OSU Extension Agricultural Law Newsletter
October 1999

This issue of the Agricultural Law Newsletter starts with a topic generating a good deal of interest this year: payment limitations. Given the current state of commodity prices, many farmers are seeing the value of fully utilizing farm program payments. While it is late to make changes this year, now is the time to start thinking about next year and whether your operation is properly organized for payment limitation purposes. In this issue I'll present an overview of eligibility determination for farm program payments. In the next issue of the newsletter, I'll discuss how payment eligibility rules affect the amount of program payments an operation receives and considerations for maximizing next year's program payments.

I've received a number of questions on fence law lately, and am also addressing that topic in this issue. An updated fact sheet on fence law will be published within the next few months.

A new section of the newsletter which I hope to include in each issue provides information on internet resources pertaining to law and agricultural law. As you may know, the amount of agricultural law information now available on the internet is enormous, but not always easy to locate. This section will help you locate information and identify the type and scope of the resources available.

As always, feel free to contact me at aglaw@osu.edu or by OSU voice mail at (614) 292-3549.

Until next time...

Peggy Kirk Hall, Legal Educator
Ohio State University Extension

Who may receive farm program payments

Most federal farm programs (with the exception of Marketing Assistance Loans) are limited to "persons who are actively engaged in farming". To receive payments, an individual or entity must first meet the definition of a separate "person" and must also be deemed as "actively engaged in farming". While the eligibility requirements sound simple, they're actually very complex.

A "separate person" will receive its own program payments up to the payment limitation amount. Eligibility as a "separate person" requires:

• separate and distinct interests in a farm operation
• separate responsibilities for the interest
• separate funds or accounts from any other individual or entity in the operation

The following offers an overview of which individuals or entities the FSA considers to be separate persons for farm program payment eligibility:

1. Individuals or sole proprietors - Each individual operator or sole proprietor is considered to be a separate person.
2. Spouses - A husband and wife are general not considered to be two separate persons, but are combined as one person with one payment limitation. The spouses can apply to be deemed separate persons if they can prove either that:

• both spouses were engaged in different farming operations before marriage and have continued as separate farming operations after marriage
• or neither spouse owns a substantial interest in another entity which earns farm program payments

1. Partnerships and Joint Ventures - Each partner or member is considered a separate person, meaning that the partnership will receive as many payment limits as there are partners. Note that this does not include limited partnerships.
2. Corporations, LLCs and Limited Partnerships - These entities will be considered a separate person only if they are not a "combined entity", meaning either:

• no more than 50% of the entity's interest is owned by one individual or another entity
• or no two or more individuals in the entity or no the entity along with another entity does not own more than 50% interest in another farming operation.

Note that a single person entity will not receive its own payment limit, as more than 50% of the entity is owned by one individual.

1. Trusts - A revocable trust (one which may be terminated or modified) is not considered a separate person, while an irrevocable trust (one which may not be terminated or modified) may be deemed a separate person if:

• the trust has a farming interest separate from the grantor or beneficiaries
• the trust has more than one beneficiary
• the beneficiaries do not have more than 50% interest in the trust and in another trust

1. Estates - Are considered a separate person if the deceased, when living, would not have been combined with an heir of the estate as one person.

Once deemed a "separate person", the individual or entity must also meet the "actively engaged in farming" requirement to be eligible for program payments. This requires making:

1. a significant contribution of both:

• capital, land or equipment
• active personal labor or management

2. contributions which are commensurate with claimed losses or profits from the operation

3. contributions which are at risk.

Whether a contribution is "significant" is an examination of the type and quantity of the person's inputs into the operation as well as the source of the inputs. To be "commensurate", the contribution must be proportionately the same as profits or losses. The contributions must also represent a true economic investment in the operation, one which is "at risk" by representing the potential for gain or losses dependent upon the farm's performance.

As with most federal regulations, there are exceptions to the eligibility rules. Certain individuals may qualify as separate persons under different requirements. These categories include:

1. Landowners leasing land on a return basis
2. sharecroppers making a significant contribution of labor in return for a share of the crop
3. cash rent tenants making significant contributions of labor or management and equipment

I've developed a handout on program payment eligibility which will soon be available on the internet. If you wish to receive the handout by e-mail, send your request to me at aglaw@osu.edu.

Ohio law requires each adjoining landowner to cut back brush, noxious weeds and briars within four feet of the fence and in the fence corners. The landowner may grow trees and vines for use on the fence row, but is required to maintain or prune the trees or vines on his/her side of the fence.

If a landowner fails to properly maintain vegetation on his or her side of the fence, Ohio law provides the adjoining landowner with a remedy. The adjoining landowner must first request that the offending landowner cut the vegetation and allow the landowner 10 days to do so. If the offending landowner does not cut the vegetation, the adjoining landowner may request a viewing by the township trustees. The trustees will view the fence row and determine whether the vegetation should be cut. If maintenance is necessary, the trustees may hire someone to cut the vegetation. The cost of the cutting is then assessed on the offending landowner's tax bill.

See Ohio Revised Code Chapter 971.

A group that organizes for a particular purpose without taking steps for legal recognition is considered by Ohio law to be an unincorporated association. An unincorporated association may choose to operate similarly to a corporation, that is, to formally govern itself with its own bylaws and regulations, but is not required by law to do so.

The main reason that an unincorporated association may want to become legally recognized is for liability purposes. With some exceptions, individuals in a corporation are generally protected from any personal liability for the corporation. While this protection sounds appealing, it is not necessary if the group doesn't undertake activities or actions that could create liability issues. Note, too, that insurance coverage can address some liability concerns.

An unincorporated association would not want to incorporate if it does not wish to operate on a formal, rules and regulations basis or if it does not wish to incur the minimal costs of incorporating and seeking legal or tax advice for the organization.

Several provisions of Ohio law come into play under this situation. First, a landowner bordering on a waterway has the right to make a "reasonable use" of the waterway. This is referred to as the reasonable use doctrine, which is a balancing test between the interests of the person making the use, any person harmed by the use, and society as a whole. If the costs and unfairness to downstream owners and society in general outweighs the benefits to the user of damming the water, then the use would be deemed unreasonable. The user could then be prohibited from damming the water and may be required to pay any damages resulting from the use.

Second, a provision in Ohio statutory law states that a person may not obstruct the passage of a waterway to the injury of others. The person claiming injury from an obstruction of a waterway has the burden of proving the actual injury, and may receive damages if proven. Ohio law also sets forth a process allowing a landowner to petition for removal of an obstruction of a waterway through the county commissioners, who have the authority to determine whether the obstruction should be removed.

See Sections 3767.13C (obstruction of waterway), 6131.024 (petition for removal) and 1521.17 (reasonable use) of the Ohio Revised Code.

If you just need general law information, such as a statute or court opinion, AllLaw and FindLaw are good resources. For information specific to agricultural law, the NCALRI site is an excellent resource.

AllLaw - www.alllaw.com - AllLaw is a good site if you need federal materials or information from another state. I also like the site when searching for news items, as it provides many links to media sites, a "Journals and Periodicals" section and a "Reference and News" section. The Legal Topic Index does not include a separate agricultural law topic, however.

FindLaw - www.findlaw.com - This site is a good general law site. I like it for its federal resources, such as United States Supreme Court cases and federal statutes, and its links to several dozen other legal web sites under the "Other Legal Indices" topic. The search feature allows you to search different areas such as "legal news" or the "document library". The site does not have an agricultural law section, but does have sections on contracts, environmental, labor, probate, trust and estates, property and real estate, and tax.

National Center for Agricultural Law Research and Information - law.uark.edu/arklaw/aglaw/ (note this address is not preceded by www). Probably the best site for agricultural law resources. It includes federal legislation and up-to-date information on proposed legislation, United States Supreme Court and Appellate Court decisions pertaining to agriculture, administrative law links such as NRCS and FSA directives, Farm Employment Rules and Regulations, Farm Credit Association regulations and policies, etc. State statutes on agriculture are available, and there are sections on agricultural law publications and organizations. The site also provides links to many other agricultural law sites.

• Ag Law Archive
• Agricultural, Environmental & Development Economics Web
• Ohio State University Extension
• The College of Food, Agricultural, and Environmental Sciences
• Ohioline
• Ohio State University Web