A Land Lease sets out both parties’ obligations and provides useful legal protection

Leasing is appealing to farmers on many levels. Landowners who do not wish to farm the land are happy to lease their lands to active farmers who wish to expand their production.

The landowners may have recently retired or inherited the land, and may not wish to farm the land, and it is of interest to an active farmer who would like to farm the land, but does not want to bear the high costs of purchasing the land.

There are also tax incentives for farmers to enter into a Land lease arrangement.

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.

The lease must be signed by both parties.

Signatures on the lease must be witnessed by an independent person or persons.

A Land lease must be in writing in order to avail of the favorable income tax exemptions.

Lease agreement templates are readily available, and the Irish Farmers Association has produced a precedent master agricultural lease.

But it is advisable to seek the advice of a solicitor, in order to adapt the lease agreement to the specific needs of both the lessor and the lessee in each individual case.

It is imperative that suitable terms are agreed for both parties, and that parties are aware of and understand the nature of the terms they are entering into, and they have obtained the appropriate legal advice in respect of what they are signing.

 

We recommend that the farmers consider the following points when entering into a lease agreement:

* The lands leased should be agreed beforehand normally, by referring to a folio and a map where the lands are clearly marked.

* What is the term of the lease, and how much rent is to be paid, and when should the rent be paid?

* Is there a rent review clause?

 

A farmer may be reluctant to become locked into high or low land rents. This can be rectified by making provision in the lease for regular rent reviews during the term of the lease.

* The specific purpose such as tillage or grazing for which the lessee intends to use the lands should be set out in the lease.

* The Land lease must provide that insurance is in place, in order that the lessor is indemnified for all claims or liabilities arising from the lessee’s user of the property.

 

It is also important that the lessor has his or her own public liability insurance.

The lessor will also need to take out insurance.

* If a farmer is leasing the basic payment entitlements, appropriate clauses must be included in the lease, to ensure that the basic payment entitlements revert to the lessor, on the termination of the lease, and that in the event of the lessee not receiving his or her basic payment entitlements, this should not affect the validity of the agreement, and that the monies will still be due and owing to the lessor.

 

It is recommended a clause is put in, obliging the lessee to process and lodge all paperwork with the Department of Agriculture by the required deadline for the purpose of claiming any entitlements payable.

* A lessee should not have a right to sub-let the land without the lessor’s prior written consent, and this should be provided for in the lease.

* A clause should be put in place in the Land lease, prohibiting automatic right of renewal, which is known as a renunciation clause.

 

The Landlord and Tenant (Amendment) Acts allow the renewal of the lease at market rent, where the property being leased consists predominantly of buildings, and where the land attached to those buildings is considered to be “subsidiary and ancillary” to the building.

Farmers should be aware of this.

 

Where there are buildings on the land it may be advisable to draft two separate leases.

* It is important that there is provision in the lease covering the manner and time in which notice of termination by either party must be served, if either party wishes to end the lease.

* It is important to make provision for all eventualities in the lease, such as a child who wishes to construct a dwelling house on part of the lands.

 

The above list is not exhaustive, and any farmer who is contemplating leasing his or her lands should consult a solicitor with experience in the area of agricultural leases, so as to ensure that he or she is fully protected against unexpected pitfalls.

 

See walshandpartners.ie/blog for more!