The Tenant Farming Commissioner’s Code of Practice on the Conduct of Rent Reviews contains a useful summary of the law applicable to rent reviews and provides recommended steps for the conduct of the rent review itself. If the rent can’t be agreed by simple discussion or exchange of letters then the Code of Practice sets out a timetable that the parties should follow unless both parties have agreed otherwise. The Code calls on landlords and tenants or their agents to meet on the farm not less than six months before the rent review date. It is for the person who served the notice to take the first steps. By the end of the meeting, the person initiating the rent review should have given an approximate indication of the level of rent that is being proposed and the main variables that have been taken into account when arriving at that figure.
Not more than four weeks from the date of the meeting the party who initiated the review should send to the other party a formal proposal supported by relevant evidence and with sufficient detail to enable the other party to understand how the figure has been arrived at. Where the proposal refers to comparable rents, every effort should be made to choose holdings that are as similar in nature to the holding under review as possible making adjustments for differences in the nature of the land, the provision of fixed equipment by the landlord including housing and surplus housing, differences in the lease conditions in relation to the repair and maintenance obligations and any other material considerations including distortion due to scarcity. Marriage value where appropriate should also be taken into account. Full disclosure of the nature of a comparable farm by the person relying upon on it must be made. Permission should be sought from landlords and tenants of other holdings being used for comparison purposes.
Not later than six weeks after receipt of the formal proposal the other party should either agree to the proposal or submit a counter proposal which should be transparent and verifiable in the same way as the formal proposal. Where the above steps don’t result in agreement further discussion will be necessary and should take place within six weeks of the submission of a counter proposal. The Code of Practice suggests that “where both sides have provided transparent and verifiable support for their proposal it should be relatively easy to identify the areas of disagreement and to agree a reasonable compromise.” This might be more an expression of hope than actuality!
The Code recommends that given that the rent review test includes an obligation to take into account current economic conditions in the relevant sector the rental analysis should consider whether any significant movement of costs, output prices or support payments has taken place or is anticipated which might influence the negotiation.
Where there has been no material changes in circumstances since the last review and where none are anticipated, an adjustment to the rent to reflect an increase or decrease in the Consumer Price Index may be an appropriate way to proceed. However, the Code cautions that this should not be considered as an automatic adjustment and that a proposal to adjust the rent in line with inflation should be presented for discussion to be dealt with in the same way as the other factors that are taken into account.
If parties cannot reach an agreement, only the party who served the rent review notice can make an application to the Scottish Land Court to have the rent determined. It is possible for the person serving the rent review notice to withdraw the notice or simply not act upon it at all. The person on the receiving end of the notice even if they consider that a rent review is justified, cannot then rely on the rent review notice served by the other side and the rent review will simply lapse.
It is possible for parties to agree to resolve the rent review by means of alternative dispute resolution. This might involve mediation, the appointment of an arbiter or an independent expert. The point about using alternative dispute resolution is that it can only take place as a matter of agreement between the landlord and tenant and neither party can be obliged to take part.
A version of this article first appeared in The Courier.
For more information please contact Hamish Lean, Head of Rural Property and Business, at hamish.lean@shepwedd.com.