For numerous reasons, including the reform of the Common Agricultural Policy, world commodity prices, the exchange rate of the Euro, BSE, foot and mouth disease, to mention a few, incomes from rural businesses, principally farms and estates, have reduced considerably over the last few years.
As a result, land managers have increasingly been required to seek alternative methods for supplementing their income by means other than traditional production. Getting the most from land can now mean, for example, establishing a wind farm, setting up a bed and breakfast business or converting redundant agricultural buildings for residential or commercial use.
In October 2004 a Code of Practice was published by the Tenancy Reform Industry Group (TRIG) which was designed to provide guidance to landlords and tenants to assist diversification in the tenanted sector.
The Code further stipulates a framework within which landlord and tenants should be able to agree appropriate terms in order to permit terms for variation to existing agricultural tenancies. Sworders have recently been involved in securing the change of use of a mid-19th century farmstead on a tenanted farm near Saffron Walden.
The tenant, who farms the holding in partnership with his brother, recognised the potential value of his model farm, which, since the cessation of pig production, had become redundant.
The tenant enjoys a sound relationship with his landlord, who agreed at the outset of the diversification exercise to pay 50% of the costs incurred in the project, in return for 50% of any rents received.
The main farm building comprised an “E” shaped courtyard. Planning consent was obtained for the change of use of the buildings to Class B1 (office/light industrial) use and the site is being locally advertised by Sworders and a number of tenants are now in place. The buildings are currently being converted for office use, utilising an amalgamation of Estate workers and outside contractors, and are tailored to individual tenant’s requests.
Key lessons which the client has learnt from the diversification process mirror the recommendations of the Code of Practice:
- Ensure that both parties consult one another at the outset of any diversification exercise.
- Seek a “paper-trail” of consent between the parties.
- Agree as to how costs are to be apportioned e.g. planning application fees, professional advice, building works, advertising costs and future management of the project.
- Establish that the project is to be viable by preparation of a sound business appraisal.
- Prepare a formal written agreement/amendment to existing agreement between the parties.