Rent review top tips for tenants and landlords
© Adobe Stock With one of the main deadlines for serving notice of a farm tenancy rent review fast approaching, tenants who expect their income to be affected by forthcoming changes to the subsidy system and higher input costs are being urged to be proactive.
The Tenant Farmers Association (TFA) says with many factors combining, tenants could be in a strong position to make the case for a downward review of their rent.
TFA rural surveyor Sara Sumner says the reduction and future total loss of the Basic Payment Scheme, combined with the considerable unknowns of new farming schemes and sharp price rises in farm inputs, all have an influence.
See also: How new review method could make rents more sustainable
“Tenants that are going to argue a downward review of their rent will need to be looking carefully at their budgets, as it is likely that they will need to heavily rely on this evidence to fight for a reduction,’’ Mrs Sumner advises.
Tenants will also be in a variety of positions with how rent is calculated under their tenancy agreement, she adds.
Here, Mrs Sumner gives her top tips on what tenants – and landlords – need to know ahead of the 25 March Lady Day rent review date.
Consider the timeframe of a notice period
In most cases, tenants or landlords who wish the rent to be reviewed must give at least 12 but no more than 24 months’ notice, in writing.
Be aware of the applicable rent review date
The rent review date will be specified in the tenancy agreement – although no notice is required with some farm business tenancy (FBT) agreements – and the notice must be served in line with that.
One of the main quarter days used in farm tenancies is 25 March, known as Lady Day, and it is therefore also one of the main dates upon which rent reviews take place.
Use the correct notice format
There are formal notices that parties must use.
An Agricultural Holdings Act 1986 (AHA) tenancy must use a Section 12 notice from the 1986 Act, and for an FBT, a Section 10 notice from the Agricultural Tenancies Act (ATA) 1995 must be used.
Have evidence that a notice has been served
Notices should be served in writing and tenants should have evidence that they have served the notice, for instance confirmation of registered post or, if hand delivered, that it is signed for.
Don’t get caught out on a technicality
When serving a notice it is important that the names of the parties are correctly written on the notice – using the wrong name can deem a notice invalid.
The other party can use a notice not acted upon
If a notice was served by either party last year, the other party can pick up the baton on negotiations and, if necessary, appoint an arbitrator to continue discussions.
For instance, if a landlord served a notice correctly last year but is not acting upon it, a tenant could use the trigger notice themselves if they felt they had the evidence, and enter negotiations to review the rent.
Be aware of the notice expiry date
If a notice was served last year and neither party acts upon it or applies for the appointment of an arbitrator, the notice will simply expire.
Appoint an arbitrator if negotiations have halted
If a tenant and landlord are negotiating, but an agreement is not made by the review date, either party could appoint an arbitrator to allow those negotiations to continue.
The appointment of an arbitrator doesn’t mean that it will reach an arbitration hearing – in fact, the majority are settled before a hearing.
Third-party determination is also available
If the parties agree, they can appoint a third party expert to determine the rent instead of going to arbitration.
Calculating rent rates
Statutory rent review formulas vary depending on which act governs the process, so rent is calculated in different ways.
An Agricultural Holdings Act (AHA) 1986 rent is reviewed on the basis of the rent on which the holding might reasonably be expected to be let by a “prudent and willing landlord to a prudent and willing tenant”, taking in relevant factors such as the terms of the tenancy, the character and situation of the holding, the productive capacity and the related earning capacity.
The current level of rents for comparable holdings will also be considered.
Any improvements made by a tenant must be disregarded at a rent review, says Mrs Sumner.
“It is very important that tenants prepare budgets looking forward three years, as best as possible, that a prudent and willing tenant would achieve from the holding to gauge the level of rent,’’ she says.
If the matter goes to arbitration, these budgets will be scrutinised and relied upon as evidence.
“Comparable evidence must be of a holding let under similar terms – a farm business tenancy rent would not be directly comparable to an 1986 AHA,’’ Mrs Sumner advises.
The default position of a farm business tenancy (FBT) under the 1995 Agricultural Tenancies Act for rent is that at which the holding might be reasonably expected to be let on the open market by a willing landlord to a willing tenant, taking into account relevant factors such as the terms of the tenancy.
“With a greater freedom to contract, other rent review formulas may have been elected within an FBT, so it is important that tenants check the basis of the rent review within the terms of their tenancy before taking further action,’’ Mrs Sumner warns.