Wednesday, October 17, 2018

Redundant farm buildings find new lease of life as industrial units

May 31, 2018 by  
Filed under Property

A shortage of industrial and distribution space is creating opportunities for farmers to boost their income, says Edward Tabner.

There is nothing new with farmers leasing out farm buildings – traditionally it has been anything from a place for a mate to keep his boat to something more formal such as a builder wanting to store equipment and materials.

While there is potential to convert up to 1000 square metres of redundancy agricultural buildings into up to five dwellings under the permitted development rights, a residential use may not be conducive to other key activities taking place.

With increasing pressure on local authorities to allow residential consents on existing industrial land, demand has only increased over recent years giving land owners alternative options.

It is not however, all plain sailing, there are many influencing factors with location having the biggest impact on rents achieved, more remote sites will generate lower returns than sites on the edges of towns and villages for instance, unless they have exceptional access to key road networks.

Good returns

The initial investment required to convert buildings into commercial industrial space is relatively low compared to say a residential use and even with low rents the majority of landowners can expect a high return.

Yields can typically be at around 10% or even higher for buildings near major urban centres. But don’t be greedy – high rents will demand more management as tenant’s expectations will be higher and there is an increased risk of churn leading to potential void periods.

Rents for industrial buildings vary dramatically depending on location, distance from town and access to road networks. In Cambridgeshire, for instance, the best buildings can attract rents of £4.50-£5/sq ft for a basic structure for the tenant to finish to his own specification.

This means a typical obsolete agricultural building measuring 60’ x 45’ has the potential to generate between £10,000 and £12,000 per annum after allowing for management charges. But returns in more remote locations can be as little as £1.50 per square foot.

Proper advice

That said, a diverse mix of companies is taking up accommodation in converted buildings, with beer wholesalers, discount carpet stores, children’s nurseries and even storage of valuable works of art across the region. It seems the opportunities are limitless for the right buildings.

Tax should be considered carefully although many ventures are usually run as part of the main farming business. It is important not to miss out on useful tax allowance for expenditure on the conversion project. Quotations and invoices are essential to allow proper allocation of reliefs.

The most important consideration of all is to take proper advice before allowing any occupation to take place. Without the proper agreements, there are risks of giving the tenant security of tenure under the Landlord and Tenant Act 1954 and making it very hard to regain possession.

Finally, a properly drawn up lease by a professional is absolutely essential and will undoubtedly be money well spent.

Edward Tabner is a director for Cheffins Rural Professionals team. For details, visit www.cheffins.co.uk.

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