Falling incomes offer chance to seek rent reviews

Tenants whose farm incomes are suffering from low commodity prices are being urged to serve notice for a rent review before their year-end.

Most Agricultural Holdings Act (AHA) tenancies have a Michaelmas term date (29 September)and to trigger a rent review for the coming year a notice must be served on landlords by this date.

Mike Butler, director of rural services at accountant Old Mill, said with such challenging economic conditions, the ball was now in the tenant’s court to negotiate rent reductions.

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“It’s only fair that tenants have the option to reconsider rent levels when times are tough, in the same way that landlords do the same when profits are healthy.

“Farm incomes have dropped considerably this year, which should be reflected in rent levels.”

But despite this, Mr Butler said he had seen many recent AHA rent reviews proposing increases of 20%, a figure also given by the Tenant Farmers Association (TFA).

Kathryn Lewis of Davis Meade Property Consultants at Oswestry said she was negotiating on behalf of tenants who were being asked for increases of 30% or more.

“Such rent increases cannot be justified unless, perhaps, the rent had not been reviewed for a number of years or if it is at an historically low level,” said Ms Lewis.

However, there were signs that landlords were starting to take into account struggling farm incomes.

“Whilst a few rents we negotiated in March on average settled at increases of less than 10%, most have been left where they are with landlords withdrawing the review notice altogether – very different from 12 months ago when confidence was higher.”

George Dunn, chief executive of the TFA, said: “We’re seeing a trickle of rent reductions in the order of 10% on average, which we are expecting to grow in number.”

“Three to four years ago AHA arable rents were between the high £70s and low £80s/acre on average, but now we would expect these averages to fall at review to between the high £60s and low £70s/acre.”

The FBT market was also seeing “some sense return to it”, said Mr Dunn. A 300-acre block of arable land in the East of England recently commanded an average tender of £125/acre, compared with £220/acre for a nearby block in 2014.

More tenants were considering serving notice this year, said Mr Dunn and generally, now was a good time for those with AHA agreements to do so if their tenancy was properly reviewed three to four years ago. However he warned that each farming business was different and should take advice.

Mr Butler warned that very few tenants tended to go to rent reviews with figures that detailed their farm income and profits.

Analysing all costs and bringing accounts up to date to show the full extent of the economic conditions on the farm’s profitability was paramount to securing a lower rent.