Michael Brady.Agricultural Consultant and managing director at Brady Group: 1st published in the Farming Independent 20.03.2020
Long-term leasing of land in Ireland has seen a surge in popularity in recent years. The old conacre system (10month lettings) is quickly going out of fashion in favour of 5, 7, 10, 15 even 20year land leases.
In Ireland, the small size of farm holdings and the fragmented nature of land ownership was curtailing the development of viable farm business, government recognised this fact, so it introduced income tax reliefs to encourage landowners to let their land for longer terms. The move has been a great success for the industry.
The tenant no longer has to worry arbour the annual insecurity of conacre. Sock numbers and cropping programmes can be forward planned for the term of the lease. In fact, the biggest advantage is the land itself. Due to the insecurity of the old conacre system, farmers were reluctant to spend on items such as lime, phosphorus, potash, reseeding and fencing. This mentality has been totally reversed as the farmer must now invest in the leased land to maximise the physical and financial return, running it into the ground is no long an option.
However, entering into a long-term land lease places responsibility on the landowner to select the right tenant. An advantage of the old conacre system was that money was paid upfront and there was no risk of a non-paying tenant. In fact, before the tax incentive policy 3year term leases were exploited by some unscrupulous farmers whereby they would pay a big price per acre upfront in year 1, be slow paying in year 2 and not pay at all in year 3 then they moved on. Thankfully this practice has disappeared.
Entering into a long-term land lease today involves the signing of a detailed legal document, stamping with the Revenue Commissioners and registration on the register for commercial leases with the Property Services Regulatory Authority (PSRA). There are obligations for both landlord and tenant, so it not a process to be taken lightly.
In my experience the following are the five tips to get the ‘best fit’ of landlord and tenant in a long-term lease of land:
- Character over price per acre
Landlords should choose the best tenant over the highest price. The old conacre system encouraged ‘ a row of 40 medals on the chest’ bidding for land when it was offered by an agent. Farmers bid against each other as if they were playing in a GAA championship final. If they overpaid, sure it was only for one year and the buzz of winning the game was worth it. The landowner was laughing all the way to the bank and did not really care about the character of the tenant.
In a long-term lease of land, the dynamic is entirely different, he who bids the highest price may not be the best fit for a term of 5-20 years. It is important for the land landlord to consider and vet the character of the tenant.
- Select a good land-agent / auctioneer
Selecting a land-agent or auctioneer with experience of land leasing is a major benefit to both landlord and tenant. An experienced agent will know how best to advertise the property, understand and answer queries on items such as Basic Payment Scheme Entitlements, farm buildings and who pays for water, electricity, rates, insurance etc. The agent also acts as a good buffer between landlord and tenant.
- Read the lease
Nowadays the lease agreement document is generally a version of the IFA master lease drawn up specifically for agricultural land leases. The lease can be drawn up by the land-agent / auctioneer or a solicitor engaged by the landowner. In either case it vitally important that both landlord and tenant read and understand the lease from start to finish.
The standard items such as price, term and payment terms should be checked and specific conditions such as the Basic Payment Scheme Entitlements carefully understood by all parties. It is also good to discuss and understand the dispute resolution process before signing the lease. It is always important for both parties to get or consider independent legal and taxation advice before signing a long-term lease.
- A little give and take
I always worry when a landlord or tenant seek to include too many pedantic conditions in a land lease, it is never a good sign. With the best will in the world no lease will encompass all eventualities, things will happen in the future which are not thought of when drawing up the lease. This is where a little ‘give and take’ comes into play. For example; if tenant knocks a gate pillar or breaks water pipe don’t immediately send a solicitor’s letter, either ring the tenant or get your agent to do so. Of course, if there is repeated disregard for the agreement by a tenant don’t be afraid to invoke the termination or dispute resolution clause.
- Common sense
The most successful land leases stay in the drawer gathering dust and are never looked at by landlord nor tenant. Good tenants know their landlords needs and they know how to please them. Fertilising, fencing, reseeding and hedge trimming all visually improve a holding. Add in, a tidy up of scrap metal / plastic, hanging a few new gates, painting of sheds and of course paying the agreed rent on time are the real items that determine the renewal terms of the land lease. Yes, some landlords can be awkward and nit-picking from time to time but remember their life experience is generally as a farmer, not a landlord.
Equally, landlords have to remember tenants are very busy people, so don’t be insulted if they don’t stay for tea and scones evert time they call.
The landlord – tenant dynamic is very important to the future of individual farm businesses, nurture and care for it just like any other important relationship in your personal or business life, it will pay you back in spades.
Table: Income tax exemption limits for long-term land leases
|Term||€ Tax Free per annum|
|5 years +||18,000|
|7 years +||22,500|
|10 years +||30,000|
|15 years +||40,000|
*The above limits are doubled for joint owners.