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Rent reviews, asset development and releasing value

The cash position of many arable farms remains under severe pressure. 

With no immediate upturn in sight, farmers are planning to minimise the impact and to prepare for opportunities that may arise. 

Brown & Co's Challenging Times series is designed to highlight some of the options available. So far we have examined the importance of managing cash flow to minimise borrowing requirements and the opportunities arising from recent and ongoing changes in planning law. 

We are now turning attention to further options with which our Land Agency specialists will be pleased to advice, including rent reviews, asset development and land sales. 

Rents

Understandable, few landlords have served notice to review rents, given the downturn in the agricultural sector's fortunes. 

Although some tenants have served notice, particularly those with shorter tern rents at £200-£250/acre and more, they remain few and far between. Whilst this might seem surprising serving notice can we perceived as an aggressive act, particularly with farm business tenancies with limited security. For many tenants, maintaining a good relationship with their landlord is very important. 

However, given the current income squeeze, there are opportunities for those who need to manage their rent burden. In many circumstances, there may be a less formal route than serving notice. 

Rents can be reviewed by agreement at any time - only if you want to reserve the right to arbitration do you need to serve notice. We recently had one voluntary agreement where the farming landlord understood the tenant's position and an agreement was reached, other landlords may wish to consider a change in structure to contract farming for strategic reasons, but you won't know until you engage in discussions. 

The main thing is to communicate, to let the landlord understand the problem and the farm business's position, and to maintain dialogue. We will start to see settlements towards Michaelmas as last year's noticed work through. With mutual agreements, the settlement of formal negotiations and the results from current open market lettings opportunities, we will be able to assess how most parties see the market and dilemma facing both landlords and tenants. 

Renewables 

Renewables have been one of the popular farm diversifications in recent years, driven by attractive feed-in-tariffs and good returns, whether for wind, solar schemes or more recently on-farm AD units. 

However, uptake has dropped off markedly, mainly due to a reduction in support and saturation of the grid - in many area there is no spare capacity left. Some opportunities exist, particularly for smaller on farm installation for larger schemes, where there is good access to the high-voltage network and with good access roads for construction traffic, so it is worth keeping an eye on opportunities that could add value to the business. 

In general it is sensible to understand developments in grid developments in your area so you can when things improve, although progress is rather slow.  

It's a similarly negative story with mobile phone masts. Although there is a lot of activity among network providers, most of it involves mergers, and there is more emphasis on sharing networks rather than developing them. There is little incentive to cater for the final few percent of the population in scarcely populated rural areas that struggle to a signal. 

Development

Changes in planning law have been highlighted in detail in the last issue of Changing Times. It is worth reiterating that opportunities for development have increased. 

Not only are there significantly greater prospects for conversion of buildings to residential or other uses that in the past, but there is also a more constant line of opportunities for green field development, in the absence of much brown field space in rural East Anglia. Some 10,000 new homes are intended to be built in North Norfolk alone by 2036, so strategic development opportunities are going to be around for a while. 

Local Plans are being reviewed in several local authority areas, providing opportunities for farming businesses to promote suitable land for development. Impending announcement about opportunities for starter home and the need for affordable housing on smaller schemes could help further. 

Larger-scale development can appear daunting, and professional advice should be sought. Planning consent costs can appear prohibitive, but option or promotion agreements with developers can greatly reduce these. 

There are plenty of smaller scale opportunities as well,

Helped by the government's presumption in favour of development on brownfield sites. We have achieved permission on buildings we would never have considered for conversion to residential use in the past - farm building conversions are not confined to older stock modern buildings can be considered too, provided they are no longer suitable for an agricultural purpose on the farm. 

If they are of decent quality - for example, steel framed with block walls and cladding, there is a good chance of taking these forward. Brown & Co has advised on a number of these developments, including potato store that has been converted into two holiday homes. It is well worth looking at anything that is surplus to requirements before disposing of it. 

Housing income

There may be opportunities to increase income from existing housing stock. 

As rents are often left in abeyance. A conversation with an agent about the market within the area will identify which properties are worth reviewing and whether a wholesale review of the housing portfolio may be justified. 

The market is still strong for good rented properties, so it is important to maintain property in good repair, internally and externally as this will increase returns substantially for relatively little outlay and encourage better occupiers and fewer and shorted void periods. 

Selling and letting land

Land that has low earning power, such as scrub land or awkward smaller shaped areas, could generate increased income. In populated areas there if often demand for pony paddocks, allotments or garden extensions, which could provide valuable rent or one-off capital receipts. 

Environmental stewardship

A longstanding alternative has been to enter other areas of poor productivity such as shaded headland, awkward field corners and areas of inherently poor soil, into environmental stewardship. 

Some of the Countryside Stewardship Scheme options are better than cropping this poorer ground, so if the farm has enough suitable area then the scheme makes sense. 

With over 800 pages of "guidance" CSS can appear very daunting - unlike ELS it is not farmer friendly. But much of what farmers are already doing might help them qualify. 

Getting the application right first time is key as the scheme is competitive. Most farmers will benefit from taking professional advice - Brown & Co can decipher the information to ensure a farmer's application will deliver the optimum programme for their business while meeting the CSS criteria. 

Woodland management

Creating a woodland management plan to improve the productivity of undermanaged woods can provide a useful additional income. The market for firewood is good, providing short-term income opportunity, and there are a number of grants available to help improve woodland for the longer term. 

Minerals

Few owners are aware of the stage of the minerals plan in their area, but although relatively few sites are developable, it is worth knowing the state of play. We recommend owners understand whether their land might include worthwhile deposits because it is then plausible to decide whether to promote for extraction through the minerals plan. 

Shooting 

Many owners manage and run their own shoot, but there remain many areas of countryside unmanaged for shooting and deer management. There are also many and various keen applicants for shooting rights, whilst this may not suit every owner, the opportunity to connect into a well-managed operation and the licence fees of between £5 and £10 per acre can be attractive. 

Fishing

Clearly this will not affect many businesses and the market is varied depending upon the type of water available, whether a small lake or well valued river fishing area. However, understanding the option in generally worthwhile and our advisers will steer owners in the right directions so decisions can be made that may add value or rental income.