Max Sealy (FCG WhiteAvon)

Working as we do with a lot of medium size and larger family owned and run businesses, we inevitably work quite closely with the tenanted farming sector – both in terms of clients who are solely tenant farmers and also clients who are a mix of owner occupied and rented land, particularly as businesses have grown and opportunities have come up to take on additional land to supplement growing dairy and livestock businesses as well as to increase arable farming. 

The range of tenancies that we deal with is huge, from a number of agricultural holdings act tenancies, many of which are now in their second and third generation, through to farm business tenancies, grass keep licences and a number of relatively informal agreements. 

It’s always interesting to look at the motivations for owning land and letting it and of course there are as many motivations as there are landlords. Typically, the institutional landlords will be looking at long term returns on their land and many of these are happy to work closely with long established tenant farmers to achieve their aims. The returns on capital for them are typically low, perhaps as little as 1%, but capital growth and long-term development opportunities are often the governing factors behind these tenancies. 

There are still a considerable number of privately owned estates owned by families, often in trust with many generations involved. These landlords are often looking for return and capital growth but periodically also look for cash injection and are often more inclined to sell assets to fund the aspirations of different generations. It’s not uncommon to find on these types of estates the next generation are not so closely involved as previous generations were and are often pursuing careers elsewhere and bring a completely different perspective to the ownership of the estate. 

Another category of landlord would be former farming families who look to hold on to their ownership of land, where the current generation doesn’t want to farm. These tend to be typically smaller farms and they are really looking often for protection from aggressive taxation policy, some capital growth, long term development opportunities and often to protect the integrity of the estate and it’s legacy for the long term benefit of families.

With investment required in many farms, particularly for environmental legislation as well as crop assurance and general business maintenance and the costs of that investment going up, you will often find that landlords are open to a discussion about a strategic review of the tenancy, the investment and what is required. We would see a small number of landlords moving towards longer term farm business tenancies (20+ years) allowing the tenant the opportunity to invest heavily in the farm with the correct allocation of tenants fixtures and improvements and write off periods in place to protect both parties with their investment. In this way the landlord benefits from the asset value in the long term and the tenant benefits from the productivity through the next generation. With good advice from land agents and working closely with consultants, long term tenancies can be structured with such things as rent reviews, notice periods, break clauses etc. all built in for mutual gain.

Shorter term deals do work well between landlord and tenant depending on the objectives of both but increasingly we would be looking at 5-7 year terms to reflect the realities of crop rotation, investment in fertility, organic matter, soil structure, soil health, etc. 

The main message is to sit down when you can with the landlord and discuss what works for them, discuss what assets might be surplus on the holding and also what can work for the tenant to meet their aspirations. Over the last 10-15 years we have seen a large number of landlords sell farms to their sitting tenants and this is a trend that is likely to continue albeit perhaps not to the extent that we have previously seen. This can obviously work well for both parties and can be the foundation and capital asset for the farming business and release cash for investment elsewhere for the landlords. 

The messages are mixed and the discussion is personal but having a clear business strategy as a tenant farmer and a good offering to your landlord, understanding their needs and wants whether it be agricultural, environmental, capital growth or diversification, is a great way to build a long term working relationship.

If you would like to discuss which type of tenancy will work best for you and your landlord, please contact Max Sealy at maxsealy@fcgagric.com or your local FCG Office.