“The Morrison Low v TH Paterson’s executors rent review case is very significant for both landlords and tenants as it gives a clear indication of how the Single Farm Payment (SFP) subsidy is to be taken into account when rents are fixed.
“Previously the potential income and profitability of the farm, including the SFP, was one of the most significant factors when fixing rents. The SFP can, depending on the farm, amount to tens of thousands of pounds a year. Due to low and fluctuating commodity prices for many farms, the SFP is equal to the “profit” for the year. So, in effect, the farmer is not making any money or, in some cases, a loss from their normal trading activities and are therefore relying entirely on the SFP to provide their profit.
“In tenanted situations, if the SFP represents the only profit being made and if it is not to be taken into account a tenant might argue that no rent should be paid. Of course this is an extreme example but that seems to have, in principle, been one of the arguments made by the tenant who sought a very substantial reduction in rent in this case.
“The Land Court decided, in this case, that only a small part of the SFP should be taken into account in assessing the rent.
“There are other factors important in assessing rents. The fact that a tenant may not run a particularly profitable business is not conclusive in determining the rent as, for example, it might be possible to farm profitably if other enterprises were introduced and there may be other income from sublet cottages and comparable rents in the district may be higher. There is certainly no shortage of applicants when land is advertised for let.
“The wider issue of rents in general and the return a landlord obtains is very important. In this case, a farm of about 470 acres with a farmhouse and cottages provides a return in rent of £20,800. If the farm is worth say £5000 an acre including buildings and houses its value is £2.35m, the return on investment is only 0.87%.
“One of the problems facing Scottish agriculture is the very limited amount of land available to let.
“The figures showing the return a landlord makes on their capital investment couldn’t be a clearer indication of why there is so little land available for let on traditional tenancies and why many landlords are not willing to re-let land when it comes back in hand.
“An unfortunate consequence of this case may be that even less land is available for let in the future”