Deciding On An Alternative Rent Review Mechanism For A Farm Business Tenancy.

We were approached by a tenant client who had agreed with a local landowner to take a tenancy off market. They had agreed on a starting rent, but he wanted to use a rent review formula that wasn’t the normal market value approach.

How We Approached The Project

In the first instance we went through the alternative rent review mechanisms available in FBTs. Generally speaking, a landlord and tenant can agree what they like, but the normal alternatives to a market value rent review are as follows:

• Variations by or to a specified amount – the rent in year one will be £1,000 per annum, £2,000 in year two, OR the rent will increase by £100 per annum.
• The AHA rent review mechanism which includes the productive capacity of the holding as well as other parameters.
• Formulaic rent review.
• No review during the term.

If no alternative rent review is included in the agreement or the agreement is not in writing, the statutory review is the default. Any alternative review mechanism needs careful drafting.

How We Achieved The Project

The client’s main objective was for the rent formula to take in to account the reduction in Basic Payment Scheme (BPS) payments going forwards.

We decided the most appropriate mechanism was a rent formula. We discussed the following formula:

The per acre rent will be the same as the initial rent (£145 per acre) minus the reduction in BPS payment from the initial year.

i.e. If the BPS payment reduces by £10 per acre, the rent will be £135 per acre.

We acted as agent for the tenant and proposed the formula to the landlord who was agreeable with the suggestion.

It is usual for the landlord’s agent to draft the agreement, so we reviewed the draft for our client and ensured it was legitimate and revoked the default position of market value for the rent review process as well as ensuring the formula was thoroughly drafted.