Compensation for lessees

Why both parties need expert legal advice in drawing up a leasehold agreement.

Many farmers don’t own the land upon which they farm. Also, given the current political climate, famers may be reluctant to purchase fixed property. When a land tenant or lessee vacates the property they’ve been leasing, the rights they have when it comes to improvements they have brought about will be regulated under the terms of the lease agreement.

It goes without saying that a leasehold agreement should protect a lessee’s rights as far as possible. In practice, however, such contracts often don’t cover all eventualities. For instance, it might be that improvements are brought about much later, as a result of the practical experience of farming.

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A person who holds land under a lease is referred to in law as a ‘bona fide possessor’. Such a possessor has various means by which they can obtain compensation for necessary expenses incurred relating to the property. It may be that, under certain circumstances, a bona fide possessor has a right of retention, known as a ‘lien’, over the property. This should be used with caution, as there’s a danger the owner might have certain counterclaims at their disposal should the possessor refuse to vacate the property.

Action
Provided the property’s value isn’t adversely affected, the bona fide possessor will have recourse to an enrichment action against an owner unwilling to pay for improvements to the property. Useful expenses or improvements will be allowable up to the actual cost of the expenditure or the amount by which the property is enhanced.

Should any income be generated by the improvements, the value thereof won’t be deducted from the claim. Instead, the value of the crops gathered (less the costs of harvesting) prior to the close of pleadings in the enrichment action will rank as a deduction against the claim.

If a lien is exercised, the claim of the bona fide possessor won’t be subject to the deduction of use and enjoyment of the property during the term of the lien. But it’s best to seek legal advice before embarking on the enforcement of a lien. A legal slip-up here could be extremely expensive.

Crops
With regard to crops, if the lessee knew that the crops would ripen and be ready for harvest after the end of the lease term, then they would only be entitled to the costs of planting the crop, not the value of the harvest. If the crop ripened before the expiry of the term of the lease, the lessee will be entitled to harvest the crop after the term of the lease expires. 

In my opinion, it’s better to think ahead in terms of the possible late harvesting of crops and the possible bringing of improvements, and to provide for these issues in a well-thought-out lease agreement. Having a lawyer draft the agreement can potentially save you many thousands in law costs, wasted crops and improvements.

Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.