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14/02/2012 13:37:10
Uncertainty continues for rent reviews
Last Thursday saw the Scottish Court of Session deliver its view on determination by the Scottish Land Court of the rent review of Moonzie Farm, Fife dating back to December 2008.
The case, a historic one, considering it is the first to be heard by the Scottish Land Court since the implementation of the 2003 Act, has clearly identified what a costly, lengthy and unwieldy method the Scottish Land Court is in finalising rent reviews.
The main issue that was under appeal was primarily as to whether Single Farm Payment income was to be treated as trading income for rental calculations. On this point the Land Court had originally determined that income under SPF should be disregarded except for the value of the naked acre rental. Essentially the Land Court was saying that the SPF income was the tenant’s own and income to support farmers whereas there was a requirement to have land in order to claim the same, this being provided by the landlord therefore there was a value.
On appeal, the Court of Session has actually reversed this ruling and ruled that Single Payment Scheme is of extreme relevance to the matter in determining the rent. The areas to be decided yet could be in the following statement: "To what extent, if any, the prospective tenant’s entitlement to SFP would influence the amount of the successful offer of rent in a letting in open market competition". In this sentence, Lord Gill is essentially saying that Single Payment income will have an influence on the level of rent but that would be dependent on the quantum a tenant is proposing to offer as part of the same.
Tom Oates of George F White commented: "This stance is perhaps not unsurprising but the main point in this is to how relevant you make the payments. In the numerous rent reviews undertaken by ourselves over the past two years we have adopted the pragmatic view that rental settlements were made on the understanding of the inclusion of Single Farm Payment income and made sure this was specifically noted in rental memorandums".
The further point that the Court of Session ruled upon was essentially as to whether rents payable under LDTs or SLDTs could be used as a basis for assessing rents under a secure 1991 Act Tenancy. The argument here is that LDTs and SLDTs are the only methods of providing open market comparables. The Court ruling that SLDTs and LDTs are indeed comparables will no doubt cause grave concern to many secure tenants. However there is a crucial point in that any comparable has to be carefully assessed and properly adjusted to reflect the element of scarcity and marriage value which may have attributed to an uplift in value. Again, when comparables are introduced, careful research needs to be undertaken.
Tom adds: "This point is of particular interest as it is clear the Court of Session favoured the tenant’s methodology undertaken in the Moonzie Case. It was interesting to note there was clear dismissal of the landlord’s agent’s approach in that there were no clear concise and thorough calculations. Tenants will be feeling threatened at the prospect of a rent review can take confidence in this point in that all comparable have to be thoroughly vetted before they can be relied upon".
As this case has now been referred back to the Land Court to finalise the rent for Moonzie Farm, clearly parties will continue to interpret in different ways until a final judgement is sought. One thing is clear though is that the rent review process is fraught with problems and should be undertaken with the utmost care.
The case, a historic one, considering it is the first to be heard by the Scottish Land Court since the implementation of the 2003 Act, has clearly identified what a costly, lengthy and unwieldy method the Scottish Land Court is in finalising rent reviews.
The main issue that was under appeal was primarily as to whether Single Farm Payment income was to be treated as trading income for rental calculations. On this point the Land Court had originally determined that income under SPF should be disregarded except for the value of the naked acre rental. Essentially the Land Court was saying that the SPF income was the tenant’s own and income to support farmers whereas there was a requirement to have land in order to claim the same, this being provided by the landlord therefore there was a value.
On appeal, the Court of Session has actually reversed this ruling and ruled that Single Payment Scheme is of extreme relevance to the matter in determining the rent. The areas to be decided yet could be in the following statement: "To what extent, if any, the prospective tenant’s entitlement to SFP would influence the amount of the successful offer of rent in a letting in open market competition". In this sentence, Lord Gill is essentially saying that Single Payment income will have an influence on the level of rent but that would be dependent on the quantum a tenant is proposing to offer as part of the same.
Tom Oates of George F White commented: "This stance is perhaps not unsurprising but the main point in this is to how relevant you make the payments. In the numerous rent reviews undertaken by ourselves over the past two years we have adopted the pragmatic view that rental settlements were made on the understanding of the inclusion of Single Farm Payment income and made sure this was specifically noted in rental memorandums".
The further point that the Court of Session ruled upon was essentially as to whether rents payable under LDTs or SLDTs could be used as a basis for assessing rents under a secure 1991 Act Tenancy. The argument here is that LDTs and SLDTs are the only methods of providing open market comparables. The Court ruling that SLDTs and LDTs are indeed comparables will no doubt cause grave concern to many secure tenants. However there is a crucial point in that any comparable has to be carefully assessed and properly adjusted to reflect the element of scarcity and marriage value which may have attributed to an uplift in value. Again, when comparables are introduced, careful research needs to be undertaken.
Tom adds: "This point is of particular interest as it is clear the Court of Session favoured the tenant’s methodology undertaken in the Moonzie Case. It was interesting to note there was clear dismissal of the landlord’s agent’s approach in that there were no clear concise and thorough calculations. Tenants will be feeling threatened at the prospect of a rent review can take confidence in this point in that all comparable have to be thoroughly vetted before they can be relied upon".
As this case has now been referred back to the Land Court to finalise the rent for Moonzie Farm, clearly parties will continue to interpret in different ways until a final judgement is sought. One thing is clear though is that the rent review process is fraught with problems and should be undertaken with the utmost care.
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