The use of comparables in rent reviews
Bob McIntosh
The periodic rent review can be a source of tension and dispute between landlords and tenants of agricultural holdings. Many are able to reach agreement by informal discussion over the kitchen table but when agreement is impossible, either party may ask for the rent to be determined by the Land Court. Should a dispute be referred to the Land Court, the Court is required to determine the rent properly payable in respect of a holding, which should normally be the rent at which, having regard to the terms of the tenancy, the holding might reasonably be expected to be let in the open market by a willing landlord to a willing tenant. For the purposes of determining the rent payable, regard is to be had to information about rents of other agricultural holdings and any factors affecting those rents, except any distortion due to scarcity.
Because of the possibility that the review will end in a dispute which has to be referred to the Land Court, it is usual for parties involved in a rent review to use the above methodology but this is the default position and the parties are free to use whatever methodology can be agreed between them in order to arrive at an agreed rent.
In the ideal world, a rent review involving a 91 Act tenancy would draw on comparables from open market lettings of similar tenancies but, in the continued absence of open market lettings of 91 Act tenancies, the Land Court has determined that ‘’other agricultural holdings’’ includes 2003 Act fixed duration tenancies so open market lettings of SLDTs and MLDTs can be used as comparables, as can negotiated rents for both 91 Act and 2003 Act tenancies as long as appropriate adjustments are made.
Comparables should be as close to the holding under review as possible in terms of the physical nature of the holding, the terms of the lease, in as much as those terms affect the rent, and the date on which the rent was set. Ideally, they will be in the same region and ideally the comparable holding will be identified so that there is full transparency for both landlord and tenant and an ability for both parties to assure themselves that appropriate adjustments have been made. Landlords and tenants are encouraged to make rent levels from identified holdings available so that the sector as a whole can benefit from the availability of sound evidence in rent reviews.
It is recognised however that not all landlords and tenants are willing to disclose the name of the holding and it is common therefore for comparables to be advanced as Farm A, Farm B etc. In such cases it is particularly necessary to provide as full a description of the relevant aspects of the comparable holding as possible. The Land Court guidance on rent reviews is clear that full details of the comparable holding should be provided, including a description of the land and its potential, any aspects of the lease which are relevant to the rent, details of the fixed equipment provided by the landlord and the improvements provided by the tenant, the type of tenancy and date of last rent review and details of any particular advantages or disadvantages the comparable have that might affect the rent. The party advancing the comparable as evidence must show what adjustments have been made to reflect significant differences between the subject holding and the comparable. In particular, the question of scarcity must be addressed where the comparable involves an open market letting. The party submitting the comparable must use their best judgment, and such supporting evidence as can be gathered, to adjust the rent of the comparable, normally by showing what percentage has been added or subtracted for each factor where an adjustment has been required. Landlords and tenants submitting evidence in a rent review should not be prepared to use evidence that they would not be able or willing to defend in the Land Court.
I will shortly be issuing guidance to the sector on the use of rents from comparable holdings as evidence in a rent review so watch out for this appearing soon.
