WITH THE price of land prohibitively expensive for new entrants to farming, most have to rely on renting farmland to get started, but the Tenant Farmers Association (TFA) believe current tenancies are not offered on long enough terms - the group’s chief executive George Dunn explains why.
Farm Business Tenancies (FBTs) introduced in 1995, marked a major deregulation of the agricultural let sector and had three, main objectives; to encourage more letting of agricultural land, to increase opportunities for new entrants and to promote economic efficiency in agricultural land use.
Initially, the pattern of secular decline in the area of let land was replaced with net gains up to 2003. However the past decade has been a period of fragile stasis.
Much of the early success can be put down to the formalisation of agreements between parties prior to 1995 attempting to avoid security of tenure.
On new entrants, the Central Association of Agricultural Valuers (CAAV) reports that around nine per cent of all lettings and slightly over 30 per cent of lettings where there is a change in occupier, go to new entrants. It is difficult to judge whether or not this can be viewed as success, but there is evidence of considerable, unfulfilled demand for opportunities from new entrants.
On the third objective, the TFA argues that FBTs have been a failure. Farming is a long-term endeavour requiring significant capital investment, patience, good soil management and the ability to balance profitable years against the bad. None of this is assisted by the short lengths of term offered on today’s FBTs.
Over the 20 years of the legislation the length of term on an FBT has, give or take a few months either way, averaged less than four years.
Landlords are reluctant to use anything like the full extent of the flexibility offered by FBTs but have gained considerably from them and their associated tax changes.
With much higher demand than supply, landlords can offer short-terms, for high rents at very little risk and obtain, into the bargain, 100 per cent Agricultural Property Relief from Inheritance Tax.
By contrast the short-term nature of tenancies is holding back progression, investment and sustainable land use.
FBTs have been too short for too long which is why the TFA is running its “FBT10+” Campaign arguing that average lengths of term should be ten years or more.
Tax is a big driver for landlords and the TFA believes that Government should use its fiscal levers to encourage longer tenancies.
More favourable tax treatment for those prepared to let longer and less favourable treatment when agreements are short term.
To help landlords, we would also be prepared to see easier to use provisions for handling tenancy breaches for longer tenancies than exist at present.
The TFA held a conference to focus on longer term farm tenancies on Tuesday this week to coincide with the 20th anniversary of the Agricultural Tenancies Act 1995.