Making improvements can give a tenant an entitlement to acquire a renewed lease
Q: I have leased 24ha of grazing land for almost 40 years and I have farmed it as my own. The land is classed as disadvantaged - 16ha is mountain and the rest is low land.
I have drained, fertilised, fenced, sprayed and applied lime to the land. I have made the low land accessible by quad.
The landowner told me on numerous occasions that I would eventually be able to buy the land if I so wished and five years ago he asked me if I would like to purchase it.
However, it now looks like I have been blindsided by the landowner. After numerous calls, I was informed a few weeks ago that the land is being sold to another buyer. The landowner didn't even bother to call me.
As you can imagine I am very upset about the whole situation and wondering what my rights are and if I have any legal recourse to dispute the sale and assert my rights over the land?
A Your difficulties reflect two issues which are relatively common among farmers in Ireland. The first relates to the longstanding lease that you have in place on the land and the rights and responsibilities that go along with that. The second issue is with the purchase of the land which you feel that you were in the process of organising. It is important to distinguish these separate issues. In this article I will examine the issues relating to occupancy, tenancy and the rights that these.
A lease is a contract between a landlord and tenant in respect of a premises or property for a period at a specified rent (subject to terms and conditions) usually specified in the lease.
Agricultural land is treated much the same as commercial property in relation to leases and the rights and obligations of landlords and tenants.
In the agricultural sector, there is a custom of 11 months leases (conacre/agistment), many of which are never the subject of a written lease.
In this case, the lease is broken every year and the rights that the tenant acquires are limited.
Conacre provides the tenant with the right to sow or harvest crops, while agistment provides the right to graze the lands. Both conacre and agistment were used to avoid the additional rights which go along with a lease.
In more recent years, a suite of tax advantages has brought about fresh encouragement for landowners to lease their land on a longer-term basis. These longer-term leases will generally be the subject of a written, stamped lease and so the main terms will be clearly set out in writing.
In some instances where the long-term lease tax advantages are not being availed of a lease, the length of the lease is often four years and nine months.
The reason this cut-off point is used is because once a tenant is in occupation for more than five years they obtain a statutory entitlement to a new, long lease of up to 25 years at market rent. This may be at odds with the landowner's long-term plan.
Where leases do exceed four years and nine months the tenant will often be required to sign a 'renunciation'.
A renunciation is a legal acknowledgement by the tenant that even if the tenant remains in occupation for five years or more, they will not automatically be entitled to a new long lease.
The tenant needs to obtain independent legal advice before signing the renunciation.
There are two circumstances whereby a tenant may acquire a right to a renewed tenancy where a 'renunciation' will not normally be relevant.
A tenant may also acquire rights to a renewed tenancy in circumstances where he or she has been in occupation for a period of more than 20 years. This may apply in the case at hand.
Another circumstance which can bring about an entitlement to a renewed lease is where the tenant has made improvements to the property.
If improvements have been made on the property (and the tenant would not be entitled to compensation for those improvements under the terms of the lease) and the value of the improvements is one-half of the letting value of the property at that time, then the tenant may acquire an entitlement to a renewed lease.
If you have a lease you should look at the provisions in relation to compensation for improvements as this would provide guidance on this issue.
The extent of the detail contained in a lease is up to both parties; however, there are some basic items which should be included, as follows:
The term - generally longer than five years (if benefit from tax incentive is relevant)
Annual rent and rent payment procedure
Rent review clause
Details of the land use and the upkeep of the land
Improvements to the land and who will cover this cost
Who is responsible for what insurance
Treatment of basic payment entitlements
Restrictions on subletting
Farm buildings should be dealt with separately
Renunciation preventing the tenant from accruing an automatic right of renewal.
Since April 3, 2012, a signed commercial lease needs to be registered with the Property Services Regulatory Authority (PSRA). To do this, you need the Revenue Certificate Identification Number (Stamping Document ID).
The tenant (or a third party authorised by the tenant, for example, their solicitor or auctioneer) must include the following information to the PSRA:
Commencement date of the lease
The rent (if any) being paid for the lease
Any capital contribution paid in respect of the property
The frequency at which the rent will be reviewed
Details of who is liable (tenant/landlord) for rates, insurance, service charges and repairs to the property
Details of any break clause in the lease
There is no charge for registering a lease.
Entering a lease in the context of agricultural land will have long-term implications for the tenant and landowner. Both parties should seek professional advice.
This article is intended as a general guide only, you should seek professional advice in relation to your individual circumstances.
Theresa Murphy is a barrister based in Ardrahan, Co Galway.
If a day passes that I do not receive a query on the tax implications of farm succession it's probably because the day is good and farmers are out making the metaphorical hay while the sun shines.