As we look ahead to the next rent review window in the agricultural calendar, it is important to be prepared as current market conditions leave an element of uncertainty as to what September will bring. We caught up with one of our surveyors, Kit MacDonald, in our rural lease advisory team, who explained why, despite the concerns that both landlords and tenants have, going through the process of reviewing the rent is a necessity and an opportunity.
“In times of volatility, rent reviews take on heightened importance, whichever side of the review you fall on. The process is critical and what the past few years have shown us is that we cannot predict the next 12 months and what may happen, whether that be on a macro-economic scale with events such as Brexit and the pandemic and the invasion of Ukraine, or at a more local level which impact on commodity prices. Ensuring that notices are served correctly, puts both parties in a position to be able to negotiate a new rent within the safety of knowing it can be referred to arbitration, increasing the likelihood of a fair result being achieved.
“Without having a rent review notice in place, the position of both parties is compromised, the matter cannot be referred to arbitration when negotiations fail, ultimately meaning that the default position is that the rent stays the same and the opportunity to revise the rent is delayed for at least another twelve months. With most agricultural tenancies having a term date falling at the end of March or September, timing is critical in the service of rent review notices.
“Although the basis of a rent review changes depending on whether the tenancy is a Farm Business Tenancy or an Agricultural Holdings Act 1986 tenancy, the constant is that evidence forms the basis for all rent reviews. Whether it is good comparable evidence of market rents, or accurate budgets to determine the Productive Capacity and Related Earning Capacity of a holding, the collection of verifiable evidence is critical to the negotiating position of both parties.
“Our experience shows that having good evidence not only guides us to begin negotiations from a logical standpoint but assists with setting out the basis of a proposal to the other party. Evidence then takes on heightened importance when negotiations fail, and if it is requested by the arbitrator.
“Rent reviews matter because let agricultural property matters to both parties. For landlords, it is their investment, for tenants, their business, and therefore it is both parties’ livelihood. Agricultural tenancy law protects both landlords and tenants, but only when both parties are allowed to state their case. Ignoring rent reviews equates to a missed opportunity for both parties to communicate with the other as to how the farming business is fairing, how it can be progressed and as a result how the capital value of the holding can be maintained and enhanced by subsequent investment.
“Opening rent review discussions can often lead to uncomfortable conversations, about repairs, improvements and indeed the future of a holding, but from these difficult conversations, matters can be resolved, farming businesses become more profitable and assets more valuable.”
We have experience acting for both landlord and tenant and are on hand to ensure that notices are served correctly, negotiations are completed and that whether our clients are farming the property or holding it as investment or for other purposes, their interests are protected, and objectives met. Reach out to our team or find out more by clicking here.
