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Farm Rents Remain Good Value Say Landowners

Scottish Land & Estates issued the following press release last Friday to counter the growing misinformation about farm rents, that are appearing in the press and in the light of the Moonzie Case.  We have been working within the Tenant Farming Forum (TFF) process with the other member organisations (STFA, NFUS and the RICS) and will continue to do so for the good of all of those involved within the sector.

FARM RENTS REMAIN GOOD VALUE SAY LANDOWNERS

Scottish Land & Estates, which represents 2,500 landowners across Scotland, said today farm tenancy rent increases effective from this May should be viewed firmly in the context of Scottish agriculture enjoying a period of good profitability and the length of time between reviews.

Douglas McAdam, Chief Executive of Scottish Land & Estates, said the recent Moonzie appeal decision is not the reason farm rents may increase. He said the most significant factor in any negotiated change in rent is viability of agriculture which has enjoyed a particularly successful period across most sectors since 2008.

Mr McAdam said farm rents, particularly for traditional tenancies with full security of tenure, are generally accepted across the industry as good value for money and warned against a ‘kneejerk reaction' and an 'uninformed debate' next week.

The overwhelming majority of rent reviews on agricultural holdings in Scotland are agreed between landlord and tenant without any form of arbitration.

Mr McAdam said: “There has been a lot of debate recently about rent reviews, particularly in view of the Moonzie decision. The evidence available for this year and last year shows that the Moonzie appeal has not had a destabilising effect on the tenanted sector in terms of rents. Rental levels appear to be determined more by other factors. Moonzie has clarified the process but won't in itself result in a step change.

“The evidence from last year’s reviews is that all but a handful of cases are agreed and the feedback we receive is they are agreed in a professional and amicable manner.

“It is quite clear that when notices of reviews are sent out to tenant farmers, landlords will, where appropriate, seek rent increases.

"Increases have to be seen in the context of when they were last reviewed, the nature of the farm and the success of the sector. In some cases rent rises may be substantial but that will depend on how well the type of farm has been doing and how long it has been since the last review. Equally, when agriculture was in the economic doldrums farm rents were not reviewed, sometimes for up to 15 years. As farming fortunes turned around so rents began to rise too, but rather than this realignment to the market taking place over one rent review cycle, many landlords have sought to smooth this over several cycles of rent reviews.

“Furthermore, percentage increases are often misleading. What we should be looking at are the real costs of farm rents. The fact is that the rent of a farm, with a few hundred acres, a good farmhouse and buildings is the equivalent of the rent for a small family home or a city flat. In general farm rents represent excellent value for money and an affordable business cost."

“A let farm remains the most likely point of entry for a new farmer - if they can cross the other barriers to entry – and the sector would benefit from a period of stability in the agricultural holdings environment.

“Farm rents remain just one of the costs of running a farm and are often a relatively modest one compared with other operational costs - or a mortgage if you own the farm.”

Scottish Land & Estates asked two leading land agents to conduct a benchmarking exercise and provide an "average" rent for a common farm type and size and also to assess the approximate cost, income and margin for a particular farm type.

COMMON TENANCY RENT

The data provided shows an average traditional farm tenancy with 286 acres and two houses was commanding an average rent of £13,442 per annum, plus VAT.

If the landlord rented the two houses separately he would receive on average £8,000 rental leaving an annual rent for 286 acres of £5414, or £18 per acre.

COST AND INCOME EXAMPLE

The example used is based on:

A 500 Acre arable farm, land classification 3(1) and 3 (2). 5 bedroom stone built farmhouse. 1 x 3 bedroom farm cottage. Range of farm buildings including grain storage. Cropping rotation including oil seed rape, wheat and spring barley. No livestock. Rent:£65 per acre – £32,500pa.  

The farmer receives:

A farmhouse which would rent for approximately £9,600 pa. A Cottage which would rent for approximately £5400 pa . Farm buildings providing facility with which to store farm materials – rental value £2,000 pa. Fire insurance and contribution to repairs approximately £2,500 pa. 500 acres of arable land to farm.  

Income/Margin:

Total gross income would be approximately £290,000 including Single Farm Payment

Total costs (including rent) are would be in the region of £200,000, leaving a potential margin of £90,000.

OTHER RENT EXAMPLES

Actual examples supplied by Scottish Land & Estates members:

  • 150-acre dairy farm, plus farmhouse. £8,000 per annum plus VAT – less than the cost of a rented family home.
  • 218-acre mixed stock farm, plus house. £5200 per annum plus VAT – less than a rented three bedroom cottage.
  • 320-acre upland farm, plus house. £5400 per annum plus VAT. =- the cost of a rented city flat.

Mr McAdam added: “Rent levels continue to be varied. Some rents this year will not be reviewed but others will. The most important thing to remember is that it is in both the landlord’s and the farmer’s interest to agree a sustainable rent which works for both parties. The idea that rents are imposed is misleading and inaccurate, it is a business negotiation between two parties undertaken through a regulated process and one recently clarified in law.”

In the leading land agents' survey, out of 298 reviews carried out last year, only five cases were unable to reach agreement and have been referred to the Land Court in order to settle the issue. The survey of reviews was carried out among 20 large estates and land agencies, including CKD Galbraith, Strutt and Parker, Bell Ingram, Smiths Gore, Bidwells and Savills.

Mr McAdam said: “Our stated policy is that rent reviews should be carried out regularly and we believe that to be in the interests of both the landlord and the tenant.”

The press release was also covered the in the following publications:

The Herald – ‘Farming rents good value, says landlords’ group’

Press & Journal – ‘SLE claims over farm rent deals trigger fresh row’

The Scotsman – ‘Row growing over ‘Moonzie effect’ on farm rents’

Land Gazette – ‘Scottish farm rents are good value say landowners’

 

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