Farmland board rules against investment group

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Western Producer | 29 Janaury 2015

Farmland board rules against investment group

by Sean Pratt

Saskatchewan’s Farm Land Security Board has issued its second decision on a case that could transform the way land is bought and sold in the province.


The decision reaffirms an earlier ruling that ordered Skyline Agriculture Financial Corp. to reduce its land holdings to the allowable 10 acre limit for foreign investors.


Skyline is attempting to use a complicated ownership structure involving mortgage agreements, swap agreements and derivative agreements to avoid being viewed as owner of the farmland.


The British Columbia company headed by Mark Reineking believes it can use the unique business structure to raise funds from outside Canada to buy Saskatchewan farmland because it wouldn’t actually own the land.


It has told the security board that it intends to raise foreign capital to finance the operation, which isn’t allowed under traditional land ownership structures.


Dan Patterson, former general manager of the board, said the company is attempting to raise money on stock markets around the world to buy Saskatchewan farmland.


“If they are successful, there’s rumours that they would want to spend $100 million or so to begin with,” he said.


The security board ruled Aug. 29 that it considered Skyline to be the owner of the land, despite its complicated structure, and that the company was therefore in violation of the province’s land ownership laws.


It ordered Skyline to reduce its 15 acre landholding to the allowable 10 acres.


Skyline, which purposely exceeded the allowable acreage limit to trigger a ruling, took the province to court, contending it was complying with the rules.


On Oct. 23, judge Donald Layh ruled that the security board did not provide “transparent and justifiable” reasons to support its decision to order Skyline to divest. He referred the case back to the board for further consideration.


The board met Nov. 27 and Dec. 9 and reaffirmed its earlier ruling that the proposed structure provides Skyline with rights normally accruing to the owner of farmland.


In its decision published Dec. 11, the board provided examples of why it believes Skyline should be viewed as owner of the land despite how the business is structured to obscure that fact.


It said the farmer-mortgager under the Skyline model must operate the land according to plans approved by Skyline and is not allowed to sell crops without the consent of Skyline. As well, Skyline will earn the major portion of any capital appreciation on the land.


“This is an attempt to get around the provisions of the Saskatchewan Farm Security Act and allow non-Canadian entities the opportunity to control the farm operation and to profit from the increasing value of Saskatchewan farmland,” said the board in the decision published on the security board website. 


Mark Folk, general manager of the security board, said the case heads back to the Court of Queen’s Bench Jan. 27, which was before The Western Producer’s publication deadline.


“It’s a legal question that the judge will have to decide,” he said.


Saskatchewan agriculture minister Lyle Stewart said the province is reviewing the act to ensure that loopholes enabling individuals or companies to circumvent the intent of the law are closed.


He said the earliest a revised act could be passed is the spring of 2016.


Rick Swenson, leader of the Progressive Conservative Party of Saskatchewan, said that isn’t good enough. He is calling for immediate changes to the act in light of the farmland security board’s recent decision allowing the Canada Pension Plan Investment Board to buy thousands of acres of prime farmland.


“Obviously the (Saskatchewan premier Brad) Wall government and rural Sask Party MLAs are feeling some heat on this issue,” he said.


“If they are serious, they will introduce legislation this spring to close the existing loopholes if they currently exist at all.”


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