Karen Walsh: Cover all the angles in leasing

This year’s budget encouraged the long term leasing of land, with significant advantages for both the landowner and the farmer.

Generous amounts of rental income can be exempt from income tax.

Most farmers who need to enlarge their holdings cannot afford the enormous cost of purchasing land, and leasing land can be attractive. Alternatively, if you are retired from farming, or have recently inherited farmland and do not intend to farm it yourself, you may wish to let your lands.

Before you think about leasing land or entering into a lease, it is critical that a lease is drawn up in writing. To avail of the tax reliefs and exemptions, it is essential that the lease document is in writing. It is also beneficial in terms of finances, goodwill and the well-being of the land, to seek advice prior to entering into an agreement.

You should think about the possible use you may have for the land in the future, for example, you may wish to give a site to a child.

You may also be fearful of being locked into high or low land rents. This can be remedied by tailoring a lease agreement to include regular rent reviews, or by linking the rental charge to, say, the annual price of milk or barley.

What is the tenant planning to use the lands for? This should be agreed. If cattle are to be put on the lands, the tenant should covenant that no diseased animal shall be placed on the lands.

The lease must specify that the tenant must carry his or her own insurance, and must indemnify the landlord from all claims or liabilities arising from the tenant’s user of the property.

If you are leasing the basic payment entitlements, this needs to be included in the lease, and a private contract clause also needs to be signed, to ensure that the basic payment entitlements revert to the landlord, once the lease comes to an end. It is critical that you consult with your Teagasc advisor, before putting any pen to paper.

It is also worth considering inserting a clause into the lease that, in the event of the tenant not receiving his or her basic payment entitlements, this should not affect the agreement in place, and that the monies are still due and owing to the landlord.

A clause should also be inserted into the lease that the tenant is to process and lodge all paperwork with the Department of Agriculture by the required deadline, for the purposes of triggering any entitlements payable, and to deal quickly with any queries that the Department may raise in connection with the application.

A tenant should not have a right to sublet the land without the landlord’s prior written consent.

The upkeep of the land should be covered in the lease. The manner and time in which notice of termination by either party must also be given is extremely important.

If considering leasing land, you need to consider other tax implications, such as the effect on potential capital gains tax in the event of a future disposal; this should be discussed with your advisor before entering into any lease.

A common fear among landowners is that of people claiming squatter’s rights over land. This is impossible if rent is being paid for the land on a regular basis. A lease protects the security of the land. A person cannot claim squatter’s rights on land that they are paying rent for.

The Landlord and Tenant Act 1994 provides tenants with a right to claim renewal of a lease at market value, where the property in lease consists predominately of buildings, where the land attached to buildings is considered to be “subsidiary and ancillary” to the building.

For example, if the farm consists predominately of buildings such as cowsheds or slurry pits, the tenant would have a right to renewal of the lease at market value after a term of five years has elapsed. A way to get around this is by granting a lease of the land only and granting either a licence or a letting for the temporary convenience of the landowner for the buildings on the land.

In this circumstance, the tenant will not have a right of renewal after five years.

Having a detailed lease agreement in place is worth it in the long run, both from a financial and practical point of view.


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