“Time to review the rent?”
David Hebditch FRICS FAAV, Head of Chesterton Humberts Rural Division, reviews current rent levels and UK agricultural incomes at Michaelmas 2009.
The end of September marks Michaelmas, the most important of the rent quarter days, and raises questions of whether current farm rents should be reviewed. It is a crucial issue for both landlords and tenants on statutory tenancies, and of relevance also to those who may be on alternative arrangements such as partnerships, sharefarming or farm business tenancies. For those with Agricultural Holdings Act leases, the immediate question will be as to whether to serve formal notice to review the rent. That needs to be done before the coming quarter day of 29th September and will open an opportunity for either party then to negotiate a change, whether up or down, as of Michaelmas 2010. The outcome will involve many factors, notably the nature of the farm, but will focus particularly on the level of the present rent and the outlook for agricultural incomes during the next three years.
Three years previously, when those statutory rents may have been reviewed last, there were some unusual conditions. Cereal prices were experiencing an unprecedented rise, as were input costs, while dairy and livestock returns were still relatively minimal. Interest rates were rising strongly and there were still some uncertainties over the Single Payment Scheme and the relatively strong rate of sterling against the euro. Residential rents from surplus cottages were providing useful income, as were diversified enterprises. What will be the situation for any negotiations next summer arising from review notices being issued this month? Might landlords expect to achieve any significant increases or could tenants use the opportunity to gain a reduction?
It is difficult to anticipate what changes may occur in the meantime. The Government has certainly given some positive indicators. Hilary Benn has declared that he wants ’British agriculture to produce as much food as possible’ and Ed Miliband has made a massive commitment to developing renewable energy, most of which will depend on land. Neither minister is however likely still to be in power by Michaelmas 2010. Interest rates are still being held down, although they will have to rise in due course for the sake of the economy as a whole. Arable crop prices are unlikely to fluctuate as widely during the coming year as they did in 2007. Milk returns should remain steady, helped perhaps by the untenable situation in Continental Europe that is bringing pressure to bear on the EC.
Input costs such as fuel and fertiliser will also probably remain steady, but not return to their earlier relatively easier levels. Sterling will remain weak against the euro, especially while interest rates are held down, giving an ongoing advantage to the value of Single Payments. Residential rents should remain strong while the housing market takes time to restart and income from non-agricultural sources through diversification is likely to remain an important factor on many farms. The actual features of each holding will have an increasing bearing upon its rental value, with a growing discount for those that are poorly equipped or no longer of a viable size.
