Shifting to a different review method could help landlords and individual tenants agree on a more sustainable rent rate and encourage lower values ​​in general across the UK.

With the start of reductions in the Basic Payment Scheme (BPS) and the complete end of funding by 2028, rental values ​​and how they are determined are hot topics.

According to the latest data from Defra, the values ​​of 1986 Farm Rentals (AHA) and Farm Business Rentals (FBT) under the Farm Rentals Act 1995 have increased steadily (£ 181 / ha) and 2018 (£ 231 / ha), respectively.

Judy Holmes, manager of the rural landlord and tenant of Berrys, says: “We still see people bidding over £ 500 / ha for arable land for grain.

“As the BPS decreases, it will no longer be sustainable in people’s budgets to pay that much and the margins will become tighter.

“Any rental contracts drafted with a rent review mechanism that includes the BPS may now be lapsed, so they should be reviewed as soon as possible. “

See also: Discover the average rents of the farms where you live in 2021

What’s wrong with the current rents?

Rental opportunities continue to be scarce and with the price of land out of reach for many farmers – especially young farmers – the enormous competition keeps tendering going up.

With so many options, many landlords are likely to go for the highest bid, rather than considering the other merits of a potential tenant.

Farmers and landlords will look at the evidence for open market rentals and give this factor the most weight when planning tenders or setting rental values.

“If the tenant really wants it, they’re willing to pay too much,” says Holmes.

“Farmers increase their own rents by competing with other farmers. “

Another reason why this has become such a big issue in the rental industry is the difference between AHA and FBT laws.

The AHA statutes are more specific and impose set rules that landlords and tenants must follow.

The introduction of more flexible FBTs, however, saw the freedom of contracts, which made it easier for the parties involved to negotiate and agree terms with each other on a more personalized basis.

“The reality is that it makes it harder for tenants because the landlords have all the power,” says Holmes.

“Landlords have what tenants want – the land – and there is more flexibility in the legislation to increase rents. “

How to reduce rents?

The current process for determining farm rent varies between AHAs and FBTs.

For AHAs, the rent should take into account the terms of the lease, the character and condition of the farm, the production capacity and related income of the farm, and the rents paid on comparable farms.

FBT rents usually rely almost entirely on proof of what others are paying for similar operations.

Ms Holmes suggests that changing the method of rent review could be one way to agree to a more sustainable rate.

For FBTs, which are more flexible and more open to adaptation, the answer might be to base the value on the production capacity of the farm – as for AHAs – or on the price of a raw material.

This formal rent revision could work, for example, by agreeing that the amount per hectare will be the spot price of wheat in the East Midlands as printed in Farmers Weekly the first week of August, plus £ 20.

“This is the most interesting mechanism available because we can link it to the reduction in BPS – maybe the rent will be a base price of £ 100 / ha plus the BPS payment,” says Holmes.

Accepting a more sustainable rent should be a win-win situation as there is no benefit to the landlord if the tenant runs out of money and has no one to cultivate the land and the additional costs of re-letting and resetting. additional paperwork.

Also, if the tenant feels more secure, they may be more likely to invest in the farm.

“Some landlords have financial performance as their top priority, while others are looking for a good return but also want a tenant who will look after their property and have other attributes,” says Holmes.

“As the tide shifts towards more environmentally friendly agriculture, it is likely that this will become a priority for homeowners as well.

“The tenant could ask for a lower rent in exchange for a larger investment in the farm – perhaps by participating in an environmental program, planting trees, or improving hedges or fences. “

In the AHA rent revision formula, the entire BPS payment should not be taken into account in the calculation of the operating profit capacity, so it is possible that the tenants of these agreements do not see change in values ​​solely on the basis of reductions in BPS.

However, part of the BPS is usually included because the tenant must have use of the land to claim the BPS, Ms. Holmes explains.

The reduction in BPS will act as a catalyst for some farmers to make the decision to stop farming themselves and rent their land or form a joint venture, Ms. Holmes said.

“With this change we will see more landlords who are themselves farmers and they can look for a range of attributes in a tenant and a longer term relationship in addition to a financial return,” she says.

“Lowering the BPS will not reduce rents on its own – it will only happen if people offer lower amounts. It all depends on supply and demand. “

Possible major benefits

Another solution the Tenant Farmers Association (TFA) has offered to landlords who can prioritize how a farm is run over income – like the National Trust – is to remove competition on rent altogether.

Instead, landlords should set the level of rent they want to receive in farm details, then select a tenant based on their business acumen and plans for running the farm, explains. TFA Managing Director George Dunn.

The answer to whether a more sustainable rent for the tenant is a big enough incentive for the landlord to accept depends on the other benefits provided, he says.

“There could be significant tax benefits given to the owner. Along with this, there may be feedback the homeowner might receive for reserved matters such as trees, sports, roadmaps and easements, and renewable energy production from things such as solar panels. on buildings, ”said Dunn.

“Achieving the highest rent does not always provide the highest return, especially if the selected tenant cannot afford the necessary repair and maintenance of the operation or is approaching land that exploits it for its nutrients and organic matter.

“Additionally, the higher the level of rent paid, especially when it reaches very unsustainable levels, the greater the likelihood of default and the costs associated with forfeiture and collection.”

If there was a genuine commitment from the parties to move forward together to find a more lasting basis, changes could happen relatively quickly, he said.

While rent reviews tend to work on an annual cycle basis, there is no reason that this cannot be determined sooner if both parties agree.

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