For tenant farmers the question of rent reviews can be a sticky subject, especially given the last few years of widely fluctuating commodity prices and extremes of weather, writes Julian Davis.
In most cases the tenancy allows for a baseline review cycle of three years so the reaction to financial and climatic change can be a slow process. You can never assume a commodity ‘peak’ or ‘trough’ is the correct level at which to set your profit calculations, although the trough will be an important part of your calculations. Then of course, you have to negotiate with the landlord (or agent). Generally there are two types of tenancies; those made under the Agricultural Holdings Act (AHA) and those made after tenancy reform, Farm Business Tenancies (FBT). The rent review process differs for each, although many land agents try to use the FBTs to over-influence the rents under AHAs. Under an AHA the primary part of the rent negotiation is based on profit calculations for the land in question, not necessarily on the tenant’s business but on what a reasonably competent farmer would achieve; the profit divided 50:50. After this the process then looks to ‘comparables’ to gauge what rents are being paid on other similar farms. However, it would appear that this initial calculation to justify a rent review under an AHA is now overlooked by some land agents in preference for manipulating ‘comparables’.