Paul Rice considers the inadvertent effect upon rent reviews under the Agricultural Holdings Act 1986 (AHA) caused by the reduction in VAT in December 2008; together with the possibility that this may soon be remedied.
The AHA permits both landlord and tenant to seek a review of the rent reserved under an AHA protected tenancy. However a request to review the rent is not binding under the Act if it is intended to take effect less than 3 years from:
1. the date of commencement of the tenancy;
2. the date of the last change in the amount of rent payable; or
3. the date (if applicable) of the most recent decision of an arbitrator that rent should remain unchanged.
Certain exceptions apply to this general rule. For example, a change in rent which reflects the surrender of part of a holding will not serve to re-set the ‘rent review clock’. However, in the case of R.T. Mason v The Honourable E.A.H. Boscawen (2008) the High Court concluded that a change in the prevailing rate of VAT will do so: if VAT is charged, it forms part of the rent. A change in VAT will therefore represent a change in rent.
The impact of this decision is that neither landlords nor tenants to AHA protected tenancies who pay or receive VAT on the rent, would be able to review the rent for the holding until after 30 November 2011. Worse, without legislative correction, if the Government were to follow through with their intended increase in the rate of VAT in January 2010, rents for affected tenancies could have been frozen until at least 2014. By that time, some landlords and tenants would not have been able to require a rent review for at least 8 years!
To his credit, Mr Justice Lewison, in giving the judgment, recognised that urgent legislation may be required ‘…if recent political events are not to have the effect of causing an inadvertent and possibly prolonged agricultural rent freeze’.
It would appear that the Government has heeded Mr Justice Lewison’s call. Discussions between the Tenancy Reform Industry Group (TRIG), DEFRA and the Treasury have culminated in a provision in the Finance Bill 2009 designed to reverse these unintended consequences, once the Bill receives Royal Assent.
As a footnote, the Tenant Farmers Association (TFA) has highlighted concern that the provision in the draft Finance Bill 2009 may create further problems. Their concern stems from the fact that the provision is to have retrospective application to negate the impact of December’s VAT increase. Their suggestion is that landlords who acted to their detriment by compromising or abandoning rent reviews in reliance upon the decision in Mason v The Honourable E.A.H. Boscawen (2008) may now succeed in reopening the rent review process as a consequence of the retrospective amendment. This will very much remain to be seen.
For more information or advice on the issues surrounding Agricultural Holdings Act tenancy rent reviews, please contact Paul Rice.
