News In Focus
Agreement reached on farm rent review system
An industry led initiative designed to improve confidence in the rent review process for farm tenancies in Scotland has been agreed by the three main membership organisations representing landowners and tenants.
NFU Scotland (NFUS), Scottish Land & Estates (SL&E) and Scottish Tenant Farmers’ Association (STFA) together launched the proposals, intended to apply to tnancies under the Agricultural Holdings (Scotland) Act 1991. The scheme is voluntary but is intended to ensure stability until any emerging recommendations from the Agricultural Holdings Legislation Review Group can be implemented in legislation.
The initiative also follows a number of recent rent determinations in the Land Court which have given rise to some uncertainty about future rent levels. Believing that predictability about future rent levels for tenanted farms is fundamental to a healthy rented sector within Scottish agriculture, the groups want to create the conditions to allow landowners and tenants to plan and invest with a degree of confidence.
On process, rent reviews will continue to be carried out as normal. However, where agreement cannot be reached, the new agreement requires landowners and tenants to have followed existing guidelines on rent reviews, and introduces an additional "sense check".
The initiative will be subject to voluntary self-regulation through a review panel comprising senior office bearers (or recent former office bearers) from the three organisations, who will examine a case and assess whether it passes a "reasonableness test". It works on the principle that, in the absence of exceptional factors, rent adjustments – whether requested by a landowner or proposed by a tenant – should broadly be aligned with inflation as measured by the Consumer Price Index (CPI) and should reflect changes in the CPI index since the last formally recorded rent review. In cases of long overdue rent reviews, additional guidelines have been agreed to ensure that rent increases are implemented in a series of reasonable steps.
Statutory requirements for rent reviews will continue to apply. The initiative seeks simply to ensure that statutory requirements and published Tenant Farming Forum guidelines are followed by all in a reasonable manner, and does not affect landowners’ and tenants’ rights under the 1991 Act.
Cases that are already in the Land Court process will not be referable to the new panel.
Nigel Miller, President of NFU Scotland commented: “With the final report of the Ag Holdings review group due in December, ongoing and future rent reviews face continued concerns over both rent determination and the Land Court. In that brittle negotiating environment, some form of stability is vital. As an interim measure, this initiative can be a game changer provided those on the ground buy in to the process.
“A sustainable rent test linked to a robust inflation index must make sense for all those involved and can move rent determination away from confrontation to focus on the economic potential of the holding. The low cost rent review panel opens the door to an objective review of the rent determination process and the protocols to ensure balance and avoid the costly shadow of the Land Court weighing on negotiation."
David Johnstone, chairman of Scottish Land & Estates, observed: “The vast majority of farm rents are agreed amicably and represent good value and there is plenty of evidence to suggest that the actual rent review process, as it stands, works. However, we recognise the concerns of some landlords and tenants who feel that when agreement cannot be reached the cost and angst of a protracted process that in a few cases can end up in the Scottish Land Court is something that should be avoided if possible.
“This interim agreement provides another voluntary mechanism and sense check. Rent reviews should continue as normal but this initiative should give the industry more comfort and confidence. It is both refreshing and reassuring that all the parties have come together to create this unified interim recommendation as we all recognise the importance of a healthy tenanted sector."
STFA chairman Christopher Nicholson added: “The method of setting farm rents in Scotland has been a long standing concern of STFA, and recent court cases have demonstrated the difficulties and uncertainties of relying on the current legislation to set a viable and sustainable rent. Until new legislation can be put in place, this measure should return an element of control to rent determinations, and with the backing of all stakeholders sends a clear message from the industry that rent reviews should be conducted responsibly and in accordance with published guidelines.
“With the tenanted sector under scrutiny while legislation is being reviewed, it is in everyone's interest to support this joint initiative and follow the guidelines which aim to set sensible rents without the stress, costs and uncertainties that have become associated with rent reviews. All tenants undergoing a rent review are strongly advised to get in touch with their representative organisation for further guidance.”