Do farmers realise what they have signed up for?

With many hundreds, if not thousands, of land option agreements signed in the Midlands are farmers fully aware of the extent of the restrictions they have placed on their property? And is the payoff worth it?

Solicitor Nora Fagan’s article on the matter in April’s Law Gazette was very illuminating. If I were a signed-up farmer and wasn’t worried before, I would be now.

The main points raised by her are presented here. The words and interpretation are mine.

Option duration and restrictions

Option agreements are usually for a minimum of five years and can often be extended to ten years. What many farmers failed to realise when they received the hard-sell from the developers was that often their entire folio is subject to the option, not just the original field that the developer might have identified as their preferred site for the turbine. This means that in theory the developer could construct the turbine anywhere they want on the farm, subject to planning constraints.

Many options have clauses preventing a disposition or a transmission of land without the prior consent of the developer. This in effect means that the farmer cannot lease, mortgage or gift land without the permission of the developer. Nora Fagan cites one case of a farmer prevented by the developer from transferring a site to his son.

Option/Lease assignment

It’s common practice for developers to sell on parcels of options before even a single turbine has been built. The farmer would have no say in this transaction and it effectively means that he could end up contracting with an unknown party, and perhaps one who is not financially robust enough to cover the lease payments. The developer’s motivation will be to get the highest price for their assets, and they won’t be overly concerned about what happens afterwards.

Indemnification against loss of agricultural reliefs

Usually the farmer is indemnified against the loss of agricultural reliefs. However, it appears that this indemnification does not cover variation of existing reliefs, or the introduction of new reliefs. Should the structure of agricultural reliefs change in the future, as they undoubtedly will, farmers could find that they lose out.

Possibility of class action

It seems that these contracts do not protect the farmers from the possibility of a class action under the Civil Liability Act 1961. The London School of Economics recently issued a report which showed that properties within a 1.2 mile radius of a wind farm dropped in value by up to 11%. Should a community decide to take a class action against the farmer, he would not be protected by his contract should the courts find against him. To give a purely mathematical example, if ten home owners with houses worth an average of €200,000 each take a class action against a farmer and win, the farmer could be liable for a pay-out of €220,000.

Taxable income

Option payments, generally around €1,000 but can be more, are fully taxable and cannot benefit from agricultural reliefs.

Should the development go ahead, the lease payments (very variable, but around €18,000 per annum per turbine) are again fully taxable as rental income and cannot be benefit from agricultural reliefs.

 Summary

The terms of the contracts vary significantly depending on the developer involved and how well the farmer can negotiate.

But in general terms:

  • the developer can build the turbine(s) anywhere on the farm;
  • the farmer cannot lease, mortgage or gift land without the permission of the developer;
  • the farmer could end up contracting with an unknown party if the option or lease is assigned;
  • the farmer could lose out on future new/revised agricultural reliefs;
  • the farmer could be unprotected if a class action is taken against him for a drop in property values;
  • the income is fully taxable and cannot be benefit from agricultural reliefs.

When all of this is added up and compared to the return the farmer could get from straight-forward farming, it seems like a poor return for such a restrictive arrangement.

Many farmers have seen the light and now want out of these onerous contracts. The IFA very helpfully met with the developers and then issued guideline to farmers thus imbuing this whole process with a degree of legitimacy. The IFA must now reassess this advice. They must do the right thing and help these farmers exit their contracts.