In June, the European Union reached political decision on many of the elements of the proposed reform of the Common Agricultural Policy. However, certain key financial elements were deferred to the Budget Committee discussions. These discussions reached a conclusion at the end of September, giving us further indication of the way in which the CAP is to be reformed.
Whilst we have political decisions, we have no draft legal text and, therefore, many of the details are still unknown. However, we have more certainty as to the broad structure. We have published an Information sheet giving our understanding of the current position.
With so much of the detail yet unknown it is too early to be able to make many detailed business decisions. However, there are a number of matters to consider at this stage.
Farm Business Tenancies
It is likely that the Single Payment Entitlement will be cancelled and “transformed” into a new entitlement known as the Basic Payment Entitlement. Depending on the length of your tenancy, it is quite possible that this transformation will take place whilst the Single Payment Entitlements are held by a tenant. If the tenancy contains an obligation on the tenant to transfer the Single Payment Entitlement back to the landlord at the end of the term, drafting needs to be flexible enough to ensure that the tenant has to take whatever steps may be necessary to claim the Basic Payment Entitlement and transfer that to the landlord.
Dual use is where the Single Farm Payment one person, typically a tenant and the Environmental Stewardship Payment (such as ELS or HLS) is claimed by another, typically the Landlord. It is likey that this will be prevented. This means the owners of Estates which have system of dual use in place will need to reconsider their structures.
In the drafting of Contracting Agreements, similar regard has to be had to the fact that Single Payment Entitlements will become Basic Payment Entitlements. However, there is an additional concern for contractors with relating to greening requirements. The current greening requirements provide that farmers with more than ten hectares of arable land have to satisfy crop diversification requirements. This may well present difficulties for contractors who may farm multiple holdings and block crop that land. Such block cropping may be in breach of the crop diversification requirements, resulting in a loss of Basic Payment Entitlement to the farmers. Therefore, thought may need to be given as to whether or not the contractor would wish to continue block cropping, subject to compensating for loss of the greening element, or whether contractors would enter into arrangements (such as tenancies between the various farmers) to try to mitigate the difficulties caused to block cropping.
A gift of a farming business or land in a Will includes the assets of the business. However, unless specifically included, such a gift does not usually include the farmer’s personal entitlement to single payments. This could potentially lead to beneficiaries other than those receiving the farming business becoming entitled to payments under the Single Payment Scheme. The position is slightly different where the entitlement is claimed by a farming partnership. Here the entitlement will be a partnership asset.
In the light of the CAP Reform introducing the Basic Payment Scheme, farmers who wish to leave their personal entitlement to the payments as part of the gift of the farming business or land are advised to review the wording of their existing Wills to ensure that it provides sufficient flexibility to accommodate the changes expected to take effect under the CAP Reform.
Hewitsons’ Agricultural Property and Private Client Teams work closely together so that farming clients receive the benefit of their combined knowledge.
For further details of the CAP Reform or to discuss other agricultural matters, please contact Gareth Williams, partner in Hewitsons’ Agricultural Property Team, on 01604 233233 or click here to email Gareth.
For a review of your existing Will, or to discuss the preparation of a new Will, please contact Hauke Harrack, solicitor in Hewitsons’ Private Client Team, on 01604 233233 or click here to email Hauke.