Do leases take over your own shadow?

The importance of lease. You don't have to tell me that, you'll say. However, that does not apply to everyone. Every now and then I get the feeling that many - including stewards and their clients and even leaseholders and policy makers - are insufficiently aware of the importance of leasehold.

For centuries, lease has been a way of using land without owning it. Preceded by crisis lease legislation in 1937, the legal position of the tenant has been guaranteed in law since 1958. The separation between use and ownership was necessary, because land has always been too expensive to achieve a rewarding agricultural exploitation.

From an investment point of view, land has hardly ever been too expensive in retrospect; the increase in value has more than made up for the purchase price. The farmer who also owns his land is in fact also an investor. The importance of lease as a financing instrument for agriculture is apparent from art. 7:327 paragraph 1 of the Dutch Civil Code and the Lease Prices Decree based thereon.

Exemption would be more appropriate 
In addition, the law offers protection to the lessee, whereby the interests of the lessor are not lost sight of. Leased land is also a proven safe and stable investment for the lessor, with an attractive return through lease income and an increase in value. The lease prices are, however, limited by the Lease Prices Decree. However, for (private) lessees, the rental income is sometimes not sufficient to pay the costs, in particular the capital yield tax on a notional return of 4% of the leased value.

Precisely because of this legal limitation on the amount of the lease, the legislator should levy the capital yield tax for lessors on the income actually earned. An exemption would even be appropriate to promote sustainable use through long-term lease contracts. In practice, the lessor of free land seeks refuge in liberalized lease.

Soil quality on the decline
For extra hectares, there are always farmers who do not have to add extra costs to the means of production that they already have (machines, buildings and labour). This has been permitted since 1995 via the one-off lease and since 2007 via the liberalized lease form. This solution is not sustainable: the quality of the soil often deteriorates, if only because the high lease prices require an intensive construction plan.

Finally, lease - also for companies with (partial) ownership - is important for business succession. This week we will hear from the mediator's findings. I am curious whether the parties have stepped over their own shadow in order to maintain and expand leases for Dutch agriculture in the future in the interests of all parties. 

Peter van der Eijk

Piet van der Eijk was the chairman of the Association of Land Tenants and Own Land Users (BLHB) from 2012 to the beginning of 2019. He also has an arable farm in the Biesbosch polder in the outskirts of the Eiland van Dordrecht.

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