Ask a solicitor: I want to lease out the farm but keep the direct payments

Long-term leasing of land has surged in popularity since the government announced favourable tax incentives on rental income for landlords in 2015, writes solicitor Karen Walsh.

Long-term leasing of land has surged in popularity since the government announced favourable tax incentives on rental income for landlords in 2015,  writes solicitor Karen Walsh.

Dear Karen, 

I have been farming for years and recently sold my cows as no one in my family is interested in taking over the farm for me, I am considering a long-term lease.

I have a neighbour who is happy to take my land under a long-term lease but I have never done this before, and I am a bit anxious to make sure I do everything right and that I protect my EU payments as much as possible. 

I have also heard there are certain tax exemptions available on the rental income. What advice would you have for me?

Dear Reader, 

Long-term leasing of land has surged in popularity since the government announced favourable tax incentives on rental income for landlords in 2015.

A lease document is a written legal agreement between a lessor (the landowner or landlord) and a lessee (the active farmer or tenant). The lease sets out the obligations of both parties during the period of the lease, providing useful legal protection to all parties.

To qualify for the long-term income exemption scheme, the Revenue Commissioners have advised that a lease must:

• Be in writing.
• Contains the names and addresses of the landlord and tenant.
• Specify the acreage, address, location etc. of the land.
• Sets out the terms of the lease.
• Signed by the lessor, lessee and independent witnesses.
• Be for a definite period 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.

Direct payments

I note that you are claiming EU payments. It is critical to include clauses in the lease that protect these payments as much as possible. 

For example, the tenant would lodge all paperwork in time and repay you the payments promptly if this has been agreed with the tenant, the tenant would be responsible for any farm management costs and compliance and will pay any costs compliance fines arising therefrom, etc.

It would also be critical that if there was any change to CAP entitlements arising from the year of the lease or subsequent EU reviews, that a clause is in the lease to trigger a review of the agreement to ensure that the lease is structured so as to safeguard you, as the owner and the farmer’s interests and entitlements.

In such a situation, the farmer and you will agree to engage with each other to determine a sustainable solution and review the position with respect to the entitlements on an annual basis.

It is also critical that if there are buildings on the land, the farmer signs a deed of renunciation, which should be attached to the lease to ensure that he acknowledges that he is not entitled to an automatic renewal of the lease and waives his rights under the Landlord and Tenant Acts etc.

The lease must provide that insurance is in place in order that you, as lessor, be indemnified for, for example, all claims or liabilities arising from the lessee’s use of the property. It is critical that the lessor has his or her own public liability insurance and evidence of this is produced every year to you for the term of the lease.

You may want to consider, particularly if it is a long term lease you are entering into, as to whether you want to insert a rent review clause. It is advisable. You can make provision in the lease for regular rent reviews during the term of the lease, for example, every five years.

While lease agreement templates are readily available and the Irish Farmer’s Association (IFA) has produced an excellent precedent master agricultural lease, it is advisable to seek the advice of a solicitor in order to adapt the lease agreement to your specific needs.

Karen Walsh, from a farming background, is a solicitor practising at Walsh & Partners Solicitors, 17 South Mall, Cork, and 88 Main Street, Midleton, Co Cork, and also the author of 'Farming and the Law'. Walsh & Partners also specialises in personal injury claims, conveyancing, probate, and family law.

Email: [e-mail] 

Web: www.walshandpartners.ie

• While every effort is taken to ensure the accuracy of the information contained in this article, Karen Walsh does not accept responsibility for errors or omissions howsoever arising. Readers should seek legal advice in relation to their particular circumstances at the earliest opportunity.