Business Structures

We know farming will change post-Brexit. The Basic Payment Scheme will replaced by a new system of environmental payments, and farmers will need to adapt to a more market facing world. This means the way farmers manage their businesses may have to change too, including the basic structure of the business. 

Landowners will need to bear in mind several factors when considering entering into new arrangements, not least the precise terms of the new payment system and the tax situation. Below are some arrangements that could be considered.

Contract farming

Contract farming is frequently used by landowners wanting to retain their involvement in farming but who do not wish to engage in all aspects of the business.

The owner will usually be responsible for key decisions, while the contractor will carry out practical operations on their behalf. The services provided by the contractor can be for specialised or more general operations. Contractors typically charge by the hour or by the hectare. 

Partnerships

Partnerships are arrangements where individuals enter into formal agreements to create a single business. The percentage share of each partnership is usually set out in advance, with each share of a business reflecting any investment and outcomes. 

Share farming

At its simplest, share farming is where two farmers agree to work together to share the farming of some land. They remain independent with one farmer, the owner, providing land, buildings, fixed equipment and machinery and the other farmer, the operator, providing the working machinery and the labour.

The great benefit of this arrangement is the parties bring different resources to the business in terms of assets, experience and abilities and so may be able to create something bigger and better than either could alone, but without being tied together in either a partnership or a tenancy.

Profit of pasturage

Profit of pasturage agreements involve a landowner allowing another party to bring livestock on to his land just to graze. The landowner is expected to maintain and manage the land, and provide relevant facilities for any party bringing animals to graze.

The landowner does not have any liability for the livestock being brought on to graze.

Agreements must be for a fixed term, and payment is usually per hectare, and often renewed on an annual basis.

Short fixed-term and periodic tenancies

Short fixed-term and periodic tenancy agreements grant the occupier exclusive occupation. This means he can exclude everyone from the property, including the owner. The landowner is not directly involved in the farm business and offers land or buildings in return for an agreed rent. 

The rent is normally based on a market value of the holding. The tenancy may have a specified term of occupation which, if it is for two years or less, will end automatically. Landowners need to remember that where tenancies are periodic or for a period of more than two years, notice will need to be served to terminate the tenancy.

Longer term tenancies

Longer term tenancies also grant exclusive occupation but over an extended period of time. These are similar to short-term agreements, but landowners have to be more careful about what to consider. Any long-term tenancy agreement should be detailed and seek to account for all eventualities.

This type of tenancy will tend to suit owners who are happy to hand over a high degree of control of their land but do not want to get rid of it completely. Because of the length of the agreement, greater consideration needs to be given to the upkeep and use of farm assets, such as buildings, machinery and condition of the farmland. 

For more information see the CLA’s advisory handbook ‘CLA 73 – a Guide to Developing a Business Plan’. It is available to members at £36. To buy the handbook log in to My CLA on the CLA website and go to the online shop or call 020 7460 7969