Share Farming Agreements: The Basics
Fri 23 November 2018
Share farming agreements can be a flexible tool to help farming businesses transition through Brexit, the phasing out of BPS payments, an emerging Environmental Land Management Scheme and retirement. Andrew Lawes, Head of Stags Professional Services in Cornwall discusses further.
The basics of share farming
Two parties, typically a landowner and a farmer/operative, will each operate separate businesses and agree to combine farming activities, assets and services on a specified area of land. Each party takes a specified share of the gross return which, in practice, will be the receipts from sales of crops or animals.
The landowner typically provides the farmland and buildings – including long-term care, maintenance and insurance – fixed equipment and machinery, while the farmer/operative provides labour and machinery. Both bring expertise and a share of the working capital in the form of inputs and ownership of the livestock.
Realistic budgets should be drawn up with no guaranteed payments between the parties and purchasers should be asked to submit two cheques. Suppliers should be asked to send separate invoices and shared items should be settled monthly with no netting of costs.
There must be no joint account and each party must accept a full commercial risk, submit their own VAT returns and work out their own profit and loss accounts. The arrangement should be reviewed after the second year and annually thereafter.
The benefits of a share farming agreement
It is essential that a share farming agreement is drawn up by a suitably qualified professional and agreed between the parties at the outset.
- Less upfront capital is required by the farmer/operative than under a tenancy or purchase and with no charge for the use of the land and building
- The overall business can expand when two businesses combine
- A phasing period can be incorporated to lessen the workload for a retiring landowner without giving up farming entirely
- The arrangement can be stopped or adapted as circumstances change
To discuss share farming agreements and other options contact your local Stags Professional Services department or email email@example.com