1805 rural news
stamford | autumn 2012
The rural sector is seeing unprecedented change in fortunes with further substantive increases in underlying commodity prices, farmland values and rents. In the background to a most difficult season in terms of climate this ought to create some challenges and we hope that this, our first edition of Rural news, will give some insight into what we feel currently are a number of issues affecting the sector.
Farm Rents This article is written at a time when there is considerable variation across the UK in weather, yields and harvest progress. Mixed farms have been particularly stretched by delays on the grass forage harvest resulting in simultaneous green and combinable crop harvesting. The result is higher costs, particularly where additional labour and machinery has been hired in for the few weather windows. A late harvest on wet soils has implications for harvest 2013 crop establishment, and corresponding yields/quality. Input and commodity prices are always fluctuating. Crude oil price continues to be the main driver behind input costs, in 2012 input costs are either reduced (e.g. fertiliser) or not much different to the same time 12 months ago (e.g. red diesel 67.95ppl June 2012 compared to 69.32ppl June 2011). Feed wheat can be sold around £200/tonne (up c.£50/tonne on 2011) and rape £375 compared to £350 – up c. £25/tonne on 2011. World commodity prices will continue to fluctuate.
likely to produce a cash loss. AHA issues continue to be treatment of non agricultural income, repairs, and overall relationship between the parties. It is often forgotten by both sides that rent reviews offer the opportunity to discuss other issues, not just the level of rent for the next 3 years. In the event of the parties not agreeing a new rent by the deadline (start date of new rent) it will go to arbitration which is expensive, often estimated at £20,000 per side. Insurance cover is available, and can be a critical negotiating element, especially for tenants. Speak to your agent or advisor well before the deadline and be prepared – particularly in a difficult harvest year when the last thought is to have a meeting about rent when machinery needs to be rolling. Harry Baines
The average freehold value of farmland continues to rise, a safe investment in troubled economic times worldwide. Investors and landowners are seeing (thanks to FBT tender rents in the main) higher returns, or hoping to after review. CAP Reform is another variable looking forward.
Where Does All This Leave Farm Rents? A three tier regime has become evident, the highest being FBT tender rents, then (in descending order) FBT reviews and then AHAs. A Scottish court case (Morrison-Low v Paterson) considered the relevance of FBT rents in setting AHA rents. Whilst the judgement acknowledged some relevance, the result is not clear. It will be interesting to see the interpretation by arbitrators south of the border. It appears widely acknowledged that the high rent FBT tenders for new agreements are not based on sustainable principles, and when ring fenced from other land are
Health & Safety at Work In the case of Whitehead v Trustees of the Chatsworth Settlement the Estate was cleared of charges of contributory negligence by the Court of Appeal after an incident where a gamekeeper was injured in a shooting accident. The Judge considered evidence about the amount of training and provision of information to the employees heavily and it was this information that showed the Estate were not negligent in their actions. In this instance the game keeper fell over crossing a stone wall, he was alone and whilst his gun was broken, the cartridges remained inside. On falling the gun went off an injured the gamekeeper’s leg. He then claimed for damages on the basis that the Estate as his employer had breached the Provision and chestertonhumberts.com
Use of Work Equipment Regulations 1998. As the Estate could demonstrate that they had properly trained its employees and they had circulated health & safety information on a number of occasions, which included simple information such as the need to remove cartridges from a broken gun, they were not liable for his injuries. This is an essential case at demonstrating the need to jump through the hoops with regards to health and safety. The farming workplace is one of the most dangerous, as we are frequently reminded. It is essential that employers take heed of this case and even if it seems like the simplest information that common sense should cover- let your work force know. Make sure they are trained on new equipment and informed of the latest legislation. Stamford Rural: t: 01780 762849
Visit us at the Southwell Ploughing Match & Show on Saturday 29th September The new National Planning Policy Framework (NPPF) has removed Annex A New (draft) guidance which is on balance more favourable towards essential workers’ dwellings in the countryside which may make it easier to obtain planning permission for an Ag tied dwelling. Without doubt, historically, when applications are made in times of confusion in the planning system the outcomes have been more positive for the applicant. In addition to the state of the planning system, advances in technology and perhaps localism (in many senses, including a desire by consumers to buy locally produced food) have meant that some successful applications that we have seen, whether for houses or temporary caravans, have been for businesses with often small numbers of livestock.
Ag Tag Dwellings The current revision of the planning system (at national and local level) has resulted in a situation where Local Authorities are still using old national guidance until the new guidance has been finalised and come into effect.
The now superseded Annex A of PPS 7 outlined the tests, functional and financial, and the planning matters included landscape, policy, ecology, access, noise and odour.
One example for a caravan (3 years, precursor to a house application) was for a farm with a herd of 8 pedigree suckler cows, using embryo transfer instead of AI or bull. Another suckler cow case initially faltered but when numbers were increased, succeeded. Both cases were for second dwellings to accommodate more than one generation. When the above is coupled with high housing costs in villages (especially for first time buyers), profitability in farming, and the increasing number of farmers wanting to hand on to the next generation, it is a good time to look into obtaining permission. This could be for a second dwelling on the same holding perhaps for the next generation or the current generation to retire into or a new dwelling on a separate holding. Finally, with increases in commodity prices, freehold farmland values, and low interest rates farming businesses should be in a firm financial position to consider such a project. Harry Baines
We have retained clients looking to purchase land and farms if you are thinking of selling Empty Rates Relief – Loophole? In this climate there are plenty of non-domestic properties vacant at the moment. If they are subject to non-domestic rates you may well have noticed that they are chargeable after a certain amount of time even if you haven’t managed to let them. You’ll be well aware of this if you let storage or offices on your premises as a diversification project. A recent case may well have found a loophole for claiming empty rates relief. The recent case of Makro Properties Ltd v Nuneaton & Bedworth Borough Council 2012 highlights how the clock can be reset on empty rates relief. Relief from non-domestic rates is available for the first three months on retail premises and the first six months on industrial premises and warehouses. Once the respective period has expired, rates will be charged whether the property remains empty or not. In this case the judge concluded that occupying 0.2% of the warehouse floor space was actual occupation for the purposes of business rates liability. Therefore once this storage period ended then empty rates relief could be claimed again. The court also concluded that the fact that the occupation was intended to secure another period of empty rates relief did not invalidate it and the further period of empty rates relief was available. Judy Pearson chestertonhumberts.com
Tenancies – Do I Have to Pay Half of the Insurance Premium? In some tenancy agreements the insurance is the joint responsibility of the landlord and the tenant, where the landlord takes out the policies and then tries to recover half of the premium under the terms of the lease. Now, whilst this is in the tenancy agreement a recent case has decided that it is only recoverable if the parties hold the premium in both / joint names. In Green v Archway Road Management 2012 the Upper Tribunal found that if the landlord insured the property in his name alone he had no grounds to recover a share from the tenant. In this case, Ms Green had a long leasehold on a flat, she didn’t think that the cover the landlord had acquired was adequate and subsequently took out an additional policy in her name and refused to then pay a proportion of the original premium. The court held that the landlord was in breach of the terms of the lease by not arranging insurance using joint names. This case highlights the importance of arranging an insurance premium that coincides with the terms of the lease, if you have agreed a joint payment of the insurance, you will need to arrange a joint policy to make the payment from one party to the other legally enforceable.
Stamford Rural: t: 01780 762849
Looking Forwards The autumn brings with it a time for a quick pause, depending on the farming system that you operate there comes a gap between the onset of lambing / calving or simply the main part of the shooting season. This point is a good time to reflect on where you are with your business, stage of life, operating system etc. Farming is a difficult profession in that most farms will have to service more than one family, not just employees but wives and children, and with people living longer some farms are supporting three generations.
Expansion Most people would like to get more bang for their buck from expensive investments, namely kit. Expanding your business either by taking on some contracting, a new tenancy or a land purchase it is important for the finances and the reasons for investment to stack up. Will you be stretching existing machinery to cover more land which will make it more cost effective by reducing your cost per acre overheads or will you be taking on so much you will have to think about further investment? As we have seen from the farm rents article, taking on land isn’t cheap and committing to a high rent should calculate a good financial investment which will stack up with fluctuating prices- even if commodity prices drop and inputs continue to rise you are still making a profit.
Contracting Succession If you are a tenant farmer, are you all set up for succession? It’s not as simple a process as some may think and you need to have your ducks in a row at least five years before the intended succession. There are various potential pit falls which can tie up an application, some of the common areas include running a contracting business, working elsewhere in addition to the home farm and whether your successor takes a wage from the farm which is their principal source of livelihood. This is one of the main tests for succession, which isn’t great when many farmers don’t take a wage from the farm in an effort to keep money in the business. If you’re in a situation leading up to succession then it is essential that you take some advice early on to increase the likelihood of succession and avoid devastation if the inevitable should happen unexpectedly.
Contract farming is a good option for the expansion of a business as there are various saleable services or taking on a stubble to stubble arrangement. With these agreements it is important to seek advice on the going first charge / basic rate and how divisible surpluses are being calculated given the commodity prices. Another essential factor to consider is a connection to fuel prices, especially for harvesting and cultivation. As mentioned, banks are keen to lend to farmers at the moment; whilst land prices are ever increasing, if you can work out a good finance deal then purchasing could be a good option. Equally if you are thinking about releasing some cash from your business, now is a good time to sell. There are important areas to consider which may catch some people out. At the moment there are issues regarding ‘the golden ticket’ and CAP reform as well as the more traditional things to think about, which include tax liabilities and what you plan to do with all that money!
Retirement If you are thinking of retiring on an owner occupied farm it is worth thinking about your inheritance tax position. Most farmers are aware that Agricultural Property Relief can be claimed on agricultural land and in some cases the farm house. If you decide to retire, but wish to remain living in the farm house the farmer will no longer be living in the farm house and it will become subject to inheritance tax, which at the moment is a pretty hefty 40%.
Interestingly, on the subject of land sales, there has been a change in tax law which may well increase the amount of potential farmland purchasers. There are new commercial investment rules for non-UK domiciliaries which allow non-doms to bring capital gains or income in to the UK free of tax provided they invest in a UK business. Before this was introduced they could be subject to 50% tax on these kind of investments, so it makes a juicy opportunity for them. There are a multitude of further issues but the point to stress is, if you are thinking about your future and how you want to change your business, it will be a lot simpler (and cost you a good deal less) to seek professional advice early on. Judy Pearson Stamford Rural: t: 01780 762849
Rural Properties Available
FERRY HOUSE, CASTOR A 9 bedroom 17th Century house set in the beautiful private parkland of the Milton Estate. 5 reception rooms, 5 bathrooms, gun room & cellar.
WHITELANDS, YARWELL An opportunity to create a small residential estate in an elevated position, 56.36 acres.
BARHAM COURT, EXTON Grade II listed country house with formal gardens, tennis court, stabling & paddocks, in all about 12 acres.
About Chesterton Humberts The merger in 2009 of Chesterton and Humberts brought together two long-established names in London, UK and international property. Established in 1805 to serve the London property market Chesterton has built an international network across three continents. Founded in 1842, Humberts has its roots in the countryside. Chesterton Humberts has rural departments in 9 of its 70 offices offering expertise in rural professional practice.
Services Chesterton Humberts is well known for its residential, country house and farm agency but we also offer a wide range of professional services. Valuation As RICS registered valuers we can provide Red Book valuations for various purposes including inheritance tax, bank lending and business shares. We also undertake annual stock taking valuations and informal valuations. Compulsory Purchase We represent farmers and landowners at all stages of the scheme including calculating compensation. Compensation for compulsory purchase can occur on road schemes, pipelines, overhead and underground cables and railway lines. Tenancy Matters We deal with agricultural, residential and commercial tenancy matters. These include
creating agreements, rent review negotiations and termination. We are specialists in agricultural tenancy law and are equipped to deal with all areas of new and old style tenancies including succession. We work on behalf of both tenants and landlords. We are also equipped to deal with the intricacies of residential and commercial tenancies on farm including retiring workers and commercial lets. Farm Services With regards to farming matters we can provide assistance with Single Payment Scheme, grant funding including stewardship schemes and rural development projects. We also advise on business planning and structuring. Planning and Development We can advise and apply for planning permission for agricultural and diversification projects. These include agricultural dwellings and removal of
agricultural ties. We can also advise on permitted development and certificates of lawful use. We are fully versed on the changes to planning policy which have developed recently. Tax and Estate Planning Whether you are an owner or an occupier we can advise on the most appropriate system for your business for the future and generations to come. We can advise on tax planning, succession planning, self investment pension funds and trusts. Land Law Our property specialisms include land law. We can solve issues with rights over land that may come from covenants, easements or public rights of way to name a few. We also advise on land registration, titles, adverse possession and due diligence for purchase.
BSc (Hons) MRICS Director
FRICS FAAV Director
BSc (Hons) MRICS FAAV Associate
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DIANE NORTH Senior Secretary
Stamford Rural: t: 01780 762849
Stamford Rural Newsletter Autumn 2012