Delinking, the new Golden Ticket?

The Agriculture Act 2020 provides many powers to Defra and we await further guidance and regulation to confirm exactly what the rules will be. We do know that direct subsidies and the Basic Payment Scheme (BPS) are going to die a slow death until the end of 2027, with payments and therefore the value of entitlements reducing throughout this period.

However there are two potential death throes that could be implemented under the Act, section 12 allows for payments to be delinked from the farming of the land (i.e. a claim would not depend on the claimant still owning/occupying the land or cross complying, but would simply be paid, the question is to who and on what basis) and section 13 allows for a lump sum capital payment to be paid in return for the surrender of the entitlements.

We are expecting further details over the summer, but based on what we have heard so far delinking is likely to start in 2025 and the claim will likely be based on a currently unknown reference period. The lump sum payment is likely to be subject to the owner of the entitlements retiring.

The return of ‘the Golden Ticket’?

The current lack of clarity causes a number of issues and reminds me very much of the concerns around ‘the Golden Ticket’ in the lead up to BPS replacing the Single Payment Scheme (SPS) in 2015 where there was a concern that in order to obtain BPS Entitlements you would have had to make a claim for SPS entitlements in an earlier reference period.

The impact in 2015 was a number of good faith and clauses to provide for renegotiation and expert determinations to redraft contract clauses in the event that they no longer achieved the intended result of making sure the Buyer could claim BPS. This position was far from ideal and depending on the regulations that could have followed it was of course entirely possible that it would not be possible to transfer ‘the Golden Ticket’, but it was the best that could be achieved.

Happily in 2015 the SPS Entitlements were directly transformed into BPS Entitlements and this stopped the issue. Unfortunately as we are now back hearing rumours of a reference period we have exactly the same potential problem in the lead up to any possible delinking and therefore thought needs to be given in how to best protect a buyer or incoming tenant receiving entitlements in the light of the current uncertainty

With delinking at least we are aware of the potential issue and possible resolution of it – in respect of the possibility of being able to surrender BPS entitlements and claim a lump sum payment we do not know what framework will be provided around this but in the case of new tenancies it would seem prudent to seek to prohibit the tenant from ‘cashing in’ entitlements (at least without express Landlord consent).

What can we do about this?

Obviously if you are due to acquire BPS Entitlements and make a claim for BPS Payments before the end of 2027 then you will want to ensure that the right to these future payments is not retained by a prior claimant via delinking or stopped due to them claiming a lump sum payment. It is therefore important to consider the position on the sale/purchase of any land or the grant of any new tenancies.

Where we are dealing with a new transaction we can discuss the options with you to cover the risks as far as possible, with the aim of putting everyone in the position they intended to be in and to make sure that the previous holder of the BPS Entitlements is contractually bound not to claim any lump sum payment or any delinked payment without our express authority.

One option is to consider retentions from the purchase price to reduce the risk that you are paying for an asset that does not do what was intended. However, careful thought needs to be given to the value of these entitlements and therefore the level of the retention and also the commercial reality is that we are potentially looking forwards over a seven year period and it is not likely that the parties will want funds to be tied up for that long.

Unfortunately if the land has already been purchased or let out then it may be difficult to incorporate the necessary requirements now. However, it is worth considering whether there is a chance to renegotiate the documents, for example if an existing tenant wants consent to do something or wants to extend their term of occupation. It may also be worth considering whether there is any chance to renegotiate the terms of the lease where you have a periodic tenant.

If you would like specific advice in about the matters contained in this article, please do not hesitate to contact Edward Bellamy on 01603 756446 or [email protected]. Alternatively, please contact another member of Birketts’ Agriculture Team.