"The time has come," the walrus said, "to talk of many things: Of shoes and ships - and sealing wax - of cabbages and kings" (Lewis Carroll).
In my case, the time has come to discuss, in public, some of the strategies to lease out your range tenure without running (at least not too far) afoul of Ministry of Forests Lands Natural Resource Operations and Rural Development rules and regulations.
This is a sensitive topic, because ranchers aren’t supposed to lease out their range tenures.
The British Columbia Interior beef cattle industry’s use of Crown range has historically been based on the principle of commensurability. The range tenure holder is supposed to own or lease enough land to carry the number of cattle authorized to use the range tenure, throughout the rest of the year. The Exhibit C lands (scheduled to the range tenure) should be able to produce, at minimum, sufficient forage to feed the cattle, which are allowed to be on Crown range, during the parts of the year when the cattle are not on the Crown range.
My view is that the principle of commensurability is sound as it allows for use of Crown range by a sustainable ranching sector, and for consistent attentive management of those ranges by a tenured range user with a long term view of range conditions, using personnel and livestock familiar with the range. This kind of stability benefits the range as well as the tenure holders.
So why do ranchers ever consider allowing someone else to use their range tenure?
Sometimes ranchers want to stop running cattle on the ranch but do not want to sell it; they want to keep the associated range tenure to maintain future options for ranch operations and to retain ranch value for an eventual sale. Other ranchers for reasons of health, age, finances, marital or other personal circumstances, do not have livestock to stock the range tenure fully.
A non-use authorization for the range tenure can be obtained for a maximum five year period so is not always an ideal fit for individual circumstances.
The more legitimate strategies involved in allowing third party use of the ranch owner’s range tenure are a lease, profit-a-prendre, partnership agreement, or joint venture agreement.
At the less legitimate end, there’s always the low-cost, low-tech "bill of sale in the back pocket" where the ranch owner holds a bill of sale transferring title to the third party’s cattle on the ranch owner’s range tenure, usually returned at the end of the season with the ranch owner being compensated for the third party’s use of the range.
But before we look at which strategies are preferred and which are not, why am I writing this article? What’s the problem, anyway?
The risk of involving a third party on the ranch owner’s range tenure, is the breakdown of relationship between ranch owner and range tenure user and the refusal of the range tenure user to sign a re-transfer of the tenure to the ranch owner.
FLNRORD generally requires at the start of the relationship, that the range tenure is held in the name of the range tenure user, sometimes jointly with the ranch owner and range tenure user.
Recovering sole ownership of the range tenure at the end of the relationship requires a signature from the range tenure user.
The ranch owner MUST HAVE A SIGNATURE FROM THE RANGE TENURE USER to get ownership of the range tenure back. FLNRORD’s current legal advice is that there is no way around the requirement to get the range tenure user’s signature on the document notifying FLNRORD of the transfer of the range tenure back to the ranch owner.
Although BC Cattlemen’s Land Stewardship Committee has been asked to discuss changes to the transfer regime with FLNRORD, including a measure of discretion on the District Manager in special circumstances, there is currently no solution to allow a re-transfer of the tenure if a ranch owner cannot get the range tenure user’s signature on a re-transfer document.
FLNRORD’s position is that the ranch owner needs to get either the signature or a court order to deal with the demise of the relationship and to require the tenant to sign the re-transfer document. Getting a court order may sound easy but is not easy, fast, or inexpensive. Ranch owner’s legal costs will be in the $10,000 to $20,000 range minimum if the tenant does not take part in the court proceedings, and considerably more than that if the tenant is involved.
I make some suggestions, below, as to preferred relationships and documentation to avoid this and other problems. So, turning to the options for third party arrangements -
FLNRORD will accept notice of transfer of a range tenure to the tenant of a ranch. The lease should be for deeded and leased land and the range tenure. FLNRORD will transfer the range tenure into the name of the tenant.
The ranch owner who is leasing his or her ranch must include protective provisions in the lease, specifically:
A tenant may have concerns about these documents and negotiation between ranch owner and tenant may be needed to settle the terms of the documents. But without them, the ranch owner’s only option, without a signature from the tenant, is to get a court order to force the re-transfer of the range tenure at the end of the lease relationship.
A lease gives exclusive possession of all the assets leased, to the tenant. Often a ranch owner will want to continue to occupy his or her residence, and sometimes, may want to continue to harvest forage on deeded land.
Technically, a profit-a-prendre may be a better fit than a lease because it can be limited to the forage producing deeded land only and exclude the residence or other outbuildings not essential to the tenant. A profit-a-prendre gives an exclusive right to harvest some of the "fruits of the soil" - private grazing agreements, forage harvesting agreements, ginseng agreements, timber agreements, and gravel agreements are all forms of profits-a-prendre.
For a rancher who wants to continue to put up forage but doesn’t want to continue to be responsible for livestock on Crown range, my view is that the rancher can lease the entire ranch to the tenant with the consequent range tenure transfer. The tenant and the ranch owner can also enter into a private sublease in which the ranch tenant subleases the deeded forage production areas back to the ranch owner. I am not aware of a requirement to disclose a sublease of that nature to FLNRORD.
Of course the range tenure user (and the ranch owner who wants to preserve the value of the range tenure) must ensure that the contemplated tenure use complies with other FLNRORD and range association policies about overwintering or livestock-on-premises-pre-turnout time requirements.
It is also critically important that the range use plan requirements are met at all times including those relating to livestock classes and movements.
I have also seen a ranch owner and a range tenure user enter into a joint venture agreement, a contract which joins the ranch owner and the range tenure user together to describe what parts of the whole ranch operation will be undertaken by the ranch owner and which by the range tenure holder.
These agreements do not constitute a partnership (see below) and are favoured by some tax advisors.
These agreements should be used where the ranch owner remains responsible for at least some ranch functions or operations and the range tenure user is responsible for others. They allow for flexibility in allocating roles and responsibilities to the ranch owner and range tenure user.
BUT the same provisos as discussed above apply to the ability of the ranch owner to sign a tenure transfer on behalf of the fellow joint venture, to return the range tenure to the ranch owner at the end of the relationship.
Never get into a partnership agreement without legal advice. In a partnership (except for a limited liability partnership), each partner is liable for the debts of the partnership.
It is the worst possible choice to describe a relationship that will allow a third party to use and take title to, or an interest in, a range tenure.
Unfortunately, in an attempt to be helpful, some FLNRORD district range staff historically provided ranch owners with partnership agreements to document third party use of a range tenure. It is these arrangements which, when they break down, are the most challenging to unwind.
Again, historically, ranchers have looked to FLNRORD staff for assistance in managing Crown range and for help in understanding and finding a way through FLNRORD rules and regulations to see what can and can’t be done on Crown range. Ranch owners and operators have placed reliance on FLNRORD expertise and felt safe in openly discussing ranch owner objectives with FLNRORD staff.
Those days may be disappearing in the rear view mirror with the retirements of range officers and the continuing professionalisation of the relationship between ranch owners and FLNRORD personnel.
My view is that it is generally preferable, depending on the issue, to understand the rules and regulations first, and then approach FLNRORD with a plan that should fit and be prepared to discuss modifications to the plan--rather than asking for FLNRORD help to put that plan together. FLNRORD staff should not be approached for advice about how to circumvent their range tenure policies.
Ranch owners can consult FLNRORD staff about what are the specific rules and regulations but to go further and say "how can I do what I want to do" and expect FLNRORD staff to coach with a wink and a nudge when it’s clearly contrary to the rules and regulations, is a step too far.
So, don’t go to FLNRORD range staff and say "hey, I had to sell my cows, but Larry is going to stock my range tenure and pay me $1 a day per pair, how do I do that?".
The ranch owner for whatever reason doesn’t have livestock to stock the ranch’s range tenure, but he knows someone who has cattle and needs a home for them for the summer.
The cattle owner gives the ranch owner a bill of sale for the cattle in case anyone (like FLNRORD compliance and enforcement personnel) comes to check on the ownership of the cattle that are on the range tenure.
When the cattle come off Crown range, the bill of sale is simply returned to the cattle owner, or a fresh bill of sale from ranch owner to cattle owner is given. No change to the range tenure, which remains in the ranch owner’s name…no harm, no foul, right?
I will not say that this strategy can never work. But any other Crown range users on the same tenure may be displeased at the challenges presented by cattle unfamiliar with the range. And the ranch owner needs to make absolutely sure that there is full compliance with the range use plan and all underlying FLNRORD and range association regulations and policies with respect to overwintering or cattle location pre-turn-out.
In other words if the ranch owner uses this strategy in an attempt to disguise what is actually going on, he or she must be prepared to do all the work necessary to guarantee that the cattle are managed acceptably on Crown range.
It is also the kind of transaction which could interest Canada Revenue Agency as CRA tends to be intrigued by situations where the documentation does not reflect the true deal.
If you as a ranch owner are involving someone else in ownership of your range tenure, you must take protective measures to allow you to be able to sign for the range tenure user, to make sure that you can recover the range tenure associated with your ranch if the relationship breaks down.