Step 3 – Creating a balanced agreement

Once this stage is reached both parties will have a clear idea of their own interests and objectives. It is essential that they also develop a genuine understanding of, and respect for, each other’s interests. This will help to spot synergies and potential conflicts early on so they can be built on or managed constructively, as needed. It will also help avoid misunderstandings that often result from preconceived ideas and assumptions. This is a two-way process, and is a crucial step towards building trust and developing the insight needed to form strong relationships. 

To enable creativity, at this stage it is important to keep options open and not become too focused on a particular outcome or predetermined solutions. The better the understanding of each other’s needs, the more imaginative the exploration of ways to meet them. This requires a transparent and flexible approach and a willingness to address issues and opportunities together, side by side rather than in opposition across a negotiating table. 

To create really positive relationships, it is in both parties’ interests to help solve the other’s problems and to look for mutual gains. Some things that might be of low cost to one might be of high value to the other. Identifying such opportunities can be liberating.

Successful arrangements will not be founded on hard bargaining or one party getting a good deal at the other’s expense. One-sided agreements will be weak, will result in resentments and be prone to disputes or early breakdown. It is fine for both landowner and farming operator to hold on passionately to their interests, but positive relationships are about striking the right balance and being open-minded about the best way to meet respective interests. The relationship formed must be reliable and able to continue through the challenges that all farming businesses face. 

Enlightened professional advisers or agents working to a suitable brief can facilitate the whole process.

Attitudes to risk, and perceptions of risk, have a strong influence on decision making.

In general, it is natural for us to perceive activities we are familiar with as being safer than things that are new. But any business, whether long-established or an untried start-up, is exposed to risk. In uncertain times, taking a chance on the new might just pay off against holding fast to an old business model.

It is important to make an even-handed assessment of risk. Some risks will be familiar – internal to the business or capable of being managed, such as the diversity of income, legal compliance or breadth of the customer base. Others will be external and less controllable, such as input and commodity costs, the weather, the impact of new agricultural and other policies, introduction of new environmental schemes and – as we have seen more recently – the impacts of lockdowns and conflict. Some will be difficult to gauge, such as those from novel enterprises, young entrepreneurs or untested plans. But that doesn’t mean they are not worth taking.

Both parties should examine their appetite for risk and should plan for uncertainty proactively. The development of new businesses will introduce new risks; but the opportunity to diversify, integrate systems and perhaps reduce off-farm inputs may offset others. This approach encourages a more flexible use of agreements, tailoring contractual responsibilities to suit individual circumstances and the varying levels of control required by each party.

It is crucial to spend adequate time on this step. 

If full and frank conversations are not carried out at this stage, the potential for problems to arise further down the line pre or post legal agreement is far more likely.

The following should be things to consider within these discussions, and be well defined before seeking a legal structure and getting professional help to draw up any agreements (if required):

• Ways of working need to be acceptable for all parties involved.
• What land, buildings, machinery or livestock are involved?
• How long does the agreement need to be?
• What will the break clauses be?
• Who provides capital?
• What services are available?
• What help and support might the business need?
• How much control does the owner/farmer business want to retain?
• What is the basis, frequency and proportion of payment and how often should it be reviewed?
• What degree of risk is each party prepared to take?
• What happens at the end – who will own what, how are improvements made during the agreement paid for, what will be left behind?
• How will any losses be handled?

If all parties involved agree on the structure or business model they feel will work, then do be clear in your instructions on what you are aiming to achieve when discussing this with other professionals such as accountants and solicitors in Step 4.