Reaching agreement on the appropriate rent for an agricultural holding is one of the key interactions that take place regularly between landlords and tenants, and their agents.
If handled well, it is a process that will result in an outcome both parties are broadly satisfied with.
However, if not properly handled, rent reviews can be a source of dispute and disagreement that leaves one party or the other angry and disgruntled and risks permanently souring the relationship between landlord and tenant.
That’s why I’ve published a new Code of Practice on Conducting Rent Reviews with a clear and practical, step-by-step approach to conducting a rent review.
The code is designed to help tenants and landlords reach agreement via transparent and objective consideration of all the relevant facts and circumstances.
The new code describes the key principles that should underpin a rent review. Perhaps the most important of these is that rent reviews must be conducted as a negotiation and not as a ‘take it or leave it’ approach.
It offers practical guidelines on how to initiate and conduct a rent review including a suggested timetable for negotiations and valid sources of evidence that should be used to underpin a review.
It also includes suggestions on how to resolve disagreements between the parties and how parties can make a complaint about breaches of the code.
The code states that rent must only be charged on land and fixed equipment provided by the landlord and must ignore any potential income contribution attributable to improvements and fixtures provided by the tenant.
It’s also important that proposals and counter proposals contain sufficient detail to enable each party to understand and verify the other’s calculations.
And in situations where comparable rents are offered as evidence, they must be appropriately adjusted to account for differences between the comparison holding and the holding where the rent is under review.
The code also sets out the relevant factors that should be considered in rent reviews, alongside those that should be disregarded.For example, factors such as the current economic conditions in the relevant sector of agriculture, and any increase in the rental value of the holding resulting from the use of the land for a non-agricultural purpose, should be considered.
However, other factors can be disregarded, including any distortion in rent due to scarcity of lets and improvements carried out by the landlord for which they have already, or will, receive a grant.
Put simply, rent is only payable in respect of the land and fixed equipment provided by the landlord, whether at the start of the lease or later. If such work was grant aided from public funds, rent cannot be charged on it.
Where the cost of an improvement is shared between landlord and tenant, rent can be charged on the landlord’s share.
It follows therefore that a rent review must be informed by a full understanding of the extent of tenants’ improvements and fixtures not belonging to the landlord.
At the end of the day, the aim is to determine the rent at which the holding might reasonably be expected to be let in the open market by a willing landlord to a willing tenant after taking account of certain factors.
To download a copy of the new code click here.
Meanwhile, there are only a few days left in which to sign an amnesty agreement ahead of the December 12 deadline.
I would urge all landlords and tenants to ensure they have a signed agreement covering all the improvements where there is no dispute, leaving only those where there is disagreement to be the subject of a formal amnesty notice.
For more information about the amnesty, click here or get in touch on 01463 423 300 or send and email to email@example.com
- Bob McIntosh is Scotland’s Tenant Farming Commissioner.