It is a solicitor’s job to identify the risks and advise the land owner
There is a perception out there among farmers and policy makers that professionals, such as solicitors and auctioneers, are discouraging land owners from long term letting of land.
It has been said to me, on more than one occasion, that professionals will profit more by having to renew letting agreements every year, and that it is in their interest to encourage this.
Naturally, I defend our profession.
In my opinion, it is a solicitor’s job to identify the risks, and advise the land owner on committing to a long-term arrangement.
This is often counteracted by an argument that there is very little risk, and that there is much more reward in entering a long-term arrangement than a short-term one.
As a solicitor specialising in agricultural law, I am a huge advocate of leasing land for the long term.
Being from a farming background, and living and working on the family farm, I see the benefits to both the land owner and to the tenant.
In order for farmers to invest in land so that it can reach its maximum potential, farmers need security of tenure.
Why would a farmer invest in reclaiming and reseeding land, erecting new fences, improving road ways and so on, if there was a risk that he or she might not get the benefit from it over a number of years?
Also, it is especially important in accessing bank credit, as financial institutions generally match loan terms to lease duration.
Longer duration allows for phased payment on capital investment.
While there are cases of long-term leases where things do not work out as planned, the risks can be minimised by both the land owner and farmer having a comprehensive lease drawn up, and having open and frank discussions well in advance of signing.
There are great financial incentives for the landlord also in the long-term letting of land.
The thresholds for income tax exemption where a qualifying lease is taken out on or after January 1, 2015, are as follows:
€40,000 where all the qualifying leases are for 15 years or more.
€30,000 where all the qualifying leases are for 10 but less than 15 years.
€22,500 where all the qualifying leases are for seven but less than 10 years.
And €18,000 where all the qualifying leases are for five or six years.
To qualify for the long-term income exemption scheme, the Revenue Commissioners have advised that a lease must:
Be in writing.
Contain the names and addresses of the landlord and tenant.
Specify the acreage, address, location etc. of the land.
Set out the terms of the lease.
Be signed by the lessor, lessee and independent witnesses.
The lease must be for a definite term of five years or more.
Leases between close relatives do not qualify.
A company may be an eligible tenant, provided it is not connected with or controlled by the landlord.
A common fear among farmers is that a tenant can make a claim for squatter’s rights over their land.
There is nothing to fear.
Although tenants in long-term commercial leases do get additional rights to renew leases after five years, these only apply to commercial premises and buildings.
Agricultural land is treated differently.
In addition, even within the commercial world, ‘squatters rights’ or adverse possession is rarely, if ever, achieved where there is a lease in place and a rent is payable.
This is largely due to the protection that formal lease agreements give to a landlord.
A claim for squatter’s rights is impossible if rent is being paid for the land on a regular basis.
A lease protects the security of the land.
On a separate note, I have received numerous queries from farmers as to whether or not stamp duty is payable on the lease.
There seems to be some confusion in this area.
The answer is yes.
The original lease and counterpart lease need to be stamped.
Stamp duty is payable at a rate of 1% of the annual rent payable under the lease.
For example, if the annual rent payable on leased land is €10,000, stamp duty of €100 is liable.
The stamp duty on the counterpart deed is €12.50.
In Budget 2015, it was announced that there would be an exemption from stamp duty for leases of six years or more, from January 1.
However, this measure is still awaiting EU State Aid approval.
Therefore, the requirement to pay 1% stamp duty remains.
© Irish Examiner Ltd. All rights reserved