CAP Reform - direct payment proposals and negotiating land deals

Author:

The European Commission has now published its proposals for reform of the Common Agricultural Policy in 2014. Although there will be many more negotiations between member states before these proposals become law, it is anticipated that an agreement will be reached by January 2014.
One key proposal is the intended introduction of a new system of Direct Payment to replace the Single Payment Scheme (SPS). Here we focus on some of the potential difficulties which may arise on land transactions and the transfer of entitlements.

What is the proposed Basic Payment Scheme?

Quite simply, Entitlements held under the current SPS will expire on 31 December 2013.

From 1 January 2014 a new Basic Payment Scheme (BPS) will be introduced. The new system will not differ hugely from the old one, but the most significant change is that in order to claim the new Basic Payment (equivalent to the existing SPS), landowners will need to apply for BPS Entitlements and one criteria is likely to be that they must have claimed under the SPS in 2011.

Potential problem examples:

1. I am a new entrant who didn’t claim SPS in 2011. How do I acquire Entitlements?

A National Reserve will be set up from which you may be able to buy BPS. However, priority will given to support young farmers (under 40 years) starting their own business.

It is not known exactly how National Reserve BPS Entitlements will work or what effect the proposals are likely to have on price.

Points to consider:

a) When purchasing your land, ensure that the former SPS claimant is contractually obliged to make a claim post 2014 for BPS Entitlement and subsequently transfer them to you; or

b) On purchase rent the land to a tenant who has claimed SPS Entitlements in 2011 and who actives BPS Entitlements on the land with the provision that these revert to you at the end of the tenancy, which could be of a reasonably short duration.

2. I wish to sell my land after 2014. Can I transfer my SPS Entitlements in the usual way?

Points to consider:

a) These will of course be BPS Entitlements (assuming registration).

b) As things stand you will not be able to transfer to a new entrant who hasn’t claimed in 2011. However, you can transfer Entitlements to another registered Holding.

c) Although sellers can transfer their Entitlements when selling land, under the new Scheme a landowner who has claimed in 2011 may only transfer the right to receive their allocation of BPS entitlements (or it would seem in subesquent years, their BPS Entitlements) to ONE farmer.

Where the property is bought by a famer in one transaction, the practical consequences are minimal. However, the proposal clearly impacts heavily on Lotted land sales where, as the draft rules stand, only the buyer of one Lot would be able to receive some or all of the BPS Entitlements.

It therefore makes it all the more important that the sale contract reflects a carefully considered approach to SPF/BPS Entitlements.

3. I am a landlord. My tenant is cross-complying and claiming Entitlements. Can I insist that the tenant transfers the BPS Entitlements to me at the end of the tenancy?

It depends on the wording of the tenancy. Without specific provisions in place a landlord will not be able to insist that the outgoing tenant transfers their right to receive the allocation back to the landlord.

Conclusion

On any sale, purchase or lease over agricultural land early contact with your lawyer will ensure that your interests are protected. Working closely with land agents, surveyors and tax advisors the comprehensive advice received will help alleviate some of the difficulties which the proposals may raise.

Ownership of the single farm payment 

Remember that the entitlement to the Single Farm Payment is personal property and does not attach to the land. This means that on death unless the Will has been drafted correctly the entitlements will fall into your residuary estate and potentially be transferred to non-farming members of the family. It is important to ensure that entitlements are bequeathed to the same beneficiaries as your interest in the farming business.

If a farming partnership claims the entitlement it will be a partnership asset but may not necessarily be shown on the balance sheet. This is because it has no cost and so unlikely to be recorded in the accounts. It is important to remember that a subsequent disposal of a partnership interest could also mean a disposal of the entitlements.