Business Clinic: Sea defence walls, straw storage, tax and CAP

In our new series, we get farm business experts to answer your questions.

In this article we cover landowner liability for sea wall breaches, insurance risks of straw storage, CAP reform, and the tax implications of setting up as a business.

Landowner liability for sea wall breaches 

Q: My family are dairy farmers in Lancashire whose land contains sea defence walls. Several neighbouring landowners (mainly farmers), have similar sea defence walls on their land.

Together, these cover a continuous length of coastline 7km long, offering flood protection to several hundred hectares of agricultural land and 60 properties.


A breach in these defences results in some or all of this area being flooded.

The Environment Agency (EA) has always maintained these walls, but is proposing to pull out of maintenance sometime in the next 30 years.

It tells us that, when it ceases maintenance, we as landowners could agree to take on maintenance of the sea walls.

As well as the obvious cost implications, where would a landowner stand with regard to legal liability for damage to people/property inland, caused by a breach in the defences?

I have read articles suggesting that landowners could be liable, if they agree to take on maintenance of sea walls.

Peter CusickPeter Cusick
Head of Agriculture and Food, Thrings Solicitors



A: The EA has ultimate responsibility for managing coastal flood risk and often works in conjunction with local authorities to draw up a shoreline management plan (as it has in the North West). It is worth checking to see what it says about your sea wall. 

The EA usually maintains defences where: 

1. There is an economic case to reduce the risk from flooding to people and property. 

2. Defences are required to protect internationally designated environmental features (for example Sites of Special Scientific Interest). 

3. Maintenance is justified due to legal commitments or where stopping maintenance would cause an unacceptable flood risk. 

The EA has stated that where maintenance of defences does not fit the above categories, it will work supportively with interested parties to explore all options. 

If a decision was taken to stop maintenance where 1, 2 or 3 above applied, those concerned should look closely (and promptly) at whether that decision was challengeable in the courts as being irrational. 

Furthermore, and in any event, I would expect the EA, upon any exit, to inform landowners of the following: 

1. The reasons behind the proposal to stop maintaining the sea defences. 

2. Current maintenance work. 

3. Recommendations for future maintenance. 

4. Current condition of the asset and estimated length of time before it will need replacing. 

5. Length of consultation period and date it is proposed maintenance work will stop. 

6. The consents, permits and permissions that you may need to maintain the asset. 

7. Your rights, responsibilities and options. 

This would allow you to make a fully informed decision, including assessing whether you have the resources to commit to it and who else might be required to help fund the wall (for example those also obtaining a direct benefit). 

Where a landowner assumes responsibility for maintenance of a sea wall but fails to do so properly, the landowner may be liable to claims under nuisance and negligence. 

Private nuisance is a problematical area because each case depends on its own facts. It is defined as the unlawful interference with another person’s use and enjoyment of their land.

It can occur through acts or omissions, so the failure to carry out works properly could lead to a nuisance claim. 

Negligence is any act or omission falling short of the standard reasonably expected. Assuming a duty of care is owed to your neighbours, your responsibility would be to undertake all reasonable steps to ensure that the flood defences were kept in good order. 

In recent discussions about the Water Bill currently before parliament, interested parties have called for the law to protect landowners who assume the EA’s responsibilities.

They highlight the practical difficulties given the uncertain nature of the law of nuisance. It remains to be seen whether those calls will be heeded. 

One question is whether a landowner succeeding to the Crown’s duty is bound to do actual work on a sea wall to protect his land, or to prevent his neighbour’s land from being inundated.

The answer to this question is generally speaking no and this was established in an 1877 authority called Hudson-v-Tabor.

A duty of maintenance of sea barriers for the benefit of others is not put on a person owning the land on the sea front unless it was the practice by long continuous use.

An obligation to repair, or to contribute to the cost of repairing, sea walls can however arise in certain situations namely by statute (Coastal Protection Act 1949 s.15 (2)), by charter, by long continuous use or by contract.

It should be noted however that by virtue of s.15 (1) of the 1949 Act the general position is that a landowner is not obliged to carry out works on the sea wall built under an approved scheme unless (s.15.2) he or she would be otherwise obliged eg by the terms of their tenure, or by custom or long continuous use.

Insurance risks of straw storage 

Q: We are considering baling our own straw this year, storing and selling it next winter. What are the insurance implications? 

Nigel WellingsNigel Wellings
Founding director,, Farmers & Mercantile


A: There are two main implications of baling your own straw or hay and storing it: 

1. The extra fire risk 

2. The potential liability from falling bales causing damage/injury to machinery, employees and visitors to the farm. 

Insurers are increasingly concerned about the rising number of fire claims associated with hay and straw and also large liability claims resulting from bales falling on to people or property. 

Most insurers cover hay and straw against fire as standard, but it is always worth checking this and any stack limits. Other perils such as storm, flood or theft need to be discussed specifically with your broker. 

Your insurer will expect you to manage the risk to minimise the chances of a claim, considering: 

  • Size of stacks. Most insurers will need to be informed if there is more than £30,000 worth of hay/straw in any one stack.
  • Will the stack be sited in a building or in the open? If in a building, how far is it from stored machinery, livestock or combustible items or other buildings? Get your broker’s advice on where to site outdoor stacks or new sheds.
  • How high are you proposing to stack the bales? The higher the stack, the more risk of it falling and injuring someone.
  • Signage is essential for both outdoor and indoor stacks – a simple sign such as “Danger, keep away. Risk of falling bales” is enough.
  • Monitor and record stacks for safety throughout the storage period, particularly outdoors. Do not site next to roads or farm tracks where vehicles and people regularly pass. Take remedial action as soon as any stacks appear unsafe.
  • Who owns the straw? If a contractor bales it and stacks it on your land, then sells it himself, you could still be liable for any damage caused by the stack. Have a clear and concise written contract setting out each side’s responsibilities. 

The most important point is to consider the various fire and liability risks and to make decisions to try to minimise this risk. Put this risk assessment in writing. 

A few hours spent on this will be time well used – a fire can be disruptive to even the most well-managed business, as can any injury. 

Company setup could save tax 

Q: Our accountant has suggested we trade as a company instead of a farming partnership. He said this would save tax – what else do we need to think about? 

The partnership includes mother (58) and father (62) – both still working in the business – and two sons aged 28 and 30, also both working in the business.


Mike ButlerMike Butler
Partner, Old Mill



A: Company tax rates have fallen during the past 10 years or so. From 1 April 2015 all companies will pay a flat rate of 20% corporation tax, irrespective of the level of profits.

That compares favourably with income tax rates paid by sole traders or partners in partnerships, which can be as high as 45%. 

In addition, individuals and partners in partnerships pay National Insurance at rates of up to 9%. 

However, other taxes are affected by such a change in structure, such as the ability to apply for the herd basis of valuation if this is not already in place.

There are important inheritance and capital gains tax considerations for farmhouses and land, depending on how they are owned, so the implications of this should be thoroughly checked. 

There are many other considerations including: 

  • Likely admin costs including accountancy (more than covered by the tax saving).
  • One-off initial setup costs, for example bank fees for new company and security.
  • Reporting obligations – small companies must file abbreviated accounts within nine months and one day of year end.
  • Corporation tax is payable within same timescale.
  • Directors take on legal obligations and must act in best interests of the company.
  • Small companies must file abbreviated accounts with Companies House disclosing company balance sheet but not profit or loss account. (A small company is one with turnover lower than £6.5m, gross assets of less than £3.26m and no more than 50 employees.)
  • It is simple to transfer interest in a company, for example on retirement.
  • Cash can be taken out through salary, dividends or drawing down on the director’s loan account.
  • Benefits in kind – where benefits such as company cars or farmhouses are held in a company structure, the employer is liable to a tax charge of 13.8% of the benefit provided and the employee will be taxed on this at their marginal rate. 

With any restructuring you should seek individual tax and accountancy advice. 

CAP reform questions 

Q: I have three questions relating to CAP reform. 

1. Can I sell entitlement of arable to get below 10ha and still have arable acres to farm (all temporary grass)? 

2. Can a 5% fallow to satisfy Environmental Focus Area requirements also qualify as the third crop within crop diversification? 

3. Can buffer strips, wild bird covers or field corners in an ELS scheme count towards the 5% EFA area?


Associate, Savills



A: 1. The type of entitlements you will hold under the Basic Payments Scheme (BPS) will not be defined by the type of cropping you undertake, for example arable or permanent pasture. 

So, selling a number of entitlements would not solve the problem, especially if you remain in occupation of the arable land in question, as the BPS rules require you to declare all the agricultural land you are in occupation of on your annual claim. 

DEFRA has announced various exemptions to the crop diversification rules. For example, where more than 75% of your eligible land is permanent grassland or used to produce grasses or herbaceous forage and your remaining arable land is 30ha or less, you would qualify for an exemption.

The RPA defines permanent pasture as land used to grow grass or herbaceous forage that has not been included in the arable crop rotation for five years or longer. 

2. Opinion varies on this, but my intuition tells me it is unlikely that fallow land under EFA will also be allowable as a crop under the crop diversification requirements. 

Similarly, it is not clear whether a nitrogen-fixing crop such as field beans, which may also qualify for EFA, will also qualify for crop diversification. The expectation in this case is that it would. 

The problem at the moment is that DEFRA has until 15 December 2014 to inform the commission about which EFA options it is making available to farmers. Let’s hope it’s much sooner. 

3. DEFRA has not announced how the relationship between the EFA and agri-environmental schemes will work. We do know that double funding is not permitted. 

There is an argument that certain items such as hedges are paid for under ELS for management, whereas under EFA they qualify merely by their existence. 

Best advice is to look to make provision for your EFA requirements without including any of your ELS scheme options.


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