smiths gore | agricultural rent database 2012
DESCRIPTION
This review provides details of the average rents agreed at rent reviews, re-lettings and new lettings in the 12 months to 31 October 2011, alongside a review of over 1,200 agreements covering 334,00 acres settled in the last three years (between November 2008 and October 2011).TRANSCRIPT
Agricultural rents rose by 25% in 2011
Smiths Gore Agricultural Rent Database 2009-2011Information from 1,200 rent settlements covering 334,000 acres
smithsgore.co.uk
April 2012
Agricultural rent databaseThis review provides details of the average rents agreed at rent reviews, re-lettings and newlettings in the 1122 mmoonntthhss ttoo 3311 OOccttoobbeerr 22001111, alongside a review of over 1,200agreements covering 334,00 acres settled in the last three years (bbeettwweeeenn NNoovveemmbbeerr 22000088aanndd OOccttoobbeerr 22001111).
Our database now contains details of over 1,700 agreements since 2007, covering over halfa million acres in England, Scotland and Wales. It is one of the most comprehensivedatabases available in Great Britain.
Please note that the rents shown are averages and that there can be considerable variationin rent either side of the average depending on the location and quality of the holding andits fixed equipment. Some rents have dropped, usually when properties are taken out of thetenancy agreement, and others increased by well over 100%. This analysis focuses on whatmight therefore be described as trends.
Our surveyors use the database as a source of information when they are conductingreviews.
Demand for farm land for rent remains very strong, due to competition between farmersseeking to expand and spread fixed costs.
If you are a landowner, landlord, tenant or are looking to contract or share farm land,please contact our local team to discuss the options available to you. They can advise youon the best course of action to suit your circumstances and can then implement it. They willalso have details of land in your locality that is available to rent. Their contact details are atthe back of this report.
Rupert Clark Petworth officeHead of Rural Practice01798 [email protected]
Simon BlandfordWinchester officeHead of Farm Management01962 [email protected]
Rents that were reviewed in the year to 31 October 2011 rose by an average of25%, and the outlook for future reviews is good too.
0%
5%
10%
15%
20%
25%
30%
35%
Year to 31 October
2009 2010 2011 2009-2011
AHA FBT Scottish Tenancies Overall average
Rent reviews: Average percentage increase achieved(all farm and tenancy types)
Growth by farm type2011 Strong rental growth in all farming sectorsRents for all types of tenancy agreed in the 12 month period to 31 October 2011 increasedby an average of 25%. This is greater than in 2009 and 2010. Due to the diversity of farmsthere is considerable variation in the rents agreed, as illustrated by the graph below whichshows the rent agreed at each review in pounds per acre.
Arable and livestock rents increased the most. The average increase in dairy rents topped20% for the first time since we began gathering data in 2007.
Whilst commodity prices have softened from recent highs, the medium term outlook for reviews remains positive.
New rents agreed by farm type in year to October 2011
2009 to 20111 21%average increase
The average increase in rent settlements in the last three years has been 21%.
For the average sized farm in the database, this has meant an increase in rent of £3,500a year– so just over £10,000 over a three-year rent review cycle.
All sectors have experienced increases, with the largest being in the arable sector. Mixedfarms and dairy farms have experienced the lowest average increases over the threeyear period.
New rents agreed by farm type 2009-2011New rent(£/acre)
Old rent (£/acre)
Percentagechange
Number of reviews
Area reviewed
Arable £94 £68 31% 137 28,585
Dairy £74 £63 21% 29 5,447
Livestock £68 £51 30% 119 28,300
Mixed £72 £63 15% 117 30,362
Overall average £79 £62 25% 406 92,971
New rent(£/acre)
Old rent (£/acre)
Percentagechange
Number of reviews
Area reviewed
Arable £87 £68 26% 312 59,772
Dairy £71 £62 15% 144 30,131
Livestock £48 £39 24% 397 160,003
Mixed £67 £58 16% 315 75,209
Overall average £68 £56 21% 1,234 334,029
1 “2009 – 2011” and “last three years” relates to the period between 1 November 2008 and 31 October 2011
Distribution of rents agreed in year to 31 October 2011
20
40
60
80
100
120
140
160
180
25 50 75 100
NNeeww
rreenntt
((££//aa
ccrree))
LLoowweesstt rreenntt ttoo hhiigghheesstt rreenntt ((eexxcclluuddiinngg tthhee ttoopp aanndd bboottttoomm 55%%))
Lowerquartile
MedianUpperquartile
Arable £67 £80 £105
Dairy £68 £75 £85
Livestock £35 £63 £81
Mixed £35 £66 £76
▲
The top 25% of arable rents are all over £105 per acreDairy rents are in a relatively narrow band between£68 - 85 per acre (this is the middle 50% of rents)Livestock rents are the most variable - due to thequality of grazing and buildingsSome rents for mixed holdings are now greater than£100 per acre
Growth by tenancy type2011 Strongest increases for FBTs
Farm Business Tenancy rents rose by 33% as rent review clauses in the tenancies allowrents to be revised to current open market levels. Agricultural Holding Act rents rose by20% reflecting the less open market nature of reviews under this type of tenancy.Scottish rents increased by an average of 15%, at least in part affected by the MoonzieCase (See Scottish View).
For Agricultural Holdings Act and Scottish tenancies, these rates of increase are consistentwith the three year average. However, Farm Business Tenancy rental growth during thelast 12 months has been significantly higher than in the years to October 2009 and2010, influenced by the strong results from recent open market lettings.
New rents agreed by tenancy type in year to October 2011
2009to 2011Livestock farms have highest percentageincrease for each tenancy type
A considerable difference remains between national average Farm Business Tenancyrents and Agricultural Holdings Act tenancy rents, of nearly £25 per acre. Overall FarmBusiness Tenancy rents have increased by 26%, compared with 20% for those ofAgricultural Holdings Act tenancies. Across all types of tenancy, livestock farm rentsincreased the most in percentage terms.
New rents agreed by tenancy type 2009-2011
New rent(£/acre)
Old rent (£/acre)
Percentagechange
Number of reviews
Area reviewed(ac)
AHA
Arable £80 £64 25% 74 17,786
Dairy £77 £64 25% 17 3,488
Livestock £69 £59 21% 33 7,196
Mixed £68 £60 14% 74 22,305
AHA average ££7733 ££6622 2200%% 119988 5500,,777766
FBT
Arable £112 £73 40% 57 9,982
Dairy £74 £64 15% 11 1,762
Livestock £93 £66 42% 52 5,626
Mixed £89 £79 18% 34 5,850
FBT average ££9988 ££7711 3333%% 115588 2233,,449977
Scottish
Tenanices
Arable £82 £76 8% 5 648
Dairy n/a n/a n/a n/a n/a
Livestock £24 £21 18% 21 14,180
Mixed £44 £39 13% 9 2,206
Scottish average ££3377 ££3344 1155%% 3366 1177,,223311
Overall average ££7799 £62 25% 406 92,971
New rent(£/acre)
Old rent (£/acre)
Percentagechange
Number of reviews
Area reviewed(ac)
AHA
Arable £73 £60 22% 163 36,927
Dairy £73 £64 16% 87 16,909
Livestock £49 £40 25% 119 44,955
Mixed £66 £56 17% 182 50,177
AHA average ££6666 ££5566 2200%% 555588 115522,,110099
FBT
Arable £103 £77 31% 140 20,881
Dairy £81 £70 15% 36 5,603
Livestock £78 £58 33% 119 18,102
Mixed £84 £75 15% 88 13,063
FBT average ££9900 ££7711 2266%% 440022 6600,,555511
Scottish
Tenanices
Arable £83 £75 12% 8 1,795
Dairy £39 £36 9% 20 7,580
Livestock2 £23 £20 17% 114 70,323
Mixed £43 £38 14% 44 11,966
Scottish average ££3322 ££2288 1155%% 118877 9911,,999900
Overall average ££6688 £56 21% 1,234 334,029
n/a means either no or too few reviews carried out to show reliable data; Scottish tenancies includes 1991 Act / SLDT / LDT / Statutory Landholdings 2 Scottish livestock rents per acre are lower than in England as the average farm size is much larger in Scotland
Growth by region and farm type2011 Eastern England rents increase the most
Rents have risen in all regions, with the highest rises in eastern England, on arable farmsand also livestock farms in western England and Wales.
New rents agreed by region and farm type in year to October 2011
2009 to 2011 Eastern and northern England top rises
New rents agreed by region and farm type 2009-2011
New rent(£/acre)
Old rent (£/acre)
Percentagechange
Number of reviews
Area reviewed(ac)
East
Midlands
and Yorkshire
(EM&Y&H)
Arable £82 £59 26% 49 8,942
Dairy £85 £72 20% 4 1,030
Livestock £62 £52 23% 6 3,647
Mixed £91 £78 18% 8 2,281
Region average ££8811 ££6622 2244%% 6677 1155,,990000
Eastern
England
(SE&E)
Arable £106 £73 38% 60 15,661
Livestock £57 £42 33% 7 1,703
Mixed £85 £71 19% 25 12,074
Region average ££9966 ££7700 3322%% 9922 2299,,443399
Northern England
(NE&NW)
Arable £103 £80 15% 5 643
Dairy £75 £63 20% 13 1,548
Livestock £69 £58 23% 41 5,690
Mixed £91 £70 36% 6 1,474
Region average ££7766 ££6622 2233%% 6699 99,,663322
Scotland
Arable £82 £76 8% 5 648
Dairy n/a n/a n/a n/a n/a
Livestock £24 £21 18% 21 14,180
Mixed £44 £39 13% 9 2,206
Region average ££3377 ££3344 1155%% 3366 1177,,223311
Western
England & Wales
(SW,WM&W) Arable £86 £66 31% 18 2,690
Dairy £73 £63 23% 11 2,673
Livestock £93 £65 44% 44 3,081
Mixed £68 £61 11% 69 12,327
Region average ££7788 ££6633 2244%% 114422 2200,,777700
England, Scotland & Wales £79 £62 25% 406 92,971
New rent(£/acre)
Old rent (£/acre)
Percentagechange
Number of reviews
Area reviewed(ac)
East
Midlands
and Yorkshire
(EM&Y&H)
Arable £75 £59 23% 126 20,375
Dairy £80 £66 22% 12 2,271
Livestock £59 £50 20% 14 4,581
Mixed £71 £62 15% 41 10,883
Region average ££7733 ££6600 2211%% 119933 3388,,110099
Eastern England
(SE&E)
Arable £103 £77 31% 111 26,756
Dairy n/a n/a n/a n/a n/a
Livestock £52 £40 30% 16 2,912
Mixed £84 £72 19% 42 17,277
Region average ££9933 ££7733 2277%% 118822 5511,,666677
Northern England
(NE&NW)
Arable £91 £71 24% 17 4,436
Dairy £71 £61 17% 60 10,096
Livestock £53 £42 27% 139 49,762
Mixed £64 £51 23% 26 9,792
Region average ££6633 ££5511 2244%% 225522 7755,,995599
Scotland
Arable £83 £75 12% 8 1,795
Dairy £39 £36 9% 20 7,580
Livestock £23 £20 17% 114 70,323
Mixed £43 £38 14% 44 11,966
Region average ££3322 ££2288 1155%% 118877 9911,,999900
Western
England & Wales
(SW,WM&W) Arable £79 £65 25% 50 6,410
Dairy £80 £71 14% 51 9,512
Livestock £67 £56 29% 114 32,424
Mixed £70 £61 15% 162 25,291
Region average ££7733 ££6633 1199%% 442200 7766,,330055
England, Scotland & Wales £68 £56 21% 1,234 334,029n/a means either no or too few reviews carried out to show reliable dataNB These figures are based on all reviews, and so include a range of tenancy types
The effect of houses and farm buildings
Over the last three years, equipped holdings have continued to yield higher rents thanbare land lettings, with a greater premium for Farm Business Tenancies compared withAgricultural Holdings Act tenancies.
Rental values of equipped holdings are affected by the quality and quantity of buildingsavailable. Over the last three years, rents on poorly equipped holdings have remainedlower than those on well or averagely equipped holdings, although they have seenslightly higher levels of growth in percentage terms.
The effect of land quality – premium rents for premium land
Soil quality has a significant influence on rents; higher quality land commands higherrents. This is true for all tenancy types and is not surprising as rents are generally linked tothe holdings’ productivity. Rents for Grade 1 and 2 land have risen the most inpercentage terms over the last three years. Average Grade 1 rents are now 47% higherthan Grade 3, compared with 28% before these reviews were undertaken.
Tenancy type
Arable Dairy Livestock MixedOverall average
Bare landAHA £77 £52 £39 £56 ££6622
FBT £98 £84 £74 £72 ££8877
Equipped landAHA £85 £72 £60 £70 ££7711
FBT £138 £83 £97 £93 ££110022
New rent(£/acre)
Old rent(£/acre)
Percentagechange
Number ofreviews
Area reviewed
Well equipped £73 £60 18% 169 67,836
Averagely equipped £65 £55 20% 333 123,333
Poorly equipped £56 £45 21% 171 63,118
Overall average ££6655 ££5544 2200%% 668800 225555,,555500
New rent(£/acre)
Old rent(£/acre)
Percentagechange
Number ofreviews
Area reviewed
Grade 1 £105 £78 31% 40 15,078
Grade 2 £89 £69 25% 126 27,025
Grade 3 £72 £61 20% 754 158,067
Grade 4 £46 £38 22% 177 50,272
Grade 5 £12 £10 22% 75 77,658
Overall average ££6688 ££5566 2211%% 11,,223344 333344,,002299
Latest on the treatment of Single Farm Payment inScottish rental calculationsLatest ruling in Morrison-Low v Paterson
On 9 February 2012, The Court of Session issued its ruling on the Moonzie Farm rent reviewcase, which overturns the earlier Land Court decision and referred the case back to theLand Court with the instruction to set a rent between £60 and £65 per acre for Class 3land. This has significant implications for landlord/tenant relations as the result is adoubling of the rent originally awarded by The Land Court.
The Court of Session stated that The Land Court had incorrectly ignored the existence ofSingle Farm Payment, and confirmed that the best evidence to be used in determiningrents is "open market rents". In the absence of open market evidence of lettings under1991 Act tenancies, evidence of open market lettings under SLDTs and LDTs is admissiblewith suitable adjustment for the terms of the letting. Evidence of agreed rents with sittingtenants and farm budgets is of secondary importance.
While this case has clarified the basis of rental calculation, and will be very useful guidanceto those involved in agricultural rent reviews, it remains unsettling that it was necessary forthe parties to wait over three years for a ruling and spend thousands on legal fees toachieve a result. There will be further lobbying for reform of the law and process applicableto rent reviews.
Looking to the future, the Moonzie case will undoubtedly give some encouragement tolandlords considering issuing rent review notices this spring. Most reviews will still be agreedby negotiation, but there will now be greater clarity over the legal process.
Robert GladstoneDumfries officePartner01387 [email protected]
Scottish View
Our analysis shows lower rental increases in Scotland compared with the rest of theUnited Kingdom. In our view, this is largely due to the current lack of a workable systemfor the resolution of rental disputes. In the event that landlord and tenant cannot agree arent review, it is necessary to make an application to The Land Court. As discussedoverleaf this has proved to be unpredictable, expensive, and slow. Landlords and tenantshave generally been very reluctant to use The Land Court, resulting in lower rents beingagreed than might be expected in order to avoid litigation.
The outlook for 2012 & 2013Should I serve a rent review notice this spring? This is not a straight forward question to answer. It very much depends on the current rent passing,how you expect the sector’s profitability to change over the next 12 months, and your attitude to risk!For Agricultural Holdings Act and Scottish 1991 Act tenancies, the sector’s profitability is particularlyimportant, as the link between agricultural economics and rents is stronger.
The sector commentary below shows that over the last six months typical profitability has improvedin many sectors (green traffic lights). However, the situation in livestock sectors with a highdependency on compound feed has been less positive, although output price rises have helpedcompensate to an extent.
Simon BlandfordWinchester officeHead of Farm Management01962 [email protected]
AArraabblleeOn-going volatility in output and input prices. World demand and weather factors still dictateprices but trading prospects generally look favourable.
DDaaiirryyModerate improvement in general trading position – recent milk price rises are helping. Keydeterminant of profit remains total cost of production. Volatility of world feed stock pricesremains a concern.
BBeeeeffLower supply has seen prices improve with growing domestic and export demand. The nationalsuckler herd remains in decline and store prices are likely to remain strong. Feed price volatilityremains principal concern.
SShheeeeppRecord price levels seen in 2011 and prospects look strong. Supply likely to improve through2012 but high prices will limit flock expansion plans.
PPiiggss && PPoouullttrryyGenerally, improving demand has seen growth in market and improved prices. Volatility in feedcosts (which account for 2/3rds of cost of production) has eroded profitability.
English viewOur experience over the past year2011 was another busy year for agricultural rent reviews, both in terms of negotiatingnew rents and the serving of rent review notices. In my experience there is generalacceptance that rents are rising across all agricultural sectors, albeit some more thanothers.
Many Agricultural Holdings Act tenancy rents are now being reviewed for the secondtime since rent review activity increased in 2007. Factors such as the holdings’productive capacity have been agreed relatively recently and so negotiations now focuson current agricultural economics, and how evidence of comparable rents should beused to help determine the holdings’ new rent.
On most farms, the majority of the rental increase is due to improved profitability,although there are also a number where the rent has not been reviewed for some timeand the value of the farmhouse and cottages may still not be fully reflected in the rent.
As the industry continues to diversify and restructure, new issues are emerging forconsideration at rent review. We have several cases where we are needing to revise ourapproach to the rent review of dairy farms as farmers have ceased milking as they canmake more profit by focusing on rearing dairy replacements. There are also cases wheretenants have sought landlords’ consent to install renewable energy technology orboreholes, and the effect that this income has on rent needs careful negotiation.
In relation to Farm Business Tenancies, we are still seeing very strong rental growth atreview, and a very competitive market for new lettings resulting in significant uplift inrent when compared with what was being yielded previously.
Stephen Spencer Lichfield officePartner01543 [email protected]
Robert GladstoneScotland
01387 274395
Philip ColesNorth
01325 370511
David GoodsonEast Midlandsand Yorkshire &Humber
01733 559306
Stephen SpencerWest Midlandsand Wales
01543 266403
Rupert ClarkSouth East and East of England
01798 345999
CharlesDixonSouth West
01392 294892
Contacts
If you would like to discuss rent reviews or options for letting land, please do not hesitate to contact us:
To discuss the sale or purchase of agricultural land please contact:GGiilleess WWoorrddsswwoorrtthhNNaattiioonnaall HHeeaadd ooff FFaarrmm AAggeennccyy01865 [email protected]
smithsgore.co.uk