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Written by Jo Metcalfe, Rural Chartered Surveyor

 

Do you know the difference between improvements and fixtures? Read on to find out...

What are improvementsand fixtures?

Improvements are fixed equipment on a holding which a tenant has installed and paid for themselves - having first gained approval from their landlord to do so. This could range from a new shed or poultry house, to a new kitchen or bathroom.
Fixtures on the other hand, cover those items of fixed equipment which the tenant has installed themselves without having gained approval in advance from their landlord.
Landlords can also add fixed equipment to a holding as an improvement, if this is paid for entirely at their own expense.

How are they dealt with at rent review?

For both AHAs (tenancies governed by the Agricultural Holdings Act 1986) and Farm Business Tenancies (FBTs), the rental value attributable to improvements and fixtures made by the tenant is ignored unless they are an obligation of the tenancy agreement.
The basis of the rent review is the amount that an incoming tenant would pay for the holding ignoring all improvements and fixtures made by the sitting tenant. If the landlord’s buildings extend only to a traditional fold yard, the rent of the holding should be assessed - assuming that the hypothetical tenant has only a traditional fold yard rather than the situation on the ground which could include a range of more modern general purpose or specialist buildings which were put up and paid for entirely by the tenant.
Landlord’s improvements, however, are taken into account at a rent review. It is also worth bearing in mind that a landlord can trigger a rent review outside of the normal three year review cycle immediately after installing a new improvement.

What happens at the end of the tenancy?

At the end of an AHA tenancy, tenant’s improvements are left on the farm and compensation is paid to the tenant in line with the terms of the written agreement, put in placewhen the improvement was given written consent by the landlord. This consent usually, but not always, refers to a “write off period”, for example that the cost of the improvement will be written off to the value of £1 over the life span of the improvement.
If the written consent is silent on the method of valuation, the tenant is entitled to the value of that improvement to a hypothetical incoming tenant. This is calculated by capitalising the increase in rental value attributable to the improvement.
AHA tenants are free to remove their fixtures at the end of the tenancy if they first serve a statutory notice on their landlord. The landlord then has the option to purchase the fixture, otherwise the tenant is free to remove the fixture so long as they make good any damage caused to the holding whilst doing so. This is very important to remember when doing any work without landlord’s consent – would it be possible to remove the fixed equipment without causing costly damage?

An FBT tenant is able to remove fixtures at any time during the tenancy, or at the end of their tenancy if they remain in occupation. The statutory basis of compensation for improvements is the increase in the value of the holding attributable to the improvement. Landlords are only required to give compensation for improvements at the end of a tenancy if this is specifically allowed for in the tenancy agreement.

For further guidance on a range of rural matters, contact Jo Metcalfe at our Sedgefield office on 01740 622 100

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