Tenancy traps: Single Farm Payment
T
he Common Agricultural Policy reform proposals are an increasing source of worry for our farming community. The inevitable politicking that has taken place on the continent led to approximately 7,500 amendments being tabled by the European Parliament on receipt of the European Commission proposals. We do now have an agreed way forward but much of the detail remains to be negotiated and it is as yet far from certain what the practical effects of the changes will be.
Legal documents that need to take the single farm payment into account are inevitably an exercise in hitting a moving target and “good faith” clauses are becoming more and more commonplace. So too are clauses detailing how entitlements are to be treated.
Farm business tenancies warrant particular attention.
In the current climate, both climatic and economic, tenant farmers who are offered the opportunity to farm additional land can be excused for wanting to get onto the land as quickly as possible. However, the unsuspecting tenant might find himself trapped if he isn’t wary of the documentation he is being asked to sign.
Drafted by the landlord, many of the modern FBTs have a short clause buried in their midst obliging the tenant to transfer their entitlements at the end of the tenancy for little or no compensation. This is not necessarily something the landlord even considers; instead, it is more likely to be a result of the fact that an increasing number of industry-standard documents provide “transfer for no consideration” as an option for the draughtsman. As a lawyer or agent acting for the landlord, why wouldn’t you try and get the best possible position for your client?
The result is plain – at the end of the tenancy, the tenant farmer could be obliged to transfer the entitlements he has been using on the tenanted land for free to his landlord even if the tenant paid for them himself.
For more information on farm tenancies, please contact Rupert Burchett on 01926 478009 or email
Depositing controlled waste on your land: issues to bear in mind
Recent case law would suggest that landowners are being prosecuted by the Environment Agency for depositing material on their land even though they have previously been granted consent to do so.
A good example of this is a recent case in the West Country where a farmer was prosecuted for just such an alleged offence.
Using a product known as tyre bales, he had constructed several gallops forhis horses. He brought the bales onto his farm with the full knowledge of theEA. However, following the construction of several tracks and gallops using almost 1,500 of these bales, the EA instructed the farmer to halt the work. He was left with aseries of unfinished gallops and a large pile of tyre bales in hisfarmyard.
The EA subsequently decided to prosecute him for the deposit of controlled waste on the basis that that the tyre bales did not comply with the relevantmanufacturing standard and were therefore controlledwaste. After a case lasting seven weeks, the farmer was acquitted of all charges against him and the EA was criticised for bringing the prosecution. Had they been successful, the effect on the farmer would havebeen ruinous. He would have had to remove the bales at vast cost and, at the very least, he would have faced a large fine. At worst, he could have been imprisoned.
The importance of being prudent
M
any people in the farming sector are doing nothing to prepare for the possible serious illness or death of a partner in the business.
The majority of farming businesses are structured as family partnerships and to a lesser extent privately limited companies. However, although it might be expected that succession planning would be a matter of routine, this unfortunately is not the case.
Let us use two hypothetical brothers, John and Peter, as an example. They have spent 30 years running the family farm in a limited company. If John suddenly died then, unless he had made a will, he would die “intestate”. His shares in the company would not necessarily go to the person/people that he would have envisaged. They might go to his wife, children or someone else. There may be inheritance tax implications to this.
Peter could then be in a very difficult position. It might not be clear who would exercise the voting rights of the shares previously held by John. Peter might not be able to run the company as he would wish. You might want to consider a shareholder’s agreement to help with such situations.
Perhaps the person inheriting the shares might want to sell them to Peter. There is no guarantee that Peter could afford to buy them. That, in turn, could cause problems for John’s family. If they don’t want to remain in the farming business, not being able to sell the shares would commit them to a company with no real prospect of any income or other financial support at a time when they need it most.
The uncertainty, at a time of grief, would be unwelcome and unnecessary. If this situation reminds you of a position closer to home, or to talk to us about shareholders agreements, inheritance tax implications or any other estate planning matters, please contact Ann Donnelly for more information on 01926 491181 or email .
Professional advice should always be sought for assistance in specific areas of the law, and we cannot accept any responsibility for any action based on the articles in this newsletter.