So You Want To… Tender for a tenant farm?

“The best tenancy applications often come from existing farmers who understand the need to present the appropriate business information,” says Clive Beer, head of Savills‘ rural professional services.

“On the whole, tenancy applications need to be a lot better quality than they are, otherwise the same people will be taking up tenancy opportunities.”

What is the process?

Tenancies are advertised. Tender documents are available usually for a price of £5-20 to deter time wasters. The pack includea farm details and a draft tenancy agreement. There will be one or more viewing days, and a deadline by which tenders are due.

Once tenders have been assessed, shortlisted applicants are interviewed. An initial interview will often be with the landlord’s agent on the applicant’s existing or family farm. Following this the final few candidates are usually interviewed by the landlord too.

How do I prepare?

The applicant must show his skill, experience, financial position and judgement.

“Take full advantage of viewing days to walk the farm, assess the land, buildings and question the landlord’s agent,” says George Dunn, chief executive of the Tenant Farmers Association. The farmhouse should be open for inspection and the outgoing tenant may be available.

“Check first impressions by going back on the second viewing day, preferably with someone to talk matters through. Be wary if there is no viewing day or the draft tenancy agreement is not available,” he says.

Prospective tenants should provide a CV showing their background, education, previous experience and any farming operations.

“You have to put together a business proposition that stacks up over the entire period of the lease. Don’t allow a superior house to compensate for poor quality land – be realistic in your approach and be prepared to walk away if the deal doesn’t stack up,” says Mr Dunn.

“Take advice on the pattern of rents in the area, look at the TFA’s rent databank and make a prudent and sensible offer.”

Check services such as water and power and think about the farm’s limitations. Check the landlord’s track record on permission for tenants to diversify, if this is in your plan.

“You need to understand precisely what is being offered, get some advice on the terms of the tenancy and take time to understand the landlord’s aims, find out what makes him tick,” says Mr Beer. For example, if shooting is very important on the estate, can you work with that?

“You need to do your own research. Develop a working relationship with the landlord’s agent. You are on show as soon as you contact us and that includes your approach to our support staff.”

It may be a good idea to meet the landlord to discuss opportunities on the farm before submitting a tender.

What should I include in the tender?

You must present a sound business case. Include a budget with profit-and-loss account and balance sheet up to at least the first break point in the term. You also need to do a cash flow for at least the first three years and to show evidence that any borrowed funds are available.

Set out possible improvements and how these may be funded, relative to the rent. Your plans and forecasts will have to stand scrutiny and questioning. Don’t miss out anything which the application pack specifically asks for.

“People often use standard figures such as in The Farm Management Pocketbook or the Agricultural Budgeting and Costing Book. But you need to make adjustments for the individual farm and the area and to account for volatility by including a sensitivity analysis,” says Mr Dunn. Preparing a successful tender can take may days, even weeks, to do a thorough job.

Anything else to watch out for?

If you are offered a tenancy, check before signing that the agreement contains the terms expected. Leases which can run for longer than seven years require a stamp duty land tax return to be filed and duty may be due on the lease, although the majority of Farm Business Tenancies are below the threshold.

What are the main reasons for rejecting tenders?

“We take tender applications very seriously but we see some which are incredibly naive and badly put together. Some applicants think they have a right to a tenancy simply on the basis of new blood but we are looking for a tenant who can maximise the rental return and stewardship of the holding,” says Mr Beer.

At interview applicants are expected to be able to fully justify, support and explain their plans and figures.

Sometimes a very focussed tender may be submitted but at interview the applicant fails to take ownership of it, says Mr Beer. “That would make us suspect that it had been professionally prepared and if the applicant can’t substantiate the figures, this doesn’t inspire confidence.”

Tenancy terms checklist

  • Length of tenancy and any break clauses. These can legitimately favour one party so pay close attention
  • Liabilities – eg for previous tenant’s improvements, making good poor fences, control of blackgrass, wild oats, repairing and insuring clauses
  • Dairy farms – quota position of outgoing tenant or landlord?
  • How much will you have to pay for quota and will you be compensated at end of tenancy for quota you buy or bring?
  • Single Farm Payment – will landlord be transferring entitlements to tenant?
  • Can you trigger existing SFP entitlements with this land?
  • If no SFP, can you apply to National Reserve?
  • Check clauses on transferring entitlements and end-of-tenancy compensation
  • Does the tenancy agreement allow partnerships?
  • Will agreement allow or require you to enter the Environmental Stewardship Scheme; are there existing schemes which you must take on?

Where can I go for more information?


Case Study

 

jack-hopkins-and-nicola-hamer-nfyfc-farm-biz-dev-w

Royal Agricultural College students Nicola Hamer and Jack Hopkins, both aged 21, won the National Federation of Young Farmers Clubs’ Farm Business Development Competition this year.

The challenge was to tender for a fictional tenancy on a real 186ha (460 acre) dairy and arable farm in Northamptonshire. Jack and Nicola’s plan to milk 1000 goats and to produce goat meat from the farm won the competition, despite their tendering the lowest rent in the competition.

Their plan was simple, requiring relatively low capital investment compared with other entrants, relying on contactors for the arable work and producing a product at a farmgate price of 47p/litre. Surplus arable land would have produced cash crops such as haylage.

“The tender took about five days’ work, getting the figures, and particularly the cash flow, right was the hardest part. It was hard work and a lot of effort but very enjoyable,” said Jack, whose family farms in Kent.

“We weren’t expecting much from the landlord in terms of capital improvement and we were doing all the improvement work ourselves.”

Their application included a budget and profit and loss account for years five, 10 and 15 of the tenancy and a cash flow for the first three years.

“We learned so much from this. Even if we hadn’t have won, it was a really good exercise and experience,” said Nicola.

The competition is sponsored by the Tenant Farmers Association and was judged by TFA chief executive George Dunn and Clive Beer of Savills.


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