Blog

Agricultural partnerships: top three considerations

Published: 18th May 2021
Area: Agriculture

The agricultural partnership is a common and often effective legal business structure that can be used by families to run their farm.

Despite being popular in farming communities they can cause confusion, especially when life muddles the situation. So, what should people consider when joining or creating an agricultural partnership?

The importance of a clear partnership agreement

Agricultural partnerships, just like any partnership, carry both successes and liabilities and anyone considering entering into one must keep this in mind.

Partnerships require ‘utmost good faith’ from the partners.

One of the most serious problems, which is often not dealt with, concerns ownership of farm assets - and the farm freehold in particular. This is a technical area, but of great significance in practice if a partner needs paying out for his or her share. This can happen on the death or retirement of a partner, or on the divorce of a partner.

Firstly, a partnership agreement should state whether the farm is a partnership asset or held outside the partnership. Secondly, it should say which partners have a share in the farm, and how any gain in value should be allocated between them.  Farms have increased in value hugely over the last 20 years and several cases have come to court because there was no clarity about this issue.

Although these things seem simple, they are often neglected.

Contracts can also be used to manage the termination process. Often, clauses state that a partner leaving the partnership can be paid out over a number of years, so as to enable the remaining partners to re-trench.

Using partnership agreements to support the family

For many generations, farming families have used partnerships as a way to bring the younger generation into the business. Bringing younger family members into the partnership can aid development and provide next generation farmers with life experience, income, and a stake in the family business.

The key point here is to get clarity on partnership rights, including ownership of assets while there are no significant family tensions.  Once a dispute has started, it is too late.

Hopefully there never will be a ‘bust-up’, but if there is, the well-drafted agreement will save much stress and money. However, it is very helpful for a family to agree what their rights and duties are, so that there are no surprises down the line.  Therefore, if a partner leaves the partnership in happy circumstances, there should be little reason for dispute about what they are entitled to from the partnership.

Some partnership agreements sometimes require pre-nuptial agreements from newly married partners to protect the farm assets should a divorce take place.

It is also common to stipulate what happens when a party is no longer of sound body or mind, so putting in place a lasting power of attorney and will, and updating them as needed, is also something that should be strongly considered.

Ensure your accountant and solicitor sing from the same hymn sheet

It is essential that your partnership agreement ‘agrees’ with your farm accounts. This is where many arrangements fall down - and court cases follow. However, the remedy to this is simple – ensure your solicitor communicates with your accountant so that you end up in a joined-up and consistent position.

We're here to help

It can be easy to get carried away by the excitement of beginning a new chapter for the family farm, but people must consider partnership agreements carefully, with the business’ best interests in mind. Having a clear agreement that covers all eventualities will ensure that the partnership brings security and prosperity to the farming community.

Download our free webinar on farm partnerships for further guidance on how they’re used successfully by farming families.

For more information, advice or support please contact Peter Snodgrass or Jennie Wheildon in our dedicated agriculture team.

Our agriculture team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Employment: Jab or no jab – mock employment tribunal

29 Sep

Natasha Jasinska, Paralegal | Robin Gronbech, Solicitor | Lubna Laheria, Solicitor | Emma Oliver, Associate | Helen Hughes, Legal Director | Michael Hibbs, Partner | Matt McDonald, Partner
Employment: Jab or no jab – mock employment tribunal

Join us for a 3 hour virtual employment mock tribunal as we lead you […]

Legal dos and don’ts for fast growing tech businesses

29 Sep

Helen Molloy, Partner | Kerry Russell, Legal Director
Legal dos and don’ts for fast growing tech businesses

We will guide you through the legal life cycle of a fast-growing tech company, […]

Grandparents rights: when there is a family dispute involving grandchildren

1 Oct

Katherine Marshall, Partner | Matt Parr, Legal Director | Tom Ansell, Partner
Grandparents rights: when there is a family dispute involving grandchildren

The first of our series of three family webinars will align to Grandparents Day […]

Retirement housing: Avoiding costly planning appeals: what needs to change in national and local planning policies

5 Oct

Louise Drew, Partner & Head of Building Communities | Simon Stanion, Partner
Retirement housing: Avoiding costly planning appeals: what needs to change in national and local planning policies

In this webinar, we will be joined by a panel of experts to explore: […]

Our Latest Thoughts

All the latest views and insights on current topics.

Our latest edition of Life Times magazine

9 Jul

For the individual

Our latest edition of Life Times magazine

Read article Right Arrow

Agricultural partnerships: top three considerations

18 May

Agriculture

Agricultural partnerships: top three considerations

Read article Right Arrow

Flood defence provision: what landowners need to know

17 May

Agriculture

Flood defence provision: what landowners need to know

Read article Right Arrow

Escaping city life? Our top tips for buying a rural property

27 Apr

Residential Conveyancing

Escaping city life? Our top tips for buying a rural property

Read article Right Arrow

An Act of Plenty – The Agriculture Act 2020

22 Jan

Real Estate & Planning

An Act of Plenty – The Agriculture Act 2020

Read article Right Arrow