Prudence needed for autumn rent reviews

Tenant farmer representatives have urged landowners not to get carried away with higher prices when negotiating rents this autumn.

The hike in grain prices over the past 12 months may be faltering, but it has prompted many landowners in the arable sector to push for a rent increase. Tender rents for Farm Business Tenancies in particular had reached “shockingly unsustainable levels”, George Dunn of the Tenant Farmers’ Association said.

“We are aware of accepted [FBT] bids at the £200/acre mark and above. With an average margin before rent and finance, even at current prices, of about £250/acre, including the single payment, I simply do not see how these rents can be sustainable. Small movements in prices, costs or yields will place these enterprises into the red.”

He believed about £150/acre was a more sustainable FBT rent for decent arable land capable of 3t/acre wheat yields. Mr Dunn said high bids gave landlords a false impression of the sector.

Agricultural Holdings Act tenancies are traditionally reviewed around Michaelmas (29 September). Many rent review notices were served on the back of better commodity prices last year and these were now coming to fruition, he said.

Despite some landlords’ agents producing overoptimistic budgets, exaggerating the importance of the farmhouse or threatening arbitration, he said a number of initial rent proposals had been reduced and sensible deals were being done.

Average AHA rents were settling at £76-80/acre for arable land and £50-60/acre for livestock holdings. Rents on newer FBTs were higher at £105-110/acre at review for arable and nearer £85/acre for livestock.

Activity was much quieter in the dairy sector, as February was the traditional rent review period, said Tony Rimmer from Chester property specialists Rostons. Average equipped dairy rents were about £80-95/acre. “But there is a general hunger amongst landlords to see rental increases, perhaps because other investments haven’t performed so well. We saw more rent review notices than normal being served in February.”

But while milk prices had improved, costs were up significantly and dairy farmers also faced the financial burden of having to comply with new Nitrate Vulnerable Zone requirements taking effect next year.

Rental activity was fairly quiet in Scotland ahead of the main rent review period in November, TFA Scotland chairman Angus McCall said. Traditional rents for upland grass were about £35-40/acre and average cereal land was nearer £45-50/acre.

While arable and livestock prices were generally stronger than previous years, costs were also up and there was little scope for large rent increases, he said. Wet summer weather had also resulted in a “disastrous” harvest for many Scottish arable farmers.

CLA president William Worsley responded: “Rent reviews are a serious matter which are potentially expensive and stressful for both parties. How they are conducted is key to a relationship that has to be based on goodwill. Anything that undermines this is not helpful to either tenant or landlord. It is therefore unfortunate that yet again, the TFA has used rent reviews as an excuse to promote themselves.”

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