Agricultural rents rose by 25% in 2011 Smiths Gore Agricultural Rent Database 2009-2011 Information from 1,200 rent settlements covering 334,000 acres
April 2012 smithsgore.co.uk
Agricultural rent database
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 between November 2008 agreements covering 334,00 acres settled in the last three years (b and October 2011). Our database now contains details of over 1,700 agreements since 2007, covering over half a million acres in England, Scotland and Wales. It is one of the most comprehensive databases available in Great Britain. Please note that the rents shown are averages and that there can be considerable variation in rent either side of the average depending on the location and quality of the holding and its fixed equipment. Some rents have dropped, usually when properties are taken out of the tenancy agreement, and others increased by well over 100%. This analysis focuses on what might therefore be described as trends. Our surveyors use the database as a source of information when they are conducting reviews.
Demand for farm land for rent remains very strong, due to competition between farmers seeking 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 you on the best course of action to suit your circumstances and can then implement it. They will also have details of land in your locality that is available to rent. Their contact details are at the back of this report. Rupert Clark Petworth office Head of Rural Practice 01798 345999 rupert.clark@smithsgore.co.uk Simon Blandford Winchester office Head of Farm Management 01962 857405 simon.blandford@smithsgore.co.uk
Rents that were reviewed in the year to 31 October 2011 rose by an average of 25%, and the outlook for future reviews is good too.
Rent reviews: Average percentage increase achieved (all farm and tenancy types) 35% 30% 25% 20% 15% 10% 5% 0% 2009
2010
2011
2009-2011
Year to 31 October AHA
FBT
Scottish Tenancies
Overall average
2009 to 20111 21% average increase
Growth by farm type 2011 Strong rental growth in all farming sectors
Rents for all types of tenancy agreed in the 12 month period to 31 October 2011 increased by an average of 25%. This is greater than in 2009 and 2010. Due to the diversity of farms there is considerable variation in the rents agreed, as illustrated by the graph below which shows the rent agreed at each review in pounds per acre.
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 £3,500 a year– so just over £10,000 over a three-year rent review cycle.
Arable and livestock rents increased the most. The average increase in dairy rents topped 20% for the first time since we began gathering data in 2007.
All sectors have experienced increases, with the largest being in the arable sector. Mixed farms and dairy farms have experienced the lowest average increases over the three year period.
New rents agreed by farm type in year to October 2011
New rents agreed by farm type 2009-2011
Whilst commodity prices have softened from recent highs, the medium term outlook for reviews remains positive. Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed
£74
£63
21%
29
5,447
£94
Arable Dairy
£68
Livestock Mixed
New rent (£/acre)
Overall average
£72
£79
£68
31%
£51
137
30%
£63
119
15%
£62
117
25%
406
28,585
Arable
28,300
Livestock
92,971
Overall average
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed
£71
£62
15%
144
30,131
£87
Dairy
30,362
£48
Mixed
1
£67
£68
£68 £39
£58
£56
26% 24%
16% 21%
312
59,772
397
160,003
1,234
334,029
315
75,209
“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 180
New rent (£/acre)
160 140 120
Arable
100
Dairy
80
▲ Livestock
60
Mixed
40 20 25
50
75
Lowest rent to highest rent (excluding the top and bottom 5%)
100
Lower Upper Median quartile quartile £67
£80
£105
£35
£63
£81
£68 £35
£75 £66
£85
£76
The top 25% of arable rents are all over £105 per acre Dairy 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 the quality of grazing and buildings Some rents for mixed holdings are now greater than £100 per acre
Growth by tenancy type 2011 Strongest increases for FBTs
2009to 2011Livestock farms have highest percentage increase for each tenancy type
Farm Business Tenancy rents rose by 33% as rent review clauses in the tenancies allow rents to be revised to current open market levels. Agricultural Holding Act rents rose by 20% 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 Moonzie Case (See Scottish View).
A considerable difference remains between national average Farm Business Tenancy rents and Agricultural Holdings Act tenancy rents, of nearly £25 per acre. Overall Farm Business Tenancy rents have increased by 26%, compared with 20% for those of Agricultural Holdings Act tenancies. Across all types of tenancy, livestock farm rents increased the most in percentage terms.
New rents agreed by tenancy type in year to October 2011
New rents agreed by tenancy type 2009-2011
For Agricultural Holdings Act and Scottish tenancies, these rates of increase are consistent with the three year average. However, Farm Business Tenancy rental growth during the last 12 months has been significantly higher than in the years to October 2009 and 2010, influenced by the strong results from recent open market lettings.
Percentage change
Number of reviews
Arable
£80
£64
25%
74
Livestock
£69
£59
21%
33
Mixed
AHA average
FBT
£68
£73
£64 £60
£62
25% 14%
Livestock
£93
£66
42%
Mixed
FBT average
£89
£98
£64 £79
£71
18%
£37
£34
15%
£62
34
AHA average
50,776
5,626 5,850
8%
13% 25%
5
648
21
14,180
36
17,231
9
406
2,206
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
£66
£56
£56
16%
87
17%
182
20%
558
36,927 16,909 44,955 50,177
152,109
£77
31%
140
Livestock
£78
£58
33%
119
18,102
26%
402
60,551
9%
20
Mixed
£81 £84
£90
£70 £75
£71
15%
36
15%
88
20,881 5,603
13,063
Arable
£83
£75
12%
Livestock2
£23
£20
17%
114
70,323
£28
15%
187
91,990
Mixed
Scottish average
Overall average
92,971
£66
£64
£103
Dairy
1,762
£73
Area reviewed (ac)
Arable
Dairy
Scottish average
£79
119
n/a
Livestock
Overall average
25%
n/a
18%
£39
£40
n/a
£21
£44
£49
Mixed
FBT average
£24
Mixed
Livestock
23,497
£76 n/a
7,196
3,488
158
£82 n/a
163
Dairy
33%
Arable Dairy
22%
9,982
52
Number of reviews
£60
57 11
40%
Percentage change
£73
22,305
15%
£73
Old rent (£/acre)
Arable
74
198
£112 £74
17
20%
Arable Dairy
Scottish Tenanices
£77
New rent (£/acre)
17,786
Scottish Tenanices
AHA
Dairy
Area reviewed (ac)
AHA
Old rent (£/acre)
FBT
New rent (£/acre)
£39 £43
£32 £68
£36 £38
£56
8
14% 21%
44
1,234
Scottish livestock rents per acre are lower than in England as the average farm size is much larger in Scotland
1,795 7,580
11,966
334,029
2009 to 2011 Eastern and northern England top rises
Western England & Wales (SW,WM&W)
Dairy
Livestock Mixed
Region average
Old rent (£/acre)
£85
£72
£82 £62 £91
£81
£59 £52 £78
£62
26%
49
Area reviewed (ac) 8,942
23%
6
3,647
Percentage Number of change reviews 20% 18%
24%
4 8
67
1,030 2,281
15,900
Arable
£106
£73
38%
60
15,661
Mixed
£85
£71
19%
25
12,074
5
643
Livestock Region average
£57
£96
£42 £70
33% 32%
Arable
£103
£80
15%
Livestock
£69
£58
23%
Dairy
Mixed
Region average
£75 £91
£76
£63 £70
£62
Arable
£82
£76
Livestock
£24
£21
Dairy
Mixed
Region average
n/a
£44
£37
n/a
£39
£34
20% 36%
7
92
1,548
6
1,474
41 69
n/a
n/a
13%
9
18% 15%
5
11
2,673
18
Livestock
£93
£65
44%
44
Mixed
Region average
England, Scotland & Wales
£68
£78
£79
£61
£63
£62
n/a means either no or too few reviews carried out to show reliable data NB These figures are based on all reviews, and so include a range of tenancy types
11%
24% 25%
n/a
17,231
31% 23%
648
36
£66 £63
9,632
14,180
£86 £73
5,690
21
Arable Dairy
29,439
13
23% 8%
1,703
2,206 2,690 3,081
69
12,327
406
92,971
142
20,770
East Midlands and Yorkshire (EM&Y&H)
Arable
New rent (£/acre)
New rents agreed by region and farm type 2009-2011
Scotland
Scotland
Northern England (NE&NW)
Eastern England (SE&E)
East Midlands and Yorkshire (EM&Y&H)
New rents agreed by region and farm type in year to October 2011
Northern England Eastern England (NE&NW) (SE&E)
Rents have risen in all regions, with the highest rises in eastern England, on arable farms and also livestock farms in western England and Wales.
Western England & Wales (SW,WM&W)
Growth by region and farm type 2011 Eastern England rents increase the most
Arable Dairy
Livestock Mixed
Region average
New rent (£/acre)
Old rent (£/acre)
£80
£66
£75 £59 £71
£73
£59 £50 £62
£60
Percentage Number of change reviews 23%
126
20%
14
22% 15%
21%
12
Area reviewed (ac) 20,375 2,271 4,581
41
10,883
193
38,109
Arable
£103
£77
31%
111
26,756
Livestock
£52
£40
30%
16
2,912
Region average
£93
£73
27%
182
17%
60
Dairy
Mixed
n/a
£84
n/a
£72
n/a
19%
n/a 42
Arable
£91
£71
24%
Livestock
£53
£42
27%
139
24%
252
9%
20
Dairy
Mixed
Region average
£71 £64
£63
£61 £51
£51
23%
17 26
n/a
17,277
51,667 4,436
10,096 49,762 9,792
75,959
Arable
£83
£75
12%
Livestock
£23
£20
17%
114
70,323
£28
15%
187
91,990
14%
51
Dairy
Mixed
Region average
£39 £43
£32
£36 £38
14%
8
44
Arable
£79
£65
25%
Livestock
£67
£56
29%
114
19%
420
Dairy
Mixed
Region average
England, Scotland & Wales
£80 £70
£73
£68
£71 £61
£63
£56
15% 21%
50
162
1,234
1,795 7,580
11,966 6,410 9,512
32,424 25,291
76,305
334,029
The effect of houses and farm buildings
The effect of land quality – premium rents for premium land
Over the last three years, equipped holdings have continued to yield higher rents than bare land lettings, with a greater premium for Farm Business Tenancies compared with Agricultural Holdings Act tenancies.
Soil quality has a significant influence on rents; higher quality land commands higher rents. This is true for all tenancy types and is not surprising as rents are generally linked to the holdings’ productivity. Rents for Grade 1 and 2 land have risen the most in percentage terms over the last three years. Average Grade 1 rents are now 47% higher than Grade 3, compared with 28% before these reviews were undertaken.
Bare land Equipped land
Tenancy type
Arable
Dairy
Livestock
Mixed
Overall average
AHA
£77
£52
£39
£56
£62
AHA
£85
£72
£60
£70
£71
FBT FBT
£98 £138
£84 £83
£74 £97
£72 £93
£87 £102
Rental values of equipped holdings are affected by the quality and quantity of buildings available. Over the last three years, rents on poorly equipped holdings have remained lower than those on well or averagely equipped holdings, although they have seen slightly higher levels of growth in percentage terms.
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Well equipped
£73
£60
18%
169
Poorly equipped
£56
£45
21%
171
Averagely equipped Overall average
£65 £65
£55 £54
20% 20%
Area reviewed 67,836
333
123,333
680
255,550
63,118
New rent (£/acre)
Old rent (£/acre)
Percentage change
Number of reviews
Area reviewed
Grade 1
£105
£78
31%
40
15,078
Grade 3
£72
£61
20%
754
158,067
Grade 2 Grade 4 Grade 5
Overall average
£89 £46 £12
£68
£69 £38 £10
£56
25%
126
22%
177
22%
21%
75
1,234
27,025 50,272 77,658
334,029
Scottish View Our analysis shows lower rental increases in Scotland compared with the rest of the United Kingdom. In our view, this is largely due to the current lack of a workable system for the resolution of rental disputes. In the event that landlord and tenant cannot agree a rent review, it is necessary to make an application to The Land Court. As discussed overleaf this has proved to be unpredictable, expensive, and slow. Landlords and tenants have generally been very reluctant to use The Land Court, resulting in lower rents being agreed than might be expected in order to avoid litigation.
Latest on the treatment of Single Farm Payment in Scottish rental calculations Latest ruling in Morrison-Low v Paterson
On 9 February 2012, The Court of Session issued its ruling on the Moonzie Farm rent review case, which overturns the earlier Land Court decision and referred the case back to the Land Court with the instruction to set a rent between ÂŁ60 and ÂŁ65 per acre for Class 3 land. This has significant implications for landlord/tenant relations as the result is a doubling of the rent originally awarded by The Land Court. The Court of Session stated that The Land Court had incorrectly ignored the existence of Single Farm Payment, and confirmed that the best evidence to be used in determining rents is "open market rents". In the absence of open market evidence of lettings under 1991 Act tenancies, evidence of open market lettings under SLDTs and LDTs is admissible with suitable adjustment for the terms of the letting. Evidence of agreed rents with sitting tenants and farm budgets is of secondary importance. While this case has clarified the basis of rental calculation, and will be very useful guidance to those involved in agricultural rent reviews, it remains unsettling that it was necessary for the parties to wait over three years for a ruling and spend thousands on legal fees to achieve a result. There will be further lobbying for reform of the law and process applicable to rent reviews. Looking to the future, the Moonzie case will undoubtedly give some encouragement to landlords considering issuing rent review notices this spring. Most reviews will still be agreed by negotiation, but there will now be greater clarity over the legal process.
Robert Gladstone Dumfries office Partner 01387 274395 robert.gladstone@smithsgore.co.uk
English view Our experience over the past year
The outlook for 2012 & 2013 Should I serve a rent review notice this spring?
2011 was another busy year for agricultural rent reviews, both in terms of negotiating new rents and the serving of rent review notices. In my experience there is general acceptance that rents are rising across all agricultural sectors, albeit some more than others.
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 particularly important, as the link between agricultural economics and rents is stronger.
Many Agricultural Holdings Act tenancy rents are now being reviewed for the second time since rent review activity increased in 2007. Factors such as the holdings’ productive capacity have been agreed relatively recently and so negotiations now focus on current agricultural economics, and how evidence of comparable rents should be used to help determine the holdings’ new rent.
The sector commentary below shows that over the last six months typical profitability has improved in many sectors (green traffic lights). However, the situation in livestock sectors with a high dependency on compound feed has been less positive, although output price rises have helped compensate to an extent.
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 time and 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 for consideration at rent review. We have several cases where we are needing to revise our approach to the rent review of dairy farms as farmers have ceased milking as they can make more profit by focusing on rearing dairy replacements. There are also cases where tenants have sought landlords’ consent to install renewable energy technology or boreholes, 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 at review, and a very competitive market for new lettings resulting in significant uplift in rent when compared with what was being yielded previously.
Arable On-going volatility in output and input prices. World demand and weather factors still dictate prices but trading prospects generally look favourable.
Dairy Moderate improvement in general trading position – recent milk price rises are helping. Key determinant of profit remains total cost of production. Volatility of world feed stock prices remains a concern. Beef Lower supply has seen prices improve with growing domestic and export demand. The national suckler herd remains in decline and store prices are likely to remain strong. Feed price volatility remains principal concern. Sheep Record price levels seen in 2011 and prospects look strong. Supply likely to improve through 2012 but high prices will limit flock expansion plans. Pigs & Poultry Generally, improving demand has seen growth in market and improved prices. Volatility in feed costs (which account for 2/3rds of cost of production) has eroded profitability.
Stephen Spencer Lichfield office Partner 01543 266403 stephen.spencer@smithsgore.co.uk
Simon Blandford Winchester office Head of Farm Management 01962 857405 simon.blandford@smithsgore.co.uk
Contacts If you would like to discuss rent reviews or options for letting land, please do not hesitate to contact us: Robert Gladstone Scotland
Philip Coles North
David Goodson East Midlands and Yorkshire & Humber
Stephen Spencer West Midlands and Wales
Rupert Clark South East and East of England
Charles Dixon South West
01387 274395
01325 370511
01733 559306
01543 266403
01798 345999
01392 294892
robert.gladstone @smithsgore.co.uk
philip.coles @smithsgore.co.uk
david.goodson @smithsgore.co.uk
stephen.spencer @smithsgore.co.uk
rupert.clark @smithsgore.co.uk
charles.dixon @smithsgore.co.uk
To discuss the sale or purchase of agricultural land please contact: Giles Wordsworth National Head of Farm Agency 01865 733302 giles.wordsworth@smithsgore.co.uk
smithsgore.co.uk