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Explanatory Notes - for Vendors and Purchasers
1.
The Principles
1.1 The system of milk quota is controlled by European and UK regulations. The
regulations are complicated and some points are not clear. However currently
the Intervention Board authorise the transfer of quota from one quota holder
to another either as part of a temporary land transaction or without a land
transaction if the transfer brings about a structural improvement in milk production.
1.2 Any transfer of quota must have the consent of all persons having an 'interest'
in the holding. Such persons include Mortgagees (eg Bank, AMC), Trustees (but
not beneficiaries of the Trust), Co-owners, Landlords of the holding, option
holders and persons or entities that have purchased any part of the transferors
holding during the preceding five years. "Holding" means a vendor's euroholding
as defined by the European Regulations which includes all land which the vendor
occupies and uses for the purpose of milk production (including dairy buildings
yards forage areas for both dairy and dry cows dairy replacements and crops
grown for consumption by the dairy herd).
2. With Land Transfers
2.1 The transfer of quota may occur through a change of occupation of the land
to which the milk quota is being attached.
2.2 If the vendor is selling the whole of the quota this can be done by granting
a tenancy over the entire area of land for milk production.
2.3 If the vendor is selling part of his quota or the quota is divided into
lots for the purposes of sale the procedure is as follows:-
2.3.1 The quota is apportioned to the vendor's land taking into account the
area used for milk production.
2.3.2 The vendor grants to the purchaser a tenancy of land generally a term
of 11 months which has been used for milk production, the area depending on
the apportionment as referred to in the 2.3.1 above. If the apportionment used
does not properly take account of areas used for milk production the quota transfer
may not be processed by the Rural Payments Agency or may be challenged subsequently.
2.3.3 The tenanted land must not be used for the purposes of milk production
during the currency of the tenancy.
2.3.4 Within 28 days of the commencement of the tenancy (effective date of change
of occupation) (and in any event within 7 working days after the end of the
quota year in question) a joint application is made to the Rural Payments
Agency for the registration of the quota transfer.
2.3.5 The tenanted land forms part of the purchaser's holding for the period
of the tenancy but because the land is not used for milk production the quota
will in effect be transferred from the vendor's land to the purchaser's holding
where milk production has been taking place.
3. Sales Without Land
Since 1995 quota holders have been able to transfer quota without land under
specific circumstances. The Vendors (transferor) must wish to dispose of the
quota because he/she is scaling down or winding down dairy production permanently.
The Purchaser (transferee) must need to acquire additional quota because he/she
is expanding in milk production, will be expanding or he/she wishes to reduce
his dependency on leased in quota. In each case for transfer on a "without land"
basis the Rural Payments Agency must be satisfied that the transfer is necessary
to "improve the structure of the business of the transferor and transferee".
Transferors and Transferees must apply for approval to transfer quota without
land using an MQ/1 form. Once the transfer is approved, the Rural Payments
Agency sends out a MQ/1 application to register an approved transfer of quota without
land. This form must be submitted within 28 days of the date of transfer.
4. Points to Note
4.1 The quota Year runs from 1st April to 31st March.
4.2 If the quota is transferred midway through the year it may be part used
if the vendor is/has been milking during the same year. The Regulations now
make it possible to specify the butterfat adjusted volume of used quota that
is to be transferred.
4.3 The commencement of the tenancy triggers the change of occupancy and quota
transfer. Backdating agreements for use or tax purposes is an unacceptable practice.
4.4 The Butterfat Base of the purchased quota will be merged with the rest of
the purchaser's quota and an adjusted figure will result. Dilution of a base
figure could give rise to a future levy liability.
4.5 The leasing out of quota by a vendor who has been milking during the year
will effectively result in an increase in the use of remaining quota but only
after the lease or leases have been processed.
4.6 The purchaser of milk quota should occupy the land comprised in the land
transaction although it is considered this can be achieved through a Contract
Services Agreement.
4.7 Quota (when transferred with land) is deemed an exempt supply for VAT purposes
unless the vendor has elected to waive exemption. Vendors should be aware that
this status may restrict input tax recovery (eg VAT on commission/professional
charges) and are therefore advised to seek clarification of their specific position
from an appropriate advisor.
5. The Bruton Knowles Procedure
5.1 Prospective vendors are asked to complete a "Form of Instruction" furnishing
us with all relevant details.
5.2 We advertise the availability of quota regularly in the major farming press
and invite enquiries.
5.3 The quota is added to our register and offered for sale by private treaty,
or auction (by prior agreement with the vendor).
5.4 Vendors are sent our "Milk Quota Bulletin" on a regular basis which appraises
them of market movements and quota news. Only vendors who have returned their
Form of Instruction and who have bona fide available quota qualify for receipt
of the Bulletin.
6. Private Treaty Procedure - Prospective Purchasers
6.1 Details of quota are provided over the telephone to prospective purchasers.
Whilst details such as butterfat and use are given in good faith, they should
be verified by the purchaser.
6.2 When a purchaser has selected the quota of his choice we obtain the vendor's
agreement. No sale is agreed without obtaining the vendor's consent.
6.3 The trading details of the purchaser are then obtained and the appropriate
documentation prepared. The agreements are normally issued to both parties within
3 working days of securing the agreement of both parties to proceed.
6.4 Although our procedure is regularly used for the transfer of quota, purchasers
in any doubt about their position should seek independent financial advice.
6.5 Up to the time of Provisional Completion as defined in the Quota Sale Agreement
the transaction is "subject to contract" and either party may legally withdraw
at any time. We generally apply a 10 day time limit for the return of the paperwork.
6.6 When all the agreements have been signed and payment has been made we are
in a position to effect Provisional Completion which binds both parties to the
terms of the agreement. We will effect this by dating the transaction documentation
unless prior to this we receive written confirmation that either party wishes
to withdraw from the transaction. The return of the documentation duly signed
will be regarded as confirmation of your authority for us to provisionally complete
on your behalf.
6.7 Estimated Timescale: (to Provisional Completion): 3-4 weeks, although the
process can be quicker as well as slower.
6.8 Transaction Failure: Although either party may legally withdraw from a transaction
prior to Provisional Completion we discourage transferors from doing so unless
there are exceptional reasons such as protracted delay or complications with
third party interests. Withdrawal prior to Provisional Completion will incur
an administration charge to be made at our discretion not exceeding £400 plus
VAT. The rights of the parties as against each other, in the event that the
Rural Payments Agency fail to process the transfer, are covered in the Quota Sale
Agreement.
7. Auction Procedure
7.1 Bruton Knowles occasionally conduct auctions. The sales are advertised widely and particulars made
available approximately 7 days prior to the auction.
7.2 At the fall of the hammer "Provisional Completion" is effected and a binding
contract made. The paperwork is signed and the purchase price handed over immediately
after the sale.
7.3 Timescale (to Provisional Completion): 1 day
8. Features Common to Both Procedures
8.1 Under both procedures we undertake to submit the transfer form to the
Rural Payments Agency as soon as possible after Provisional Completion provided all necessary
signatories have been secured.
8.2 The consideration monies are held by Bruton Knowles as stakeholders until
such times as the Rural Payments Agency confirms the transfer has taken place.
Upon completion (which occurs when the Rural Payments Agency have issued its approval
to the transfer of the quota) the proceeds together with interest accruing are
released to the vendor after deduction of our fees/commission.
8.3 If for any reason the transfer is not confirmed the purchase monies are
paid back to the purchaser together with the interest in accordance with the
terms of the agreement. As a guide the Rural Payments Agency aims to process properly
completed applications within 28 days. At the start of a milk year processing
cannot start until the year end functions have been completed which is generally
achieved by mid June.
8.4 Estimated Timescale (to Completion): Sale by Private Treaty: 7-10 weeks;
Sale by Auction 5-8 Weeks although the process can be quicker as well as slower.
Notice
These notes are produced for guidance only and are not intended to be a statement
of the law relating to milk quota transactions. Any prospective or actual purchasers
or vendors of milk quota should consider taking appropriate professional advice.
Bruton Knowles NQE, Bisley House, Green Farm Business Park, Bristol
Road, Gloucester, GL2 4LY.