Joint Ventures with New Entrants: a new guide from the Tenant Farming Commissioner

  • Insight

16 July 2018

The Tenant Farming Commissioner has issued a guide to enable new entrants to the farming industry. Adèle Nicol summarises the guide and how it might help.

What can be done to enable new entrants to enter farming? Just as there are barriers to entering the farming sector, there are barriers to leaving it. The two issues are connected. But as well as lack of availability of agricultural land, lack of access to capital and practical opportunities for skills acquisition can also present real problems for new entrants. There is an ongoing discussion about how to address these, and other, issues for the agricultural sector. Against this backdrop, the Tenant Farming Commissioner (“TFC”) has issued a guide to joint ventures with new entrants.

The TFC’s new guide seeks to advertise some of the existing options for addressing these issues. The options all involve an element of a new entrant and an existing farmer working together. That model seeks to address lack of availability of land for new entrants, lack of access to capital, and to provide a means for skills development.

Who is it for?

The TFC’s guide is aimed at landowners and tenants, with an emphasis on farming, who wish to:

• Retire or scale-back
• Overcome financial or familial uncertainties which are impeding succession planning
• Retain ownership of land but with someone else keeping it productive
• Pass on experience to the next generation
• Pursue new business opportunities
• Bring new skills and knowledge into the business

Initial points to consider

Several are listed to help produce a summary of the type of business, its assets, and – for the established farmer – what desired retirement looks like. These include:

• Whether you rent out land, and if so, on what kind of lease?
• What your main assets are.
• What your main activities on the land are.
• What your other assets and activities on the land are.
• Whether you have employees.
• Whether you have already identified a successor for the business.
• What your ideas are for the land on your retirement.

Options

Five options are summarised in the guide:

Share farming

 Share farming involves independent businesses operating one farm. Parties contribute different assets, and a formal agreement sets out the division of profits. Both parties bear the risk, meaning that neither has a guaranteed income.

Contract farming

In contract farming a contractor operates the farm. The contractor’s business is separate to that of the farmer (as with share farming). Unlike share farming, the risk is typically carried by the farmer; the contractor receives a pre-determined fee and a share of any profits.

Partnership

Where there is a partnership, there is a single business. When properly structured, a partnership can be fairly flexible, but usually all partners are responsible for the partnership’s obligations, including money debts. Partnerships are often the model chosen by families who wish to operate a farm together. 

Tenancies

“Tenancies” is the term used by the guide to mean leases of one year or more. Complex statutory provisions heavily regulate agricultural leasing. New leases can be short limited duration tenancies, modern limited duration tenancies, and 1991 Act (or secure) tenancies. A new type, called a repairing tenancy, is on the statute book but not yet in force. These types vary as to length, and conditions for renewal or termination. The modern limited duration tenancy is relatively new and designed to be new-entrant friendly. The concept of a lease is familiar to many: in essence, one party gives up possession of the land to another, who pays rent for the privilege.

Short-term leasing / licensing

Short-term leasing/licensing are, in fact, two different things. By short-term leasing, the guide means a lease for less than one year (364 days or fewer). As above, in essence, a lease involves one party giving up possession of the land to another in exchange for rent. In contrast, a person with a licence does not have exclusive possession of the land. The holder of a licence has more limited rights than a tenant with a lease.

The next step

The guide emphasises the importance of getting independent legal advice before pursuing any of the options it presents. This is worth emphasising again. There are several good reasons for this: for example, the law in this area is complex and, if an arrangement is not set up in the right way, default rules mean that you could inadvertently end up with another – unsuitable – type of arrangement with unwanted tax and other consequences. We can guide you through this. 

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