If I default on a loan is my home farm safe?

I received an interesting phone call from a man last week regarding security for a loan.

He tells me that when he took out a loan for land, the banks obviously had the security of the land he bought.

He also gave additional security of around 30 acres of an out-farm but never personally guaranteed his home farm. Things didn’t work out the way he planned and he ran into trouble.

Now the banks are not only chasing the land he bought and the additional 30-acre out-farm, but they are also endeavouring to chase the home farm too.

He tells me that there is something in the small print that gives the bank a potential route to chase after the home farm, even though it might take time to pursue.

He wanted to know if there is a way to put a clause into a loan contract stating that your home farm is exclusively omitted as any form of security.

He also queried whether borrowers really know what they are signing at the time of drawing down a loan and how well are their personal assets protected?

Unfortunately, if you default on your loan, it can mean that all the property you own is up for grabs.

If the bank gets a judgement against you, it can be registered against all property you own so that if the property that is charged is not sufficient to cover the loan after being sold, they can go after other property to make up the shortfall.

I explain this to all my farmer clients when I act for them as a solicitor in taking out loans.

The Land Registry has rules which prescribe two types of charge form that can be used, forms 51 and 52.

The rule, and forms, will apply to all charges, residential and commercial, executed on or after 1 March 2012.

Further, the members of the Irish Banking Federation (IBF) and the Irish Mortgage Council (IMC), which include the majority of the lending institutions involved in residential mortgage lending in Ireland, have agreed the text of a standard, combined mortgage deed/charge and it is circulated to all solicitors as part of the mortgage pack.

The Land Registry has indicated to the Law Society and to the IBF that either its own statutory form of charge, or the new approved IBF forms of mortgage deed/charge, or any forms approved by the PRA with respect to individual lending institutions, are acceptable for registration purposes.

Consequently, I doubt the bank would agree to putting a clause in a loan contract stating that your home farm is exclusively omitted from any form of security.

Assuming a farmer has been independently advised by a solicitor acting on his/her behalf in taking out the loan, it will be difficult to challenge the enforceability of a loan.

However, it would depend on the circumstances surrounding each individual case.

If you don’t have your farm in a long-term lease, you won’t be able to avail of CGT retirement relief

I understand that since 31 December 2016, if a landowner has not put his land into a long-term lease and has let it on a conacre basis, he will no longer be entitled to the tax relief/concessions that were previously available to him if he decides to sell his land in a few years down the road.

Is it too late at this stage to enter a long-term lease on the premise that the landowner will be selling his land in a few years and wants to avail of the tax relief?

Landowners who are renting out their land on an annual basis should consider entering into a lease for a minimum of five years commencing on or before 31 December 2016 in order to continue to avail of CGT Retirement Relief. The lease could be signed and stamped after 31 December 2016, but so long as it runs from on or before 31 December 2016, it should not affect the availability of the relief.

The benefit of this is to retain an entitlement to claim CGT Retirement Relief. If a landowner is entitled to the relief, they will pay no CGT on a sale of land provided the value of the farm being sold does not exceed €750,000 (or €500,000 where the person selling the land is 66 years of age or over). Where the sales proceeds exceed €750,000 (or €500,000 for those landowners aged 66 years of age or over), partial relief is available. The limits are lifetime limits so that if they are exceeded a clawback of relief previously claimed may occur.

In order to claim the relief, the person transferring the farm must be (1) 55 years of age or over and (2) have owned and farmed the land for 10 years prior to its first letting. In the case of each letting of the land on or after 31 December 2016, it must be for a minimum period of five years, although each five-year letting can be to a different individual. Where land has been let under one or more conacre agreements before 31 December 2016, this will not affect entitlement to relief provided the land is let for a period of five years commencing on or before 31 December 2016.

Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors does not accept responsibility for errors or omissions howsoever arising. E-mail ameehan@farmersjournal.ie