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Post Brexit – Agricultural Tenancy Matters

We continue to work through uncertain times following the Brexit vote and whilst Article 50 remains un-served, the insecurity continues.

In the short term, UK Agriculture has seen a boost to the red meat industry, with improved cattle and sheep prices following a weakening of the pound against the euro.  It is hoped this in turn will make UK produce across the board more attractive to overseas buyers.

In the medium to long term, the UK Treasury has now made a commitment to Pillar 1 funding, which is currently being paid by the EU through the Common Agricultural Policy, until 2020; providing some reassurance.   As to the long term future, uncertainty remains.  Undoubtedly both tenants and landlords alike will be considering their position during the transitional period before we leave the EU.  Any reduction in agricultural support will have a serious knock on effect to many farm businesses financial stability, which in turn will have an effect on farm rents.

Farmers/landowners who have agricultural letting agreements which are likely to come to an end before 2020, or for those about to negotiate terms for agreements which will exceed 2020 will naturally be questioning how they take the potential consequences of the recent Brexit vote into account as part of the negotiations, to ensure they do not leave themselves in an untenable position.

A recent paper from The Central Association of Agricultural Valuers (CAAV) has identified two key areas which require particular thought:

Break Clauses

At present break clauses are not widely incorporated into agricultural tenancy agreements. However, moving forwards this may be an option for both tenants and landlords should Brexit changes result in a holding becoming economically untenable. The difficulty with this option arises in knowing when is the best time to trigger the clause, particularly with a twelve-month time delay in the notice taking effect. Options to consider could include:

  • providing the ability to terminate the fixed term on any (term?) date with twelve months’ notice
  • providing a timed opportunity for a break clause to take effect on, for illustration, the term date following the tenancy year in which the UK withdraws from the EU, so allowing the opportunity to know something of the new world and for twelve months’ notice period
  • perhaps more relevant in the context of longer term tenancies, providing regular opportunities for a break to be exercised, as, say, at stated dates on a three, four or five yearly cycle.

Rent Reviews

In principle, changes in economic situations are normally reflected in rent reviews (dependent on what provisions are agreed in the tenancy). Again the issue is dealing with the unknown and the associated time delays before a considered view of the economic market can be established. Options to consider could include:

  • When looking at a new agreement, negotiating a date for a first rent review taking into account both the statutory notice period and allowing a timeframe to take a considered view on the economic conditions
  • There may be some merit in considering a rent variation provision, with a formula linking rental value to subsidy or commodity levels, however there is still the potential for unpleasant surprises, should unforeseen circumstances influence prices, such as low yields driving higher prices.

The industry faces many uncertainties over the coming years and those reviewing existing arrangements or considering new arrangements should act with caution to ensure they consider all eventualities.

For further impartial professional  advice, please do not hesitate to contact:

[team-member name=”Lucinda Riddell”]


Article kindly produced by: [team-member name=”Tom Richardson”]

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