Skyline Agriculture Financial Corp. | Group’s plan could open Sask. to more foreign investment
A landmark case is in front of the courts that could forever change the way Saskatchewan farmland is bought and sold.
Skyline Agriculture Financial Corp. and three of its subsidiaries are challenging a Saskatchewan Farm Land Security Board (FLSB) ruling preventing the company from owning 15 acres of land in the province.
The non-Canadian owned company has developed a complicated structure of loans, interest rate swaps, derivatives and hedging that it believes makes it eligible to own Sask-atchewan farmland.
Dan Patterson, former general manager of the FLSB, said it is another creative attempt by a foreign corporation to circumvent the province’s land ownership laws.
It is the most complicated scheme he has seen.
“(The structure) would allow them to put (land) on the stock markets around the world, I guess, so it would just open our land market up to foreign investment,” he said.
“It’s a really important case, and it will be interesting to see how it unfolds.”
Skyline lawyer Erin Kleisinger declined to comment on the case, as did FLSB general manager Mark Folk because the matter is before the court.
Non-Canadians are allowed to own 10 acres of Saskatchewan farmland. Patterson said Skyline bought 15 acres to provoke a ruling by the FLSB that it could challenge in court.
“If they are successful, there’s rumours that they would want to spend $100 million or so to begin with,” Patterson said.
The FLSB issued an order Aug. 29 that Skyline had to reduce its land holdings to the allowable 10 acre limit.
Patterson is surprised and concerned that the decision was never published on the FLSB’s website.
“That’s part of the public record and should be released to the public, should be available to the public,” he said.
According to court documents, the FLSB ruled that Skyline Capital would be receiving a derivative intended to capture the capital appreciation of the farmland, which is a right ordinarily accruing to the owner of farmland.
The FLSB ruled that because Skyline Capital is a non-Canadian owned entity, its complicated structure is not an eligible vehicle for owning Saskatchewan farmland.
Skyline countered by arguing the capital appreciation from the farmland will be retained by a Canadian owned agricultural corporation, which is not required to pay Skyline any portion of that appreciation.
“The proposed structure ensures sufficient separation between the owner of the farmland (134 OpCo) and the counterparty to the derivative (Skyline Capital) if and to the extent such separation is required,” said Skyline in the court documents.
Judge Donald Layh ruled that the FLSB did not provide “transparent and justifiable” reasons to support its decision to order Skyline to divest.
“The submissions by the Farm Land Security Board in this appeal overreach the role that should be accorded to a tribunal,” he wrote.
Layh has referred the case back to the board for further consideration and has asked the board to come up with a new order as soon as possible.
Patterson said the same argument that the FLSB has made in the Skyline case should have been applied in the board’s recent ruling regarding the Canada Pension Plan Investment Board (CPPIB).
The FLSB allowed the CPPIB to acquire 115,000 acres of Saskatchewan farmland from Assiniboia Farmland Ltd. Partnership for $128 million.
Pension plans are not allowed to own Saskatchewan farmland, but the CPP’s unique structure made it eligible because the plan’s assets are considered to be owned by the investment board, which comprises Canadian citizens.
Patterson contends that the rent earned on the CCPIB land is paid to plan members, and some of those members are not Canadian, so the sale should not have been allowed.
It is the same argument the board is using in the Skyline case, purporting that the capital appreciation is making its way back to Skyline, which is not a Canadian entity.
Patterson said companies have long tried to use some type of “corporate veil” to distance themselves from ownership, but The Saskatchewan Farm Security Act contains a provision that essentially says someone who is financially benefiting from the farmland is considered the owner.
“Over the decades, it is that provision that has kept a lot of these real sophisticated, crafty challenges at bay,” said Patterson.
“The act has anticipated that and to this point has been successful.”
He worries that the Skyline case could be the breaking point.
“We’re at a juncture now where the challenges are increasing, not just in the number but in their sophistication.”