"If you care at all about the future of the world's food supply, you care – whether you know it or not – about Saskatchewan." (Andrew Ross Sorkin, Columnist – The New York Times, October 11, 2010)
Saskatchewan has received a lot of attention in the world press and investment community over the past several years. In particular, investment in Saskatchewan farm land has been on the radar of some of the world's most prominent investors for several years. This interest has been driven by several factors including Saskatchewan's booming economy, Canada's stable financial and political environment, growing food demand and increasing commodity prices. At an average price of approximately C$500/acre, Saskatchewan also has some of the cheapest farm land in the developed world. In Alberta the average price is approximately C$1,400/acre and in the United States almost US$3,000/acre. In the United Kingdom, the average price of farm land is approximately US$10,000/acre. All of these factors have contributed to unprecedented interest in Saskatchewan farm land as an investment.
Many commentators have speculated that one contributing factor to the undervaluation of Saskatchewan farm land may be the restrictions on ownership imposed by The Saskatchewan Farm Security Act (the "Act"). The Act first came into force in 1974 and was intended to limit foreign ownership of Saskatchewan farm land. In many respects the current version is a complex piece of legislation, so a thorough examination is beyond the scope of this article. Here are some of the key elements of the Act as it relates to the ownership of farm land:
- There are no land holdings restrictions for a person who is a Canadian citizen or is resident in Canada (183 or more days per year).
- Canadian corporations involved in the business of farming ("agricultural corporations") are not restricted in the amount of Saskatchewan farm land they can hold.
- Non-resident persons and non-Canadian owned corporations are restricted to farm land holdings of 10 acres unless special permission is granted by the Farm Land Security Board.
- A non-Canadian owned entity may own up to 320 acres of Saskatchewan farm if the majority of the issued voting shares are legally or beneficially owned by Saskatchewan residents.
The ownership restrictions in the Act apply to "land holdings"; a term that bears a very broad definition. Land holdings include, among other things, ownership of farm land, any interest in farm land held under an agreement to purchase or lease, an interest in a limited partnership that has land holdings, and any interest in farm land held under an agreement that may directly or indirectly confer the right of possession or ownership or any right or control ordinarily held by the owner of farm land.
Although many investors seek to acquire land through various structures (including corporations, joint ventures or limited partnerships) the definition of a "Canadian-owned entity" is so restrictive that it precludes many attempts to structure an investment vehicle. In order to qualify as "Canadian-owned", an entity must be an "agricultural corporation" or a corporation, partnership, syndicate, joint venture, co-operative, association, or any other similar entity prescribed in the regulations, in which all the shares or interests are legally and beneficially owned, and all the memberships are held, by resident persons (or Canadian citizen) or other Canadian-owned entities. Any entity that has its shares listed on an exchange does not qualify as a Canadian-owned entity.
The reference to "all the shares or interests" is important because it severely limits creative ways to qualify as a "Canadian-owned entity". It also means that for corporations other than agricultural corporations, a single non-resident shareholder may disqualify the corporation as a Canadian-owned entity. The definition of "agricultural corporation" only requires that the corporation be primarily engaged in the business of farming and that a majority of its voting shares be legally or beneficially owned by producers who are resident persons.
Despite the restrictions on land holdings, there are some narrow avenues that, with careful planning, may allow foreign investors to obtain in interest in Saskatchewan farm land. For example, the Farm Land Security Board may give written consent to a non-Canadian owned entity or individual to acquire land holdings. Any application to the Board must be prepared with great care to ensure it presents a compelling case for the exemption. In giving consent, the Board has broad discretion to impose any terms and conditions it considers appropriate.
In addition, the definition of "land holdings" in the Act specifically excludes any interest in farm land held by way of security for a debt or other obligation. This small exclusion has led to some sophisticated and innovative debt structuring transactions to allow foreign investors to participate in the Saskatchewan agricultural market in ways that would otherwise be precluded by the land holding restrictions.
The restrictions imposed by the Act and the narrow exceptions and exemptions that may be available should cause investors to exercise caution. This is especially true for institutional and foreign investors who may be subject to ownership restrictions. Whether considering an investment in an existing investment scheme or when structuring an investment vehicle, investors should obtain sound legal advice to ensure that their investment will comply with the Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.