As a further 'belt and braces' measure I would recommend incorporating a clause into the lease to the effect that in the event of the payment benefit of the entitlements passing to the farmer due to EU/Department of Agriculture rule changes, the annual rent shall be reviewed to reflect part or all of the payment benefit passing to the farmer.
If such a provision is clearly agreed and understood by the landowner and tenant at the outset, it is unlikely to cause a problem when and if such an event occurs.
I would also recommend including a clause to the effect that the entitlements revert to the landlord at the end of the lease notwithstanding the possibility that rule changes in the meantime may not permit this.
LEASING FARM BUILDINGS
Most leases will include a provision for emergency access to a crush or temporary holding facility which is not a problem. However, including farm buildings in the lease is a matter that will require some consideration in terms of privacy, access, maintenance etc.
Increasingly, farms are being leased which include milking facilities and animal housing which can be an attractive proposition for both landowner and tenant. Generally, including farm buildings in a land lease is not fraught with any particular risk.
However, leasing buildings for medium to long terms may fall uuder the 1994 Landlord and Tenant Act which provides tenants with a right to claim renewal of a lease at market value in situations where the property being leased consists predominantly of buildings where the land element of the lease is considered to be "subsidiary and ancillary" to the buildings.
In other words, if the lease is more a farm buildings lease than a land lease the tenant may be entitled to renew the lease, albeit at market rent.
Where a long term lease, say 15 years, is entered into, it may be the case that the tenant will want to erect buildings on the farm.
The terms of any such concession will have to be fully agreed in advance and documented in the lease. I have dealt with a number of such situations and typically the ownership of the buildings will fall to the landowner at the end on the lease.
However, the cost of any developments will be amortised over the term of the lease whereby an early termination may result in the landowner having to compensate the tenant for any residual written down value.
My advice to both parties in this instance is to seek out the best available legal and agricultural advice before committing to anything.
Most intending lessors will have certain conditions that they will want to include in the lease.
Such conditions could be, for example a prohibition on using certain entrances to the farm, the right to any fallen timber, the right to access the land to remove growing timber, the right of use of certain farm roadways or indeed any reasonable right that the landowner should require.
The time to identify any special conditions in a lease is prior to commencement in order that they can be documented in the lease. TAXATION Arguably, the greatest incentive towards leasing land is the tax relief. Tax savings of up to €16,000 can be made by an individual landowner in any one year. Table 1 sets out the relief available for the various lengths of lease for an individual landowner. Table 2 sets out the lessees that will qualify the lease income for tax relief. It should be noted that the relief applies to Income Tax only and not PRSI or Universal Social Charge.
A spouse or civil partner is also entitled to the relief so if the land happens to be in joint names or if the spouse/civil partner has land to lease separately, both parties are entitled to the relief. Such a move may have future Capital Gains Tax implications so good tax advice should be sought before embarking on such a route.
Also, transferring the land into joint names may have State Pension implications as it may render a spouse ineligible for the Qualified Adult Allowance. This is also a matter requiring good professional advice.
Finally, if one intends to transfer or sell the farm at the end of the lease it is important that the land has not been leased or rented for a continuous period of more than 25 years. If that is the case there may well be a Capital Gains Tax exposure.
Further information: Teagasc have produced a useful booklet titled Guidelines for Long Term Leasing. It can be accessed at www.teagasc.ie
Martin O'Sullivan is the author of the ACA Farmers Handbook. He is a partner in O'Sullivan Malone and Company, accountants and registered auditors: www.som.ie