Farming opinion: It’s time for farm rents to come down as sector suffers

Newton’s law of universal gravitation paraphrased by the maxim “what goes up must come down” although applying specifically to physical objects, could equally apply to agricultural tenancy rents, writes George Dunn, chief executive, Tenant Farmers Association.

This is not because of natural phenomena but due to the foresight of the legislative draftsmen who determined that under both the Agricultural Holdings Act 1986 and the Agricultural Tenancies Act 1995, farm rents should be able to change in both upward and downward directions. Upwards only rent review clauses, often seen within commercial tenancies, are outlawed.

Although under farm tenancies regulated by the Agricultural Holdings Act 1986 it is required that “all relevant factors” are considered when setting levels of rent, the two most important factors which will drive rent change holding by holding are productive and related earning capacity and rents settled on comparable holdings let under similar terms. It should not have escaped the attention of even the most ardent landlord’s agent that farm gate prices are under severe pressure across the board.

Any farm budget drawn up on the basis of today’s market data will look pretty forlorn against the budgets used three and four years ago to settle rents.

A big change this year was also the slowing down to a halt of any rent increases with the majority of landlords, who had served notice for rent review for last autumn and spring this year, serving new notices for reviews to take place in the year following.

The TFA is aware of at least one arbitrated rent which was determined at a standstill in relation to the passing rent as at the date of the review in spring 2014.

Whilst most tenant farmers would rather be in the position of making a decent return and paying landlords a rent commensurate with their success, the current agri-economic environment determines that tenants with rent reviews this autumn should be looking for reductions.

Landlords may be regretting the rent review notices their agents served as they are likely to see these being used against them to argue for reductions.

Tenants whose rents are not under review should be seeking advice as to whether they should be serving notice for review in a year’s time. If current market conditions prevail into the autumn then there is no question that farm rents must come down.

The situation with Farm Business Tenancies, regulated by the Agricultural Tenancies Act 1995, is not so straightforward. Unless the tenancy agreement contains a specific subjective or objective formula, rents are assessed purely on the grounds of the open market.

Some owner occupiers are still willing to pay over the odds for short term access to land. Perhaps it would do no harm for them to learn about keeping a sound business head when bidding for more acres for the benefit of themselves and other tenant farmers who will see rents affected by these decisions.