NEWS

The difference between AHA and FBT rent reviews

Published September 20th, 2016

As we near Michaelmas rent reviews it is interesting to consider the differences between the two main types of agricultural tenancies – Farm Business Tenancies under the Agricultural Tenancies Act 1995 and tenancies that fall under the Agricultural Holdings Act 1986, writes Judy Pearson, chartered surveyor with Berrys at Kettering.

Please note that the information in this article is very general and each tenancy individual tenancy agreement is unique.

Older legislation is very protective of the tenant, with some tenancies having succession to younger generations. The tenant usually has at least tenure for a lifetime and more factors are taken in to account when assessing rent.

The newer tenancies however are very different, there is freedom of contract between the parties and as such the rents are very market led. The factors below are about the statutory provisions for rent review- the ‘norm’ if you like. However, it should be noted that due to the freedom of contract in FBTs a different rent review clause can be used. Given recent commodity prices we are seeing reviews linked to the price of wheat being used more regularly.

An AHA rent review takes in to account:

“The rent at which the holding might reasonably be expected to be let by a prudent, willing landlord to a prudent, willing tenant, taking into account all relevant factors”

Relevant factors include:

Terms of the tenancy
Character and situation of the holding
Comparable evidence
The productive capacity of the holding and the related earning capacity
In addition, some other factors that are taken in to account, such as non-agricultural income, but the above are the main items. The element of prudence of both parties and the productive capacity of the holding takes in to account the state of the agricultural markets at the time; all of these elements combined seek to give a fair rent for the holding.

Comparatively, the FBT review has stripped a lot of the relationship between the actual holding (what it can produce and earn etc…) and the rent.

Parties are free to decide their rent review procedure, the following relates to the 1995 Act statutory rent review procedure. The other procedures that can be agreed include:

A fixed rent
A phased rent
An objective variation formula
A review requiring subjective judgement

The freedom of contract enables very different procedures to that of the AHA procedure. The statutory procedure looks at:

“The rent at which the holding might reasonably be expected to be let on the open market by a willing landlord to a willing tenant taking into account all relevant factors”

Relevant factors include:

Terms of the tenancy
This is a much shorter formula than the AHA. Prudence doesn’t appear anymore and the relation to the productive capacity has gone too (although an element of the productive capacity may make part of the relevant factors).

So essentially, whatever people are willing to pay is whatever the rent will be. In a rent review situation, if it goes all the way to Arbitration, the Arbitrator will look at rents for fresh lets above those decided on review. So if you are paying £100 and one neighbour has agreed £120 at renewal and someone has just bid £285 for a piece of land nearby – it’s the £285 that will be considered first.

Judy Pearson is based at the Kettering office of Berrys, telephone 01536 532399 email judy.pearson@berrys.uk.com

For more information...

Visit our relevant website page: Rent Reviews