No call for rent increases this Michaelmas

With farm commodity prices remaining at a low level and farm support schemes under threat following the decision to leave the European Union, there should be no call for rent increases this autumn.

“Most farmers, be they livestock producers or arable crop growers, are facing challenging times and the last thing they need is a letter from their landlord asking for a rent increase,” said Eifion Bibby of Davis Meade property Consultants at Colwyn Bay.

The Tenant Farmers Association analysis of rent settlements on Agricultural Holdings Act tenancies in the year to April 2016 shows there is a downward movement across most sectors of the industry. And there may be a case that rents should come down further.

The TFA says rents in the dairy sector have seen the largest decreases which reflect the current difficulties in that sector. And the evidence also points to reductions for Farm Business Tenancy (FBT) reviews. FBT rents in the arable sector have seen the strongest downward movement over the last three years with decreases of 15 per cent on average for rent settlements reviewed in the year to April 2016, according to the TFA.

“Also, whilst we are seeing some increase in the price of liquid milk the worry at the moment for dairy farmers is that these increases are not being passed on quick enough through the supply chain to the farmers who have carried the brunt of the pain profit-wise,” Eifion said.

March and September are the traditional rent days for farmers. Tenants who are notified of a rent review from their landlord have a year to agree a rent or the matter could be referred to arbitration, an expensive option best avoided.

If, however, the landlord does nothing during those 12 months, the rent will stay where it is, so tenants should not feel unduly pressurised into an unsuitable settlement.

“We are now negotiating on behalf of tenants who were served notice of a review 12 months ago, some of whom were asked for increases of 10 per cent or more,” Eifion said.

“Such rent increases cannot be justified unless, perhaps, the rent had not been reviewed for a number of years or if it is at an historically low level.

“We have hardly seen any rent increases agreed in the last 12 months, which is almost unheard of, but reflects the current farming climate, most have been left where they are with landlords withdrawing the review notice altogether.”

Arable farmers are also facing challenges and tenancy specialists at DMPC have been working with clients and their landlord’s agents to negotiate for acceptable settlements.

Payment for the Basic Payment Scheme were a long time coming and some claimants still have money outstanding, perhaps due to cross border issues, putting further pressure on cash flows.

“Farm Businesses Tenancies (FBTS) are also being affected by the uncertainty over leaving Europe. Farmers are reluctant now to tendering over the odds for land unless they desperately need it,” Eifion said.

Fewer tenants, particularly in dairy sector, are looking for land so price for short lets has certainly dropped. Generally, many tenancy agreements are too short. The TFA campaign for 10 year tenancies is founded on good principles as tenants need longer term security to borrow and invest.

The key message at all times to tenant farmers is to seek advice from their agent or a tenancy specialist before accepting a rent increase.

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