plummeted while input costs in the main continue rising.
As a result I think I have a good case for a rent reduction.
Obviously I will present budgets but I would like some advice on how to build a strong case – what will I need to support my argument? Is there other information from outside my farm which would help?
A Under the Agricultural Holdings Act (AHA) 1986, either party can serve notice and choose to act or not on that notice.
The AHA defines the rent properly payable as “the rent at which the holding might reasonably be expected to be let by a prudent and willing landlord to a prudent and willing tenant”, taking into account all relevant factors.
It is a failing of the legislation that notice must be served 12 months in advance of any rent change and price volatility is no friend.
As well as a robust budget and a forecast of net farm income, you should support your case with extra information such as comparable evidence of rents in the area for similar holdings and full accounts showing costs of production and details of average yields.
It will be important to clarify and understand any tenant’s improvements that have been made with the landlord’s consent, as these must be disregarded in the rent negotiation process.
You should not delay in putting your case for a reduction.
Given that we have heard nothing, how should we time our approach for a reduction?
However, if by, say, three weeks before the rent review date there is no agreement, it would be a good idea to appoint an arbitrator, so that if you have not reached agreement when the year’s notice has run, negotiations can continue for as long as the arbitrator is content with this. An arbitration hearing will not necessarily be needed.
The cost of appointing an arbitrator is about £115. If you fail to agree by the end of the year’s notice, and do not appoint an arbitrator, then the effect of the notice lapses.
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