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Top five things to consider when it comes to share farm agreements

The adoption of a share farming as a business model addresses some of the challenges the industry faces. Farmers Guardian takes a look at what it can offer and offers some advice to avoid common pitfalls.

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Points to consider:

  1. Write the plan down: Setting up a robust agreement for what each party is bringing to the table in the venture is crucial. It should also set out exactly what is expected of the landowner and the operator. A specialist land agent or lawyer can help draw up the document.
  2. Dividing up a share: Typically, the owner provides land, buildings, fixed equipment and any significant property repairs. The operator, in exchange, provides labour, moveable plant and machinery and general management. The share of profits is then based on each party’s contribution to the business.
  3. Keep things separate: Both parties must keep separate bank accounts and VAT registrations. It is vital the agreement is not seen as a partnership, as you could then potentially become liable for each other’s debts, nor is it a tenancy, which may risk you losing Inheritence Tax and Capital Gains reliefs.
  4. Stay active: Both the owner and operator need to prepare their own set of accounts and the owner must be active within the business. Meeting notes and action points should be minuted to show both are involved in the day-to-day management and decision-making.
  5. Business structure: It is important for the owner and operator to carefully consider their circumstances and assess what the arrangement will require from them before entering into a share farming plan. As ever, timely professional advice is essential before embarking on a new business venture.

What could go wrong?

Christopher Price, director of policy and advice at CLA, advises while at the outset there could be concern at the lack of guaranteed income, what the arrangement provides is that in the good years, the share of profits reflects the performance of the business in lieu of a guaranteed rent or first charge. The model allows both to thrive in the good years, while proportionately sharing any losses in poorer times.

 

A breakdown in relationships between the two parties may also cause the termination of the agreement, but there is usually a root cause behind it.

 

One party might not be carrying out what is expected of the other, or an existing enterprise may begin to take over more land or buildings than was agreed.

 

Starting out with a short-term agreement and building break clauses into longer term agreements is one way to ensure both parties have the chance to end the venture if things are not working out.

Case study: John Cresswell, Northumberland

Who provides what, and how do the parties benefit?

Both parties bring their own contributions to a share farming agreement and these should be agreed from the start.

 

Owner

Land

Farm buildings

A house (where applicable)

Fixed equipment

Long-term care of land

Property insurance

Expertise

Working capital

 

Operator

Labour

Machinery

Expertise

Working capital

CLA member John Cresswell operates a farm business in Northumberland. It is split evenly between livestock in the form of sheep and beef and combineable crops.

 

Cropping is again divided between an organic and conventional enterprise.

 

Since the mid-1980s, about 40 hectares (100 acres) of the conventional cropping business has been farmed under a share farming agreement with a neighbouring landowner and friend Lance Robson.

 

The agreement has allowed Lance to concentrate on his diverse core businesses, which includes a substantial caravan site and holiday cottages.

 

John says: “The agreement works well for us. It has allowed us to farm an extra area which has helped make our core business more viable, not least because land is in exactly the right place.

 

“Lance has always been a farmer with other interests, so the agreement has allowed him to retain a sensible degree of control. And when things are good, he can expect to share the extra profit.

 

“I believe one of the reasons it has worked so well is Lance has taken a very long-term view. We have no problem in justifying to ourselves an equally long-term approach to the care of the land.

 

“To allow issues such as organic matter or nutrients or pH levels to go wrong would hit me as much as him.

 

“This is clearly in the interest of both parties and in the interest of the land itself.”

Looking for a fresh start?

The Fresh Start Land Enterprise Centre has launched a matching service in England, aiming to work with landowners, business owners or land agents with an opportunity or land to offer.

 

The organisation says its initiative is beginning to bear fruit and is introducing landowners to those looking for opportunities to farm.

 

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