“Unfortunately, the rest of the world doesn't care quite so much that your area had a frost and it's reduced your output by 30 per cent, but it can be detrimental to the farming business. They're probably more the ones that create the issue for us.”

These types of “disasters” raise issues such as how to deal with these types of losses from an arm's length perspective and what happens when the assets are damaged or destroyed.

“[You also have to consider] what happens when cash flow isn't there, and the farm doesn't have the money, can't pay the lease, and the super fund then may not have the revenue. Also, what happens when our farms do have that loss of income? How do we deal with this without entering into breaches?” Timms said.

One of the first issues that may arise for farming clients is damaged assets, and these often are things that should be in the super fund but end up in the trust on the balance sheet.

“Things that are maybe fixed to the land and should be a leasehold improvement but end up in a different entity, like fences. What happens when these are damaged? Who should be paying for these? What do our lease agreements say in this space?” Timms said.

“It might be destroyed in the super fund, but it's never quite written off on the balance sheet of the trust. More importantly, what's in the lease, and what are the lessors’ rights?”

If there are damaged assets, such as a shed destroyed in a flood, the question often arises as to who should be paying for its repair or replacement and whether it is a repair or capital expenditure.

“More importantly, who's got the insurance, and where's the cash? Quite often, the farm's holding the insurance so they do it under farm insurance. [The question is] who's the obligation on because if insurance has paid into the farm, but it's a super fund asset, and that should be owning it, do we have a mismatch? Have we created a problem? What if there isn't enough cash?” Timms said.

Timms gave an example of a property that suffered fire damage and needed a lot of work to get the farm back to its capacity.

“It’s up to the lessor to repair it, but the super fund doesn't have the cash to repair it, and the farmer can't farm without his family. Should there be a discount on the rent? Probably,” she said.

“If that was unrelated, if the farmer couldn't run the business because the repairs had not been done, do we document that? Have we considered it, or do we just let it go as part of a normal farming business?”

There are many nuances advisers need to be aware of when dealing with these types of natural disasters – and the biggest one is loss of income.

“There are government rent deferral periods, but if it is something like a frost, no one cares about that. No standard says if there’s a frost, then you don’t have to pay the rent for six months,” Timms said.

“I can tell you, the first thing every farmer says, the first person they're not going to pay is their super fund, because that's themselves. But can they do that? How can we help our clients in this situation?”