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Types of farming arrangement and issues to consider
- AuthorAmy Clarkson
With all the uncertainty within the farming industry in recent times, some farmers may be considering new ideas and opportunities in order to continue and/or expand their farming businesses, whether it includes some kind of diversification or collaborating with neighbouring farmers, friends or family members. Alternatively, some farmers might be looking to take a step back or retire but may not want to let or sell their farm.
Working together with other farmers could be a relatively simple solution to each party’s problems but whilst it might seem acceptable to agree over a handshake, it is always a good idea to make sure the arrangement is set out in writing.
The type of agreement that will be most appropriate will depend on the specific circumstances of the arrangement. One example is a contract farming arrangement, which typically involves an agreement between a farmer, who provides the land and buildings and a contractor who provides the labour and machinery. It is a flexible arrangement that enables the farmer to release working capital while continuing to trade as a farmer and remain the occupier of the land, which can be important for tax and subsidy purposes. The farmer will still retain an involvement in management decisions but the contractor will carry out the operations. One of the main benefits of contract farming is flexibility, as agreements can vary depending on the type of farm and the extent of contractor services required, so the agreement can be adapted to suit the parties involved and their desired outcomes.
However, although such arrangements do have some flexibility, the parties should make sure that the arrangement could not be construed as another type of arrangement, such as a tenancy, a partnership, share farming or an employment relationship. This can have adverse consequences in terms of tax implications, the risk of unintended rights or obligations being created, or for tenant farmers it could result in them being in breach of their tenancy agreement.
In addition, even where a written agreement is put in place, it is vital that the parties do adhere to what is stated in the agreement because if something else happens in practice, it could be deemed to be a sham arrangement, which can then result in various adverse consequences for the parties. For example, if it simply involves the exchange of paper invoices and the contractor keeping the crop, it is likely to be deemed to be a sham arrangement.
If you are considering entering into an arrangement with another party, it is very important that you obtain legal advice from the outset so that you can discuss the different options available and to determine which type of arrangement will be most appropriate for both parties. You should then ensure that the arrangement is recorded in writing to make sure that each party’s rights and obligations are clear, which should help to avoid the potential for dispute in the future.
If you would like more information on an existing farming arrangement, or if you would like to discuss future potential farming arrangement, please contact an advisor in our Agricultural Team on 01653 600070.