By Niall Milner, Director and Head of Property & Forestry
In an ever-changing world of agricultural policy, Brexit, global conflict and pandemic triggering recession in the UK the key principles to managing your estate still stand and will provide you with a robust business for an ever-changing rural market place.
- Diversify your income – as a landowner whether that be as an investment landowner with rental property or running your own agricultural business, having diversified income streams can provide resilience in a time of change. With the residential property market in Scotland having rent caps in place and the agricultural sector with the inevitable emerging changes to the subsidy schemes, having other income streams can assist with volatility. These streams can be through commercial rentals, storage or workshops in disused buildings, farm shops or cafes, or the ever-growing craze of the paw park for those nearer to residential settlements (having dedicated areas for dog walkers to walk independently on the more marginal or smaller areas of land unsuitable for farming).
- Invest wisely – Every farmer wants a new shed. With growing machinery and the need to increase productivity and capacity, it’s unsurprising that new sheds are on the wish list of most farmers. Before investing in a tenanted farm holding, consider whether you want to invest in the tenant’s business or whether you need to satisfy a repairing obligation. An investment into the farm infrastructure needs to be supported by a business case so make sure the discussion on return is approached before the shed is built.
- Take H&S seriously – we live in litigious times and there is no getting away from the “where there’s a blame there’s a claim” mentality. What may seem obvious to you is not obvious to the general public and where access rights across Scotland are so irrepressible, it’s important to properly manage stock, fencing, appropriately sign around the farm, and hold a tree safety survey, it often seems like money wasted until it becomes money saved. Some insurance companies may risk profile their clients and where active measures are in place to avoid liability, an underwriter may look more favorably at renewal time.
- Energy – EPCs and energy security are in sharp focus and the reality of the cost of living crisis is now hitting home. We are beginning to see a shift in mindset of prospective tenants taking an interest in the EPC of properties. Rental values have always historically been underpinned by repairing standard and location although with the ever increasing interest from tenants in energy performance of prospective properties there is becoming an emerging green premium or brown penalty to rentals. There is no getting away from the legislative requirements and need to meet the minimum energy efficiency standards across the rental sector so upgrading insulation, renewable heating systems and even adding solar panels are good ways to future proof housing stock and should be considered at the point of any rental voids. In larger businesses that may have the need, wind and solar can be an expensive upfront cost but with improving battery technology and the prices reducing as the technology advances, those who invest in the long term, may reap rewards from having a secure energy source for their businesses.
- Reinstatement Cost Valuation – Building costs have increased over 20% in the last few years with imported materials being more difficult to source and afford. It is important that Reinstatement Cost Valuations are carried out on farms and estates regularly and no more than 5 years apart for insurance purposes. Extreme weather is now becoming a more regular occurrence and under insurance on buildings in the event of an incident and claim is a risk no policy holder wants to take. In many cases the Reinstatement Valuation will be higher than the Market Valuation of a property, valuing what it would cost to demolish and rebuild the building on a like-for-like basis including everything from planning fees to materials and work.
- Budget – the famous saying of don’t let the tax tail wag the dog rings true and if the business is ever looking to introduce change, it’s important to consider the implications from a tax perspective. Equally, having a cash flow budget for your property is key and reviewing this regularly can help you tax plan and make the best business decisions which don’t leave you in the red. Reforecasting half way through the tax year can also help realign any unforeseen income or expenditure.
- Everything in writing – If your property involves any tenanted property, ambiguity and misunderstandings can cause some of the biggest break downs in relationships. Having file notes and written correspondence can help alleviate any disagreements and equally, written tenancy agreements are no exception. Tenancy agreements typically set out obligations for repair and maintenance, as well as any detail around the term dates and special clauses, therefore if it’s not in writing, ensure that notice is served to request the terms of the tenancy in writing. This can be important in all circumstances, but particularly those on agricultural tenancies where the land may be suitable for development and having clear break clauses are needed. For those with tenancies under the Agricultural Holdings (Scotland) Act 1991 or Agricultural Holdings Act 1986, schedule 1 identifies provisions required in leases and tenancy agreements.