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  • Michaelmas Rent Reviews

  • We are fast approaching that time of year known as Michaelmas when many tenanted holdings will be the subject of a rent review.
    It is a sign of modern times that irrespective of the current farming climate, many agents will be advising their clients that they should by seeking rent increases this autumn. Whilst the rent is the headline issue, the review process gives the parties the opportunity to discuss a number of issues relating to the holding such as outstanding repairs, investment in infrastructure and improvements, or the tenant’s plans; whether it is a timetabled exit strategy or the bringing in of the next generation as part of the family’s succession plans.
    When faced with a rental proposal it is important to seek justification from the party proposing the change in order to assess whether the proposals are fair and sustainable. FBT rent reviews are normally assessed in terms of a market rent based on comparable evidence. No holding is identical so it is important to understand the nature of the comparable holdings put forward by the respective parties. You must always disregard tenant’s fixtures and improvements when assessing the rent and have a good understanding of the physical attributes of the holding. It is important to know if the comparable rent is a tender rent and whether there are any other relevant factors, such as consent for diversification or a repayment plan associated with the landlord’s investment in the holding.
    AHA reviews are assessed differently taking into consideration a number of factors including the character of the holding, its productive and related earnings capacity, comparable evidence for similar holdings and any other relevant factors. The starting point should be the budgets which need to reflect the farming economics at the time of the review. It is not correct to average the earning capacity over the three years since a previous review. The correct rent is one that is derived from assessing all of the factors and not a combination of the different parts and, as such, it is not correct to add a component comparable value i.e. the farmhouse, to the earning capacity of the holding. Unfortunately the word ‘fair’ is not included in any of the current statutory instruments relating to rent reviews of agricultural tenancies; however, a fair and sustainable rent will benefit both parties in the long run. A profitable tenant will invest in the holding to the benefit of the landlord whilst a landlord receiving a fair rent for the holding will be in a position to meet their obligations and consider their own investment into the holding. Fortunately there are many examples of good working landlord/tenant relationships out there, though  there are also many incidences of sharp practice being adopted so take advice prior to agreeing any change to your rent.