Three leading Scottish agricultural organisations have jointly issued guidance on the important area of rent reviews. The guidance provides an effective framework to minimise any risk to the industry that may arise from conflict around rent increases for tenanted farms.
NFU Scotland, Scottish Land & Estates (SLE) and Scottish Tenant Farmers Association (STFA) have been concerned about uncertainty around rents payable for 1991 Act tenancies in Scotland, and first issued industry led guidance designed to help tackle this in July 2014.
The latest guide has been compiled in association with the Scottish Government’s recently appointed Independent Adviser on Tenant Farming, Andrew Thin.
Recognising that the Land Reform Bill 2015 now contains proposals that may have an impact on the way in which rents are reviewed and calculated, the three organisations have decided to jointly issue revised guidance as an interim measure pending the Bill being enacted and coming into force.
The revised guidance asks all landlords and tenants to follow a simple step by step procedure in order to agree changes to rent through a shared, systematic, and transparent process which incorporates an additional sense test based on published data for UK inflation.
Support for and adherence to the guidance will be sought from all interested parties, and will be subject to ongoing review by the three signatory organisations.
The guidance seeks simply to provide robust encouragement and an effective framework in order to minimise any risk to the industry that may arise from conflict around rent values for tenanted farms.
The new guidance is itself an interim measure until provisions arising from the Land Reform Bill 2015 come into force, and the industry bodies will review their position before that stage. It is underpinned by three core principles, and these should be at the forefront of the thinking of both parties throughout the review process:
- Rent should be charged only on land and fixed equipment provided by the landlord, and should ignore any potential income contribution attributable to improvements or fixtures belonging to the tenant.
- Proposals and counter proposals should be presented in a form that is fully transparent, and they should contain sufficient detail to enable each party to understand and verify the other’s calculations.
- Each party should be afforded sufficient time to give full and careful consideration to proposals (and counter proposals) tabled by the other.
NFU Scotland’s President, Allan Bowie commented: “It is encouraging that once again, the three lead industry bodies together with the interim commissioner are able to publish further guidance at this early stage. This guidance should ensure that parties undertaking rent reviews have a clear process to follow, and it will go some way restoring confidence and trust within the let sector.”
Chairman of the STFA, Christopher Nicolson commented: “'This latest rent review guidance builds on the experiences gained from the use of the industry guidance published in July 2014. The two key changes are the requirement for transparency in the evidence used and greater flexibility around the use of the CPI index which should allow rents to follow changes in farm profitability and support payments where they have differed from the CPI index.
“This allows tenants who are experiencing reduced production margins and falling support payments to make a proposal for a reduction in rent.
“Current economic conditions in agriculture means that many tenants now have grounds for rent reductions, and this new guidance should provide a framework to adjust rents downwards in line with falls in overall farm profits.”
David Johnstone, Chairman of SLE commented: “The Scottish Government's own research demonstrates that, in the vast majority of cases, relationships between landlords and tenants are good and the guidance published today notes that a great many landlords and tenants have for generations agreed rent settlements between themselves without any problems.
“However, we also recognise there are exceptions to this and this guidance should help resolve any differences quickly and amicably. We firmly believe that there is a lot more that unites the industry than divides it and this guidance shows that when we all work together constructively it reduces the need for continual recourse to legislation which is surely in no-one's interests."