A recent Scottish Land Court case Morrison-Low v Patterson throws an intriguing light on the correct methodology to be used in assessing farm rents as much of the case turned on the Single Farm Payment, its value and whether or not it should be included in the rental calculation. Many landlords will be disheartened to learn that the case resulted in a reduction in rental for the holding but the decision hangs very significantly upon the value of “naked acres” in Scotland.
In essence the Court held that single farm payment income does not form part of the farm income but that the farm rent should reflect the cost of hiring “naked acres” for the tenant to unlock his single farm payment. In this case it was held that there was an abundance of supply of such “naked acres” in Scotland and they could freely be hired for £6.50 per acre. A tenant needed to have regard to maintain them in GAEC and as such it would be advantageous to use the subject holding and provision should be made in the rent for £9 per acre to reflect this point.
“the requirement of compliance does carry a risk and any farmer would prefer to be dealing with land under his immediate supervision, if possible. We consider that an overall allowance of £2.50 per acre should be made for the element of convenience. We regard this as a conservative figure but in absence of evidence do not consider it appropriate to take a higher figure. The effect is that we consider that a figure of £9 per acre should be allowed to the landlord under this head”
It is reasonable to use the same model elsewhere however for historical reasons the same open market that produces a value of £6.50 for “naked acres” in Scotland produces some startling values south of the border and certainly in Wales where this case will have an impact.
The case touches on many other significant matters in the rental calculation including the allocation of 80% of the net income from farming to rent. Historically this figure has been as low as 50% and will vary from farm to farm however in this case the attractive house and home would in the view of the Court play a significant part of the tenant’s thinking.
As always each holding must be considered independently but there is much in this recent case that gives landlords cause for hope than the immediate financial outcome.