Tenants – be prepared for rent review
RENTS are set to fall next year as economic pressure, abetted by the appalling autumn and winter weather, bite into this and next years farm profits.
However, tenants expecting automatic reductions are likely to be disappointed, warns Ellen Allwood of Lincoln-based consultants JHWalter.
Although many Agricultural Holdings Act rents last settled three years ago will be extremely difficult to support today, or over the next three years, preparation is vital to achieve a favourable rent review, she advises.
"Poorly supported arguments will get the tenant nowhere against landlords who are also trying to protect their income. Landlords will seek out a weak link in the chain – the one tenant who breaks ranks without fully arguing his case."
Tenants should prepare a strong, well-presented case, supported by a budget, says Miss Allwood.
The success of such a planned approach was reflected in last years negotiations. Early settlements showed 12-15% increases, while tenants who held out achieved settlements just 5% higher. Average rent payable by JHWalter clients was about £50/acre for larger blocks of bare land, £39-44/acre for mixed farms and £43-67/acre for arable farms.
However, some farmers need to think carefully before seeking rent cuts, says Mike Greetham of Melton Mowbray-based consultants Andersons. "Many landlords are currently receiving a gross return of 3.25% – a net return of only 2.45% – for land let under the Agricultural Holdings Act.
"The landlord-tenant relationship is a mutual one. The landlord needs to obtain an income while preserving the capital value of the holding, and the tenant needs an infrastructure to support his farming system. Rather than a rent reduction, an agreed investment programme creating additional profitability over a sensible time period may be a better alternative even in these difficult times."
Farm business tenancies should also be reviewed, for rents exceeding £100/acre for cereal land cannot be justified, he warns. "The prudent bidder will carefully consider the impact of a loss-making expansion on the business and how long that loss can be sustained."
Farmers who rely on taking on more land could also face a shortage, he adds. If the 100% voluntary set-aside contained in the Agenda 2000 proposals becomes widely available, the proposed payment of £100-110/acre will effectively put a bottom in the short term rental market – but at too high a level for economic production in most situations.
"If prospects do not pick up, a sizeable chunk of UK combinable crop land could be withdrawn from production. This is bound to affect the availability of land to rent," says Mr Greetham.