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Rent Reviews – Damned If You Do Damned If You Don’t!

The Referendum was conducted, from an agricultural perspective, in the context of:

  • CAP reform which has seen subsidies move up the hill
  • The introduction of competition for environmental schemes
  • Low commodity prices putting pressure on the arable sector
  • The residential element of farm rents continuing to increase
  • Scarcity of land continuing to drive up prices, albeit that arable rents have probably fallen back from the extreme highs seen a few years ago

Given this backdrop both landlords and tenants need to give careful consideration to the way in which future rent reviews are approached.

For those holdings where a review is to take place in the next few years, the position is made more difficult by the knowledge that Brexit is coming but with uncertainty over its outcome. Notwithstanding this, in practice it is unlikely that prior to 2019 there will be a wholesale change in the subsidy regime. Indeed a weaker pound will increase the BPS receipts for farmers if the exchange rate remains at it’s current level.

Our experience is that contentious rent reviews can cost a lot of money to resolve; £100,000, including arbitrator’s fees being within the bounds of possibilities.

For those who have a rent review this year our advice would be to properly consider your position at an early stage and research your market evidence and budgets in order to fully understand your position.

In light of the above you should establish the parameters within which you would hope to reach a settlement and if the discussions look as though they are going to involve Third Party Determination then you should consider making an early offer of settlement at a level, which at that time, you consider beyond your comfortable range. The rationale for this is that in the event that the matter is determined by an arbitrator then a Calderbank Offer* at this level gives you the best prospects of recovering fees which will escalate rapidly as you approach the Arbitration.

During rent reviews a lot of correspondence is conveyed on a without prejudice basis. On the basis that you should only say what you mean and mean what you say, you should not be afraid to express a properly evidenced opinion in open correspondence. Indeed being able to establish that you have been acting reasonably throughout gives you the best prospect of success. By corresponding on a without prejudice basis you are unable to do so because that correspondence is inadmissible to the arbitrator.

We would recommend that parties adopt a fair and open approach to the negotiations but that they also carry proper insurance (which will pay out irrespective of the means of settlement following the appointment of an arbitrator). This allows you to make decisions regarding the rent which are based on that properly payable rather than being influenced by a decision regarding fees.

It is probable that the tensions which exist at the moment between a pressure on incomes, uncertainty around BPS and a scarcity of land means that rent reviews for the next few years are likely to be contentious.

If you have a rent review and are in need of advice regarding this, please do not hesitate to contact one of our Rural Land and Business Team.

*This is an offer to settle which is given to the Arbitrator, but is only read by them after they have made their award. At this point, they will consider how reasonable it would have been for the recipient to accept the offer. If they consider that the offer should have been accepted, they can award the recovery of costs from the date of the offer.

For more information contact:

[team-member name=”Calum Gillhespy”]

 

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