Questions over rent review code

It is interesting that the Te n a n t Fa r m i n g Commissioner ( TFC) has published its code of practice on rent reviews now rather than waiting for the bringing into force of the new productive capacity test contained in the Land Reform (Scotland) Act 2016.

There has been considerable controversy about the new test and the fact that the TFC is issuing a code based on the existing rules might be an indication that we shouldn’t expect the introduction of the new test any time soon.

So far as a secure tenancy is concerned, the current rent review test is an open market test so that the question to be asked is: what is the likely rent that the farm would command if advertised for let on the open market at the review

date? There has to be disregarded from the rental value any value contributed by the tenant ’s improvements.

The economic conditions within the industry must be taken into account and if rents on the open market would likely be higher than expected because of the scarcity of supply, this must be disregarded.

However, on the other hand, if the farm, because of its location, is likely to be the source of competition amongst neighbouring farmers because of its marriage value, then that additional value has to be taken into account.

The difficulty with 1991 Act tenancies is that there is no open market in such tenancies and the TFC points out that parties will have to rely on evidence of open market fixed duration

tenancy lettings, suitably adjusted or rental agreements with sitting tenants elsewhere where the holdings are broadly comparable.

This then gives rise to a further difficulty.

There is no particularly easy way to deal with the question of confidentiality under data protec tion rules.

If relying on a comparable holding as evidence for the rent, the parties must be able to disclose the place and location of the farm, the details of the rent being paid and the details of the lease.

Without the permission of both landlord and tenant in each case, this evidence might be difficult to obtain.

Hamish Lean is a partner and head of rural property at Shepherd and Wedderburn

VALUE: Economic conditions within the farming industry must be taken into account.