Rent Reviews Under The Agricultural Holdings Act 1986 by Michael Bax

The statutory rent review formula in the 1986 Act has caused much consternation during the last 18 months and yet seems to me to be a very helpful guide to practitioners on the issues that require to be taken into account. Effectively, it requires the parties to use commonsense in arriving at a sustainable level of rent taking account of all relevant factors including the productive and earning capacity of the holding and levels of comparable rental settlements.

The autumn 2008 reviews were the first reviews on many holdings for approx. ten years and it is extraordinary how the experience of the profession in dealing with such matters appears to have waned.

Furthermore, landlord’s agents seem to be driven by the aspirations of their clients who are aware of the level of open market rental values on new FBT bare land lettings and appear to expect to see those levels on 1986 Act reviews. The open market is a very different place to the market envisaged by the 1986 Act rent formula and a lot of time and money has been wasted because of the failure of practitioners to recognise that.

When Agricultural Holdings rent reviews were a regular feature of a land agent's year, practice was to make a new rent proposal in June with the hope of agreement prior to harvest. All parties were well acquainted with procedures and there was generally little difficulty.

At the recent rounds of rent review, the vast majority of proposals were only received during the month prior to the review date. Very few were settled and dozens of arbitrator’s appointments were required in order to keep situations open. I myself took on ‘57 longstop’ arbitrator’s appointments for Michaelmas 2008, some of which are still open today.

Budgets on the landlord’s side were produced which did not reflect reality and the greatest angst arose where a pre-rent surplus was identified, from which a rental value would be derived, but to which landlords then sought to attach a residential value for the farmhouse, representing a proportion of open market residential value.

It is true that when analysing comparables, the profession finds it convenient to place a value on house, cottages, land and buildings separately, but that is for the purpose of analysis and enables comparison of different holdings with different features. So far as the farmhouse is concerned, it is part of the fixed equipment of the holding and virtually all tenancy agreements require the tenant to reside in the farmhouse, with an associated burden of repair. A tenanted farm can only afford to pay a proportion of its farming income in rent and it is completely spurious to identify that proportion and then seek to enhance it with a notional residential value. The text of the 1986 Act rent formula does not propose that at any point and would become meaningless if it did so.

Of course, a tenant should expect to share rents received on sub-let cottages, and whilst there is some logic in applying a nominal rental value to employee cottages they are also effectively part of the fixed equipment of the holding and help to generate the holdings earning capacity. No wonder professionals talk about practice – some of our colleagues need a lot of practice on this one!