Hold your horses: The dangers of a grazing licence gone wrong
If not in writing or drafted carefully, a grazing agreement may inadvertently create a tenancy rather than a licence, giving the grazier far greater rights than the parties intended.
A tenancy may also be created if a grazier is allowed to remain in occupation after the fixed licence period of a grazing licence expires.
What is a grazing licence?
An agreement that allows a grazier access to a landowner’s land to graze their animals. It is essentially a short-term agreement to sell the grass that is growing, which does not grant any exclusive rights over the land and carries no rights of renewal.
What are the dangers of a tenancy?
Termination: A tenancy is more difficult to terminate than a grazing licence, often requiring service of up to two years’ notice to recover possession. This can create problems when landowners want to sell or develop their land.
Security of tenure: Where the land is occupied by a business – or for non-agricultural purposes – a tenant will have an automatic right of renewal at the end of the term unless the appropriate notices were served prior to occupation. Particular care must be taken where land is grazed by horses – any tenancy created will likely be construed as a business lease.
Basic payment scheme: A landowner will only be able to claim these payments (including the delinked and lump sum payments) under a grazing licence. Only the party occupying the land that is entitled to claim and a tenancy grants the tenant exclusive rights of occupation.
Tax: Both tenancies and grazing licences have a role to play in tax planning. Both can potentially assist in claiming Inheritance Tax reliefs, but under a grazing licence the landowner remains in occupation, which can also assist in claims for roll-over or business asset disposal relief from capital gains tax. Which structure is used will also affect the income tax and VAT position.
In short, the implications for a landowner of entering into a grazing agreement can be complex and far-reaching, and specialist advice should be sought to ensure opportunities are maximised and headaches are avoided.
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