Tenancy traps: Single Farm Payment
The 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. Progress is apparently being made but the incessant leaking by the various political factions serves only to create a climate of uncertainty for those who rely on single farm payments for their way of life.
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.
The Tenancy Reform Industry Group back in 2004 made it clear that this approach is unfair to a tenant and the Tenant Farmers Association has recently urged landowners not to include clauses in agreements with tenant farmers that “seek to harvest the benefit of support through the CAP for the landlord’s benefit.”
When negotiating terms for FBTs, both parties should bear this point very firmly in mind as not to do so could leave the tenant in a very difficult position at the end of the tenancy. Landlords and tenants should obtain objective advice before signing agreements if they are at all concerned about their implications.