Question: I have been dairy farming for many years, but I am finding the spring seasons increasingly tough. My children are reared and they aren’t interested in taking over the farm. The facilities need upgrading but I am reluctant to take it on, having only cleared debt in the last few years.

My spouse is recently retired and encouraging me to lease out the farm as there is good demand in the area. What is your advice for anyone in the early stages of thinking about leasing out land?

Question: This is a question being considered by many landowners at this time of the year. Some of the more topical items being considered are as follows:

Rent not being paid or the farm not being looked after: Naturally, the vetting process to decide who to lease the farm to is crucial, and it’s worth getting references from prior landlords and visiting other farms that the tenant rents, where possible.

That said, if the rent is not being paid, the lease generally allows for the landowner to take back the lands. If the land is not in as good condition, the tenant can be sued for the cost of reinstating the lands.

It’s worth having regular rental payments eg monthly, so if rent is slow, it’s flagged at an early stage rather than at the end of the year. Also the landowner should take photos and soil samples at the start of the lease, so they have a record of the condition of the farm. That way, it’s easy to compare if things are worse in the end.

The landowner should agree with the tenant that the photos and soil samples are reflective of the farm in general, to avoid an argument that the samples/photos were taken of the best fields.

Risk of entitlements being lost in CAP reform: This is always a risk as one cannot predict what can happen with CAP reform. That said, I would normally encourage landowners to agree a rent without reference to entitlements. For example, instead of a rent of €250/ac plus entitlement value, agree €300/ac base rent and let the tenant take the value of the entitlements.

The value of entitlements were substantially reduced when BPS entitlements were replaced by BISS, CRISS and ECO payments. If the tenant carries the risk with fluctuations in value of entitlements, it does not affect the rent paid to the landowner.

You could include regular rent reviews in the lease. There is also an option to lease out the entitlements to another farmer rather than the tenant taking the farm.

Succession planning

Generally, the same tax reliefs that are available if you were farming the land are equally available if you are leasing the land for a minimum of a 5-year period. Those affected by a decision to lease are Favourite Nephew/Niece Relief and also Business Relief.

Favourite Nephew/Niece Relief works so that a niece/nephew is regarded as a child. This means that they can avail of more preferential tax treatment if they are gifted/inherit the farm. To get the relief they have to be helping the aunt/uncle on the farm for at least five years before the gift/inheritance.

Naturally, if you lease the farm, you cease as a farmer and thus, they cannot help you on the farm and cannot avail of the relief.

Business Relief is generally availed of where a successor cannot avail of Agricultural Relief ie pass the 80% farmer test. It requires the successor to take over the farming business as a going concern.

Again if you lease the farm, you cease as a farmer and cannot avail of the relief. It is only in limited circumstances that Favourite Nephew/Niece Relief and/or Business Relief may be required so it may not impact on your decision to lease.

Fair Deal and if nursing home care is required: If the landowner or their spouse needs nursing home care, 7.5% (3.75% in the case of a couple) of the value of the farm is taken into account for the Fair Deal.

For example, for a couple where the farm and farmhouse was valued at €1.25m, you would have to pay €900 approximately towards the cost of your nursing home care per week.

A three-year cap applies to the house and in certain circumstances to the farm. This means that the value of the house and farm are only taken into account for the first three years of nursing home care.

However, if you have leased your farm, you cannot avail of the three year cap on the farm and it will continue to be taken into account as an asset for the Fair Deal, meaning you may pay more for your nursing home care.

Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, agricultural solicitors and tax consultants does not accept responsibility for errors or omissions howsoever arising. E-mail aisling@agrisolicitors.ie