No rent increases this year

Landlords shouldn’t try to impose increases on tenants this year, says George Dunne of the Tenant Farmers Association.

Since the latter half of the past decade agricultural rents have only gone upwards. Landlords and their agents have been used to serving notices for rent review on farm tenants in the expectation that increases would follow when the reviews took place in the year after the notices were served – but this year is different.

The Tenant Farmers Association is warning landlords and agents that there is no scope for rent increases this year on farm tenancies regulated by the Agricultural Holdings Act 1986 following their last rent reviews three years ago. This will come as a shock, particularly after a set of reviews last autumn which saw average rents on Agricultural Holdings Act tenancies increase by around 20%. Circumstances then were rather different from today. Despite the very cold spring the reviews followed a relatively straightforward harvest and pre-dated the onset of the very wet weather.

Although cereal prices had fallen from a peak of about £220 per tonne to £145/t by August, they were climbing again as rent reviews were being settled. There was an expectation of better conditions and better prices.

Finished cattle prices were also quite strong, but have dipped away ever since. Potato producers had also experienced high prices in the preceding months.

Rent reviews follow a three-year cycle. Looking back to 2010, for much of the year feed wheat prices were below £100/t. Finished cattle prices were at two-thirds of their autumn 2013 levels and finished lamb prices had fallen to about £3.50/kg deadweight compared with over £300/t just before last year’s rent reviews.

The rent increases reported reflect an improvement in farm profitability overall between the three years separating the reviews. The same cannot be said for reviews taking place this year. Compared with 2011, farm budgets this year are showing lower levels of profitability due to steady or slightly lower prices in most sectors and an increase in costs across all headings. However, there is, as yet, little evidence of reductions in comparable rents, leading to the conclusion that standstills in rent should be the order of the day.

The TFA has just completed its annual round of meetings with its panel of recommended professionals including about 50 leading rural practice chartered surveyors who act for both tenants and landlords. We put the hypothesis that there was no justification for rent increases this year where rents were properly reviewed three years ago and there was unanimous agreement with that view.

This analysis is based on averages. There will be individual circumstances that will dictate different outcomes. For example, a rent set too highly in 2011 may be ripe for a reduction and there will be cases where the opposite is true. It is vital therefore that individuals take specific advice on their case.

The market in farm business tenancies continues to be a worry. Reports of rents tendered seem to lack any resemblance to reality. One factor driving rents is the production of maize to feed anaerobic digesters where there are regular reports of rents being paid in excess of £300/acre which, in the view of the TFA, makes the Government’s subsidy of AD through the feed-in tariff unsustainable.

George Dunn is chief executive of the Tenant Farmers Association.

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