Many landowner clients often, on a handshake, allow a horse owner to graze his horses on land which is not being farmed says commercial property agent Prop-Search. However, by putting in place a formal agreement which sets out the rights and responsibilities of each party, landowners can safeguard their position regarding tax benefits as well as ensuring responsibilities on both sides of the agreement are met.
There are four options for landowners offering different benefits depending on the circumstances of both parties.
First there is a grazing licence. This is suitable for landowners who are letting out their land to an occupier for the grazing of a recreational animal for a short time period, i.e. less than a year. The basic premise being that there is a period of vacant possession where the occupier leaves the land, it comes back into the hands of the landowner and the licence is then renewed. The benefits for landowners are that they retain their rights over the land. For example, they can continue to claim relevant tax benefits, as well as the Basic Payment Scheme (BPS). However, to be a licence, there can be no obligations on the occupier, such as repair to fences or hedges; otherwise there is a risk that it would be construed as a tenancy.
Secondly there is a Common Law Tenancy. This offers the tenant exclusive occupation of grazing land for horses used solely for recreational purposes. Under this agreement you can impose obligations on the tenant, such as requiring the proper maintenance of fencing, reseeding, and notifying the landlord of the encroachment of noxious weeds such as ragwort. To avoid this becoming a business tenancy it is advised landowners specify that the land must only be used to graze recreational horses.
Thirdly, there are Landlord & Tenant Act business tenancies. These are suitable where the tenant wishes to run a commercial equine business from the land. This type of agreement should be carefully drafted to meet the requirements of landowners as it can confer automatic rights on the tenant and the impact of these should not be underestimated. For example, if the landowners want to take back the land for development at a later stage, consideration should be given to opting out of these automatic rights.
Fourth and finally, a Farm Business Tenancy (FBT) can be used where the horses being grazed are part of a commercial equine business located elsewhere. These are restrictively operated and horses must actually be grazed on the land, not just turned out. An FBT automatically grants the tenant exclusive possession of the land, therefore the right to claim BPS and some tax advantages may fall away.
Samantha Jones, an Associate Director at Prop-Search concludes: “The law surrounding tenancies and licences is complex and the courts are generally quick to dismiss any document headed ‘licence’ where the facts give rise to a tenancy. Therefore, it is important that each grazing scenario is considered on its own facts and a discussion had with your legal adviser and accountant before proceeding.”
Further information or advice can be obtained from Prop-Search - Tel: 01933 223300 or its website: www.prop-search.com