Price volatility a long-term fact of life
Volatility in commodity prices is something farmers will have to live with in the long term. This will inevitably lead to periods when farming enterprises lose money. Therefore in order to insulate themselves from these loss making periods many farmers are looking to generate other sources of income not reliant upon agriculture.
In this context we have seen a huge surge in renewable energy projects, whether that be wind, solar, anaerobic digesters or biomass boilers but for many farms it is exploiting the latent value of underutilised farm buildings which is the obvious option.
In this context the planning regime has become much more flexible in recent years with the introduction of permitted development rights which in certain circumstances allows up to 450 square metres of agricultural buildings to be converted in to up to three dwellings. This is clearly a massive opportunity although the costs of conversion are high and not everyone will want to convert buildings in their farmyard in to residential properties which may hinder farming activities or impinge on the farmer’s privacy.
As an alternative some farmers have looked to generate cash by letting such buildings for commercial purposes of one form or another. In many instances this will involve little if any expenditure on the buildings which are then used for low grade storage for example.
However, one does need to go in to such arrangements with your eyes open because one could get caught out by laws relating to commercial leases and / or planning consent.
For example, where a lease (or a sub-lease) is granted for a non-agricultural, commercial purpose which is not “contracted out” of certain provisions of the Landlord and Tenant Act 1954, the tenant of that lease has a right for the lease to be renewed at the end of the term. Unwritten arrangements can get caught by these rules but they can be easily avoided by the service of a simple notice prior to the commencement of the lease.
Granting a lease to a third party for non-agricultural purposes can also result in the occupier of an agricultural holding being in breach of planning laws and it could also result in the local authority charging business rates on the building.
Further, tenant farmers should always read their tenancy agreement before considering such arrangements because in most instances there would be a clause preventing subletting. Therefore in addition to the issues raised above, Landlord’s consent is likely to be required and failure to obtain this could result in the Landlord seeking to re-possess the whole farm.
So, although the search for additional income is understandable it is always worth taking professional advice before letting a building so as to ensure you are at least aware of the legal pitfalls that could come back to haunt you if the local authority, tenant or your landlord become less than co-operative at a later date.