Tenants should consider pushing for rent review since EU exit

Tenants must lead the conversation on rent reviews to ensure a fair value and secure their businesses for the future, say advisers.

Following the government’s recent announcement outlining the Basic Payment Scheme (BPS) reduction rates for 2021 to 2024, tenants may consider requesting a rent reduction.

In addition, experts say the UK’s exit from the EU and uncertainty surrounding how this will affect trade is more of a consideration than the BPS change when it comes to rent values.

See also: Rent hot topic for landlords and tenants amid pandemic

However, some tenants may be better served by negotiating improved agreement terms such as greater opportunities to diversify, rather than a rent reduction.

Since leaving the EU, a true partnership approach between landlords and tenants is more important than at any time, says Tenant Farmers Association (TFA) national chairman Mark Coulman.

“Agents for both sides need to be focused on finding mutual beneficial paths forward, rather than looking for opportunities for dispute which has, hitherto, tended to be the default position,” says Mr Coulman.

Rent rate depends on tenancy type

With a reduction needed more than an increase in most cases, it is unlikely that landlords will be the ones to serve notice, so reviews and reductions won’t happen unless tenants serve notice themselves, says TFA senior adviser Caroline Foot.

The decision whether to do so will depend on the tenant’s individual situation: the type of tenancy, the current rent, the last time it was reviewed, any repairs outstanding on the holding and who is responsible for them.

For Agricultural Holdings Act (AHA) tenancies, the rent should be based on what the holding is capable of producing and earning, as well as rents paid for comparable holdings.

This could allow a tenant to argue that a loss of income, such as the BPS reduction, should lead to a rent reduction.

“If other AHA tenants in the area have already achieved reductions or are paying lower rents, this can be used as comparable evidence for a reduction,” says Ms Foot.

Farm business tenancy (FBT) rents generally rely on evidence of what others are paying for similar holdings.

As well as reflecting what the holdings are capable of earning, supply and demand play a huge role in driving rents upwards.

Unlike AHAs, there is no direct link for an FBT rent review to reflect a loss in income, so arguing for a reduction on the basis of reducing subsidies may be harder for these tenants.

“For the comparable element of both AHA and FBT reviews, we have to rely on some tenants being the trailblazers for others, providing lower rents to be used as evidence,” says Ms Foot.

“We’ve seen from the average rent figures that there must be a vast number of more reasonable rents out there being paid, but it is just a case of knowing where they are in order to use them as evidence.

“Though this sounds easier said than done, this likely means there are a number of rents being agreed between landlords and tenants without necessarily referring to the formulas within the Acts [which is perfectly legitimate].”

Alternative arrangements to reduce outgoings on the farm, such as surrendering parts back to the landlord or reducing other tenants’ liabilities, may suit some tenants’ situations, if they can be agreed with the landlord.

However, Ms Foot would encourage tenants to first seek advice on whether a rent reduction is justified.

“This is likely to be the simplest and most practical way to reduce the tenant’s outgoings on the farm, and agreeing alternative arrangements could result in the tenant conceding more than they have to or could result in implications at the next rent review,” she says.

Ask for a bonus, not a reduction

Tim Michie, partner at rural consultant George F White, based in northern England, says it is important for tenants to enter negotiations with their landlord fully prepared.

This includes establishing if the current rent reflects current conditions, evaluating what their future income will look like, and determining a realistic, strategic plan.

“What the income is going to be, what the farm is going to provide, how old they are, what the succession plan is – all these things will determine what route they are going to take now the UK has left the EU and with the loss of subsidy payments,” Mr Michie says.

Rather than requesting a rent reduction, tenants may want to request bonuses such as amending tenancy terms about diversification, succession and building usage.

Particularly with AHA tenancies, landlords may prefer to do deals rather than risk tenants surrendering the agreement – perhaps in favour of taking up a lump sum exit payment – and owners having to invest heavily in improving holdings ahead of re-letting, says Mr Michie.

“Depending on the relationship, some tenants will be able to approach their landlord informally to test the water,” he says.

“Either way, whatever deal is agreed must be confirmed in writing and documented properly.”

High FBT rents will come down with the removal of BPS, but this will take time, says Mr Michie.