Unlocking the value of your tenanted farm

In recent years there has been an increase in deals where landlords have bought out their tenants, or tenants have acquired the farm they tenanted. The registered pre-emptive right to buy now avoids a farm being sold from underneath a tenant. It has also become less politically acceptable in Scotland to be a large landowner. Views differ south of the Border.

Purchasing your farm is a goal many tenants aspire to. Often a landlord chooses to dispose of their interest where the return from tenanted farms versus the return from capital invested elsewhere is greater.

The terms that can be negotiated depend upon a number of factors including:

  • Type and terms of tenancy
  • Post lease agreement?
  • Level of tenant’s improvements
  • Capital expenditure required?
  • Age of tenant, and whether successors exist

Discount on vacant possession (VP) can be considerable. It would be common to buy at 50-60% of VP value. With the VP value of farms being £1m+ the discount ‘unlocked’ can amount to hundreds of thousands of pounds.

Retiring. Historically tenants ‘gave up’ their tenancy at retirement and simply received ‘way-go’ for improvements, UMV’s or bound sheep stock value. Today, tenants are more aware of the value of their tenancy and as agents, we regularly negotiate retirement packages, unlocking ‘value’ from the farm. As a valuation exercise the considerations can be similar to the list above, but approaching it from the other end of the deal. The Tenant Farming Commissioner has now produced a guidance note on this subject.

Assignation for value. Talk of being able to sell a tenancy was strengthened by introducing it in the Land Reform (Scotland) Act 2016. The delay to the introduction of the legislation was caused by the requirement for the acquirer of the tenancy to be a ‘new entrant’ or ‘progressing farmer’.

Whilst it has not come into force yet, deals are being done ahead of the legislation, and this is helping guide the packages that can be negotiated at retirement. If you are planning to unlock the value in your tenanted farm, these tips may help:

  • Prepare a list of improvements
  • Engage an agent early on to help guide you through the process
  • Understand your own financial parameters, whether buying or selling
  • Take a reasonable stance – extreme positions are harder to bridge
  • Deals are best achieved when there is a willingness on both sides

Author: Martin Hall MD.

For more information contact your local D&R Office.

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