Agricultural Solicitors

With ever changing laws, and procedures and administrative headaches to deal with, the pressures faced by today’s agricultural, farming and rural community are immense.

At Myerson we have a team of experienced solicitors from a range of backgrounds and disciplines who are able to provide a wide range of legal services to the rural and farming community.

  You can also download a copy of this newsletter in PDF format here

In this issue:

Common Agricultural Policy – The New Regime

Our guide to the Common Agricultural Policy reforms in England and the New Environmental Stewardship Schemes.

CAP Reform at a glance – The key issues and dates:

1.  New Basic Payment Scheme (BPS) to roll out on 1 January 2015.

2.  Current Single Payment Scheme (SPS) Entitlements can continue to be traded until 19 October 2014.

3.  Existing Entitlements roll forward into the new scheme.

4.  Reforms to remain in place until 2020 at which time the position will be reviewed.

5.  First BPS applications due in May 2015. To claim BPS each applicant must satisfy the following criteria:

  • be an “Active Farmer”;
  • have relevant land at your disposal on 15th May;
  • hold a minimum of 5 BPS entitlements;
  • declare all “eligible hectares”;
  • have a minimum of 5 “eligible hectares” to claim (existing SPS entitlements roll forward);
  • match BPS entitlements against eligible hectares (those entitlements that cannot be matched are lost to the National Reserve (NR)).

6.  Autumn 2014 – arable planting must be compliant with Crop Diversification (CD) requirements (where applicable).

7.  Autumn 2014 / Spring 2015 – Land occupation arrangements need to be compliant with the “Active Farmer” test, and any surplus entitlements should be traded (or extra   land acquired) to avoid loss to the NR.

8.  New entrants and those who do not make a claim prior to 2015 can apply to the National Reserve for new BPS entitlements.

9.  30% of BPS dependant on implementation of “Greening” measures. During the first two years of the new regime, claimants will not be penalised for non-compliance with Greening (other than losing the 30% Greening element of the BPS payment). After the first two years, additional penalties to be applied.

10.  Young Farmer Scheme (YFS) announced to allow young farmers (aged 40 years or under in the first year of a BPS application) to apply to the NR for a 25% top up payment per entitlement (up to 90 hectares). The Young Farmer must be the head (or joint head) of the business at the time of the application (mere admission into the partnership will not suffice). Partnership Agreements / Company Articles may need to be re-examined.

11.  5% of any Basic Payment (excluding the Greening element and YFS payments) above €150,000 will be transferred to Pillar 2 (Rural Development). DEFRA have rejected the option to allow businesses to offset labour costs (permitting total salaries to be offset against reductions).

12. New Environmental Stewardship schemes to be rolled out in 2015/16.

Existing SPS and new BPS entitlement transfers

Until 19 October 2014 transfers of SPS entitlement are still permitted; however, from 20 October 2014 onwards until mid-January 2015 no further transfers are then permitted. From mid-January 2015 BPS entitlements can be transferred for 2015 claims.

2015 claimants for BPS must be an Active Farmer and hold eligible land. Any BPS entitlement not claimed because the claimant has insufficient land may be lost.

Those with surplus BPS therefore need to consider transferring their entitlements from mid-January 2015 before the 2015 BPS claim in May to avoid losing them. Alternatively, further eligible hectares could be acquired to match to any surplus BPS entitlement.

What is a “farmer”

To be a farmer one must undertake an “agricultural activity” and have land at your disposal. Agricultural activities are defined as:

  • producing, rearing or growing agricultural products; or
  • maintaining an agricultural area in a state that makes it suitable for grazing or cultivation; or
  • carrying out a “minimum activity” on an agricultural area that is “naturally kept in a state suitable for grazing or cultivation”.
  • “Minimum Activity” is considered to amount to receiving around 1/3 of total receipts from this area.
  • “Naturally kept in a state suitable for grazing or cultivation” involves keeping more than 50% of the agricultural area in that condition.

What is land “at my disposal”?

The Active Farmer must have eligible land “at his disposal” at the relevant date (15 May) each year and must show that he/she carries out a minimum level of activity on the eligible land.

To satisfy this test, you must show:

  • that you are an independent farmer on the land making and implementing yourown decisions;
  • that you control cross-compliance measures on the land.

The following do not have land at their disposal:

  • Landlords (as the tenant is farming);
  • Contractors, (providing a service to a farmer);
  • Grazing licensees, only on the land to take crop and do not control cross-compliance issues.

The key test to satisfy is to show that you are the person with the management responsibility for the relevant land and that you carry the financial risk of the agricultural activity carried out on it.

Company Articles of Association or Partnership Agreements may need to be revisited to address this point.

What is an “Active Farmer”?

To make a BPS claim you must be an “Active Farmer”. You must be a farmer with eligible land at your disposal and you must not fall foul of the ‘Negative List’.

The new rules apply a negative list which automatically disapplies certain sectors. If you are on the negative list you are out of the BPS process (although there is a mechanism for appeal).

The “Negative List”

  • Airports;
  • Provision of railway services;
  • Provision of waterworks;
  • Permanent sport and recreational grounds;
  • Real estate services.

Problems arise in particular with the definition of “real estate services” and “permanent sport and recreational grounds”. It is assumed that the operation of airport and railways services will require running scheduled passenger and freight services, and waterworks is not thought to include the provision of water via a borehole (to a farm or holiday-lets for example), however guidance has yet to be issued on this part from DEFRA.

The EU Commission have also indicated that the “real estate services” category will not apply to those with campsite or holiday lets or similar types of accommodation and is instead aimed at those with large property development companies and those involved in the management of property. Further guidance from DEFRA on the above categories is desperately needed.

The Active Farmer test must be passed each year (so Active Farmers one year may find themselves excluded in the next).

Active Farmer Test: The Key Points

We consider the best way to approach the active farmer test is to follow the procedure below: 

Test 1: Do you have land that is mainly (more than 50%) kept in a state suitable for grazing or cultivation?

If yes, do you meet the ‘minimum activity’ test on that land?  (clarification from DEFRA expected later this year but thought to be around 1/3 of all receipts on that land from agricultural activity).

Is the land “at your disposal” on the relevant date (15 May every year).  This will exclude virtually all landlords and contract farmers.

If yes, move to Test 2.

Test 2: Are you on the negative list?  Do you operate the following: 

  • airports;
  • railway services;
  • waterworks (thought to be a statutory utilities rather than bore holes, etc.);
  • real estate services (recent Commission guidance has indicated that this is aimed at large property development companies and those involved in the management of property, not for example those operating holiday lets etc.);
  • is the land permanent sports or recreational grounds (i.e. not land given over on a short-term basis for use as sports or leisure venues).

If you fail the “Active Farmer” test…

If you fail you can re-qualify if you pass the income test.  To do so, you must show:

a) Agricultural activities on the land are ‘not insignificant’ (i.e. are more than a 1/3 of total income);

b) Your principal business objective is exercising the agricultural activity.  Those with limited company status may wish to review their Articles of Association and partnerships should revisit their Partnership Agreements to ensure that the stated business objective set out therein is agricultural activity.

Further clarification is expected from DEFRA over the summer regarding these tests.

Greening measures, Crop Diversification (CD) and Ecological Focus Areas (EFA)

What is Greening?

  • 30% of the BPS is subject to “Greening” requirements. Compliance with Greening is compulsory for all BPS claimants (subject to certain exceptions). Greening requirements apply to all eligible hectares (whether or not BPS is claimed on them).

DEFRA have confirmed that three default Greening measures apply:

  • maintaining existing permanent grassland (5%);
  • where applicable, crop diversification on arable land;
  • where applicable, provision of Ecological Focus Areas (EFAs).

Failure to comply with the Greening requirements in the first year of the scheme will result in loss of the entire ‘Greening element’ of the BPS (30%) with further penalties over and above this proposed for 2017/18 onwards.

Organic farmers are entitled to the Greening element of the BPS without any specific requirements, however this is only supplied to land that is certified as organic.

Maintaining permanent grassland

Permanent grassland is grass that has not had a crop on it for 5 years. The area to be assessed is the ratio of permanent grassland (as defined above) in comparison to the agricultural area declared for the BPS scheme. This ratio must not fall below 5%.

Does CD apply to my land?

Farmers with less than 10 hectares of arable land will not be required to comply with CD or EFA measures.

Farmers with between 10 and 15 hectares of arable land must grow two crop varieties to comply with CD but are exempt from EFA.

Farmers with more than 15 hectares but less than 30 hectares of arable land must have two crop varieties. The main crop must not exceed 75% of the arable land.

Farmers with more than 30 hectares of arable land must have three crop varieties. The main crop should not exceed 75% of the arable land and the two main crops must not exceed 95% of the land area.

EFAs will be applied to all holdings with greater than 15 hectares of arable land. These holdings are required to have 5% of the arable land designated as EFA. Types of EFA include:

  • landscape features;
  • buffer strips and follow land;
  • nitrogen fixing crops;
  • short rotation coppice;
  • woodland.

There are some exemptions to the CD and EFA requirements and further guidance is expected from DEFRA over the Summer.

A further review of EFAs to take place in 2017 and the European Commission are expected to increase the EFA requirement to 7% of arable land in 2017.

Crop Diversification and Ecological Focus Areas – in a nutshell

Arable Area

Crop Diversification

EFA Requirement

10 hectares or less Exempt Exempt
More than 10 hectares, up to 15 hectares 2 crops(main crop not being more than 75% of the arable area) Exempt
More than 15 hectares up to 30 hectares 2 crops(main crop not being more than 75% of the arable area) 5% of arable area(may rise to 7% in 2017)
More than 30 hectares 3 crops(main crop not more than 75% of the arable area, the two main crops not more than 95%) 5% of arable area

The New Environmental Stewardship Schemes (NELMS)

  • Approximately 11,000 Entry Level Scheme agreements due to expire in 2015. They will be replaced by a New Environmental Land Management Scheme (NELMS). The first agreements will commence on 1 January 2016. There will be no new agreements in 2015.
  • From 1 January 2015, all new payments will be realigned to 1 January and all payments will then run from January to December.
  • Although the claim period is aligned in this way, the timing of payments is not affected. Current claim periods that overlap will be subject to a balancing payment. At the time of writing, the details of NELMS are still being finalised by DEFRA. The intention however appears to create a single scheme combining the existing Stewardship and English Woodland Grant schemes.
  • It is the thought that there will be two tiers of agreements (a high tier and a mid-tier scheme) with a universal grant scheme available for those who fail to qualify for the high or mid-tier schemes.
  • “High tier” agreements (similar to the Higher Level Stewardship scheme (HLS)) will be site specific and aimed at designated and protected sites. Entry will be by invitation only and priority cases will be identified.
  • “Mid-tier” agreements will be area specific agreements to encourage landscape scale and delivery. There will be an application process with no guaranteed entry.
  • It is thought that there will be a universal small grant scheme for those who cannot obtain high or mid- tier funding.
  • Both the high and mid-tier schemes will run for 5 years (with 10 year agreements only in exceptional circumstances).

Hs2 Update

On Monday 28th April, the government’s bill for the highly contentious £50bn high speed rail network cleared its second reading in parliament with ease by 452 votes to 41. Some Conservative MP’s voted against the Bill and others abstained from voting, however Labour appear to have thrown their weight behind the scheme.

The Bill will now move to Committee Stage (where a further detailed examination of the Bill will take place). A Select Committee will also be formed to consider any petitions made by objecting parties against the Bill, which could potentially result in further amendments being made.

The current ‘Hybrid Bill’ primarily affects Phase 1 of the scheme (London to West Midlands), however there are plans to extend this phase to Crewe. This would then create a new transport hub at Crewe and could be completed earlier than originally planned, delivering the effects of HS2 to the North much sooner than expected. The Route Consultations on Phase 2 (West Midlands to Leeds and Manchester) are being continuously analysed and it is likely that a final route will be announced towards the end of the summer.

The Department for Transport has recently published further details of the compensation schemes which will be offered to those affected by the high speed railway in an attempt to mitigate the effects. These are still in the process of being finalised however, the following schemes have been proposed:

  • Express Purchase Scheme – this scheme will accept applications from eligible property owner-occupiers whose properties are entirely within the ‘surface safeguarded area’ (within 60 metres from the line). The government will either purchase the property (at its unblighted market value), provide a home loss payment or pay reasonable moving costs.
  • Voluntary Purchase Scheme – eligible owner-occupiers who own properties up to 120 metres from the above ground route, but outside the safeguarded area, can ask the Government to buy their property up to a year after the line opens at the full unblighted market value.
  • Need to sell Scheme – this is for people living outside of the safeguarded area who have strong personal reasons for selling their home, but cannot due to HS2. The applicant must satisfy certain criteria, and if successful the government will purchase their property again at the unblighted market value.
  • Rent Back Option – owner-occupiers who sell their property to the Government under any of the above schemes may be able to rent them back under a Crown tenancy agreement (dependant on suitability).

The government is also considering two further schemes and intends to consult on them in the near future. It is expected that the Hybrid Bill will receive Royal Assent in 2015 and it is planned that trains will commence running for Phase 1 in 2026, with Phase 2 following in 2033.

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