Balancing control and risk in terms of land use
Land owners and farmers should take care that they have the right arrangements in place when agreeing terms for land occupation.
Tenancies, licences and contract farming all have a place in farming but we are concerned that some landowners may not fully understand the ramifications of the occupancy arrangement they are using.
Land occupancy in brief:
1. Letting the land – just collect the rent
If you have a tenancy under the Agricultural Tenancies Act 1995 it will be a Farm Business Tenancy. The FBT tenant will be in occupation with exclusive possession and is able to farm that land as if it were their own, subject to the terms of the tenancy, and claim the Basic Payment entitlements and the landowner would receive a rent depending on the terms of the tenancy.
The landowner may not be able to get possession of the land until a notice period has expired or if there was a breach of the terms of the tenancy.
2. Keep land under your control
Under a licence the grazier or grower would use the land to take away the crop of grass or come in and sow an arable crop and take that crop away under a cropping licence. Under the licence the licensee won’t have exclusive possession and they share the use of the land with owner.
3. Do farming yourself under Contract Farming arrangement/share farming
Under a contracting arrangement, the land owner would use a contractor to undertake all field operations on his behalf for which the contractor invoices the landowner for the work done and then the landowner would be obliged to sell the crop to the contractor if he required it.
The landowner needs to be proactively involved in the decisions. The farmer is taking the risk but to some extent this can be shared with the contractor if the right arrangement is in place.
There is no one-size-fits-all, but when thinking about an occupational arrangement you need to understand what your objectives are and make sure that the agreement you put in place gives you the control and risk that you require and then when the written agreement is in place make sure the activity on the land actually reflects the terms of the agreement.
Don’t let a contracting arrangement become a tenancy and then find the RPA or HMRC says this is no longer a contracting arrangement and in fact constitutes a tenancy and hence increases your tax liability and affects your entitlement eligibility and tax reliefs.
Sarah Reece, partner and chartered surveyor at Berrys
