I was appointed to act as arbitrator in a number of rent review cases in 2010. Some have been settled by the parties but a number are ongoing. For those ongoing cases I doubt the issue of how the parties treat the Single Farm Payment (SFP) will be an issue in dispute.
It has become settled practice that although entitlements belong to the farmer, the landlord provides the land which enables the tenant to unlock the right to claim the payment.
This relationship is usually reflected in the landlord and tenant agreeing to share the income derived from the SFP after an allowance for the costs of cross compliance.
When the SFP was first introduced in 2005 a large proportion of the payment was based on the historic performance of the tenant and for this reason some tenants argued that as the arbitrator must assume a hypothetical tenant and disregard any effect on the rent by virtue of the tenant’s own occupation, the historic element of the payment should be ignored. As time moved on this argument was exercised less as the historic element of the SFP grew smaller. By next year, it will no longer apply at all.
The counter argument that helped produce the current status quo was that a prudent and willing tenant would have an appropriate level of SFP to allow him, as farmer, to enjoy the support afforded by the scheme.
Will this happy equilibrium continue? Given the recent judicial guidance on this issue north of the border in Morrison Low v Paterson, maybe not! Here the Scottish Land Court concluded that SFP could not be regarded as part of the earnings of the holding and as such did not fall to be taken into account in the assessment of rent.
The Court did however concede that a tenant, in agreeing the rent, would make an allowance for the convenience of being able to use the holding to realise his entitlement to SFP rather than seeking a cheaper method, such as renting naked acres elsewhere. This formula however produced a far lower rent than the landlord was hoping for. The existing rent for the holding was £22,000. The landlord was seeking a review to £32,000. The Court awarded a rent of £20,800.
The implications of this case have been played down by many south of the border as it is the subject of an appeal and of course falls within a different jurisdiction although I have a suspicion that those same practitioners will be keeping a very careful eye on the outcome of the case.