Risks of change of management control for SFI agreements
24 January 2024
With Basic Payment Scheme (BPS) ending at the end of last year in England and delinked payments continuing to taper off in value until their last year in 2027, it is important to consider how to replace this income stream. The Sustainable Farming Incentive (SFI) has been introduced as part of Environmental Land Management Schemes (ELMS) in order to provide funding to make-up some of this shortfall and we are now starting to see these agreements on land being sold, gifted or leased.
Change in management control for an SFI agreement will happen when there is a sale, lease or other transfer (such as a gift or inheritance) of the land subject to the SFI agreement or any part of it. If this happens you are obliged to let the Rural Payments Agency (RPA) know and they have absolute discretion as to whether to allow a transfer of the SFI agreement to the person who now has management control. However, they say that they will not usually allow this to happen.
In summary the RPA has several options, and they could:
- reduce the grant (temporarily or permanently)
- require the grant to be paid back (in whole or part)
- vary the SFI agreement, for example by changing the land or the actions required
- terminate the SFI agreement
- accept a transfer of the SFI agreement to the new person with management control.
It is important to note here that you may already have incurred costs in complying with the SFI agreement which you would not be able to recover, even if the grant has to be paid back.
Time will tell as to the preferred actions of the RPA in each case, but having regard to the potential outcomes above, if you are planning to sell, lease or gift your land in the near future it is worth taking advice and carefully considering whether to enter into an SFI agreement.
Additional considerations for tenants
Tenants do not have to seek consent from their landlord before entering into an SFI agreement as far as the RPA is concerned. However, it should be noted that if their tenancy ends during the term of the SFI agreement, then the tenant will be in the same position as above. Albeit, if the tenancy is terminated unexpectedly, then it may be classed as a “good reason” for a breach, although this does not necessarily preclude the above options being taken. Other “good reasons” for a breach include: death, serious illness, insolvency, supply chain issues, natural events or criminal damage.
It’s also worth noting that while the RPA may not require a tenant to obtain the landlord’s consent, depending on the terms of the tenancy, not getting landlord’s consent could put a tenant in breach of their tenancy and lead to enforcement action. Accordingly, a detailed review of the terms of your tenancy should be undertaken before entering into any SFI agreement.
Please note that this article is based on the 23 June 2023 terms and conditions. The pilot SFI terms kept any transfer at the RPA’s absolute discretion and included a complete ban on transfers during the last three months of the SFI agreement. However, they did not suggest that a transfer was an unlikely occurrence, as the current terms suggest. To complicate matters further, there were also slightly different terms in 2022 and it is therefore important to check each SFI agreement individually to see which provisions apply in each case.
Sectors
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2024.