Davidson & Robertson has called for more focus on the “key principles of managing estates” in the “ever-changing” rural marketplace.
The Scottish rural consultancy said that it is more important than ever to focus on the key principles that make managing rural estates more effective in the “fluctuating world of agricultural policy”.
Director and head of property and forestry at Davidson & Robertson, Niall Milner, said there are seven considerations that are core to adding value to rural estates.
“Diversification, wise investment, a serious look at health and safety, and energy efficiencies have never been more important,” he said.
“At the same time, budgets, looking at the reinstatement costs for insurance purposes and keeping good records are also key to the business.”
Key considerations
Finance
The first of the seven considerations, according to Milner, relates to the diversification of income.
“As a landowner, whether that be as an investment landowner with rental property, or running your own agricultural business, having diversified income streams can provide resilience in a time of change,” he said.
“The residential property market within Scotland has rent caps in place, and the agricultural sector with the inevitable emerging changes to the subsidy schemes means having other income streams can assist with volatility.”
Milner said these streams can be through commercial rentals, storage or workshops in disused buildings, farm shops or cafes.
The next consideration is wisely considering different investments. Milner said that “every farmer wants a new shed” but that, before investing, people should consider whether they want to invest in the tenant’s business or whether they need to satisfy a repairing obligation.
“An investment into the farm infrastructure needs to be supported by a business case so make sure the discussion on return is approached before the shed is built,” he said.
Health and safety
Milner’s next piece of advice is concerning health and safety. He urges those looking to add value to their rural estates to take health and safety seriously.
“We live in litigious times and there is no getting away from the ‘where there’s a blame there’s a claim ‘mentality’,” he said.
“What may seem obvious to you is not obvious to the public, and where access rights across Scotland are so irrepressible, it’s important to properly manage stock, fencing, appropriately sign around the farm, and hold a tree safety survey.
“It often seems like money is wasted until it becomes money saved. Some insurance companies may risk profile clients, and where active measures are in place to avoid liability, an underwriter may look more favourably at renewal time.”
Energy
The fourth recommendation is related to energy, with Milner highlighting that energy security is in “sharp focus” as the reality of the cost-of-living crisis begins to hit home for many.
“Rental values have always historically been underpinned by repairing standards and location, although with the ever-increasing interest from tenants in the energy performance of prospective properties, there is becoming an emerging green premium or brown penalty to rentals,” he said.
“There is no getting away from the legislative requirements and the need to meet minimum energy efficiency standards across the rental sector.
“Upgrading insulation, renewable heating systems, and even adding solar panels are good ways to future-proof housing stock and should be considered at the point of any rental voids.”
In larger businesses that may have the need, he said, wind and solar can be an expensive upfront cost.
“But with improving battery technology and the prices reducing as the technology advances, those who invest in the long-term may reap rewards from having a secure energy source for their businesses,” he said.
Cost valuation
The fifth key consideration for those looking to add value to their rural estates is in relation to cost valuation.
Milner said that building costs have increased by over 20% in the last few years, with imported materials being more difficult to source and afford.
“It is important that Reinstatement Cost Valuations are carried out on farms and estates regularly and no more than five years apart for insurance purposes,” he said.
“Extreme weather is now becoming a more regular occurrence and under insurance on buildings in the event of an incident and a claim is a risk no policyholder wants to take.
“In many cases the Reinstatement Valuation will be higher than the market valuation of a property, valuing what it would cost to demolish and rebuild the building on a like-for-like basis, including everything from planning fees to materials and work.”
Budget
The famous saying ‘don’t let the tax tail wag the dog’ rings true, according to Milner. Leading to the sixth recommendation, which relates to budgeting.
If the business is ever looking to introduce change, Milner said, it is important to consider the implications from a tax perspective.
“Equally, having a cash flow budget for your property is key and reviewing this regularly can help you tax plan and make the best business decisions which don’t leave you in the red,” he said.
“Reforecasting halfway through the tax year can also help realign any unforeseen income or expenditure.”
Written correspondence
If property involves any tenanted property, ambiguity and misunderstandings can cause some of “the biggest breakdowns in relationships”, Milner said.
Having file notes and written correspondence then can help alleviate disagreements, as can written tenancy agreements.
“Tenancy agreements typically set out obligations for repair and maintenance, as well as any detail around the term dates and special clauses, therefore if it’s not in writing, ensure that notice is served to request the terms of the tenancy in writing,” Milner said.
“This can be important in all circumstances, particularly those on agricultural tenancies where the land may be suitable for development and having clear break clauses are needed.
“For those with tenancies under the Agricultural Holdings (Scotland) Act 1991 or Agricultural Holdings Act 1986, schedule 1 identifies provisions required in leases and tenancy agreements.”
