Step 4 – Selecting a legal framework

Once the landowner and farming entrepreneur have thoroughly defined their business relationship, they are in a strong position to start thinking about appropriate business models and legal frameworks with which to formalise their agreement. 

In broad terms, the legal options exist along a spectrum of control: from landowners retaining full control at one end, to farming entrepreneurs taking progressively more control towards the other end. Below you will find more detail on seven of the most common models.

• Community models and land trusts
• Contract farming
• Co-operatives and machinery shares
• Grazing licence
• Partnership/Companies
• Share farming
• Tenancies

Other business models are available that help the business bring in access to certain commodities, share a market outlet or deliver by one of several community models. 

By collating this information and building a working relationship within any business model before briefing your lawyers/agents/professional advisers, you are more likely to achieve a legal framework which serves your purposes. You are also likely to save money: the clearer the brief, the more cost-effective the legal process will be.

When selecting your business model, one of the most important things to consider is the degree of flexibility you may require in agreement type and length. It may be worth starting off with an easier short-term agreement (such as a contracting or grazing licence) while you establish new working relationships and build up business resilience. If these models develop well, then perhaps share farming or a tenancy may be the next stage. Don’t be afraid to use a stepped approach to reach your business model goals.

Getting the legal framework right is imperative, but it must work for all the parties involved.

Professionals supporting the industry will have good knowledge of each model type, but some may have been more involved than others with certain business models e.g. share farming. Do your research and ensure good communications with your professional advisers at all times as this will make for a far better outcome. If you are looking at a different business model type and are uncertain how it works in practice, do try to speak to – or even better visit – other farmers that are operating with that particular business model. This can provide you with additional information which can help you with your final decision making.

• Read through the various business model types before shortlisting those that might be of interest
• Consider the benefits and risks for all parties
• Engage professional help, such as lawyers and accountants, when sorting the finer details or any agreement
• Ensure you have a plan of review at agreed times once the business model is up and running 

Payment schemes

There are an array of government and external payment schemes available, and these are changing. Depending on the type of business model you choose, you will need to ask questions if you have access to these schemes and if you are responsible (or have agreed authority) to deliver any of the allocated actions under any agreements. These discussions need to be clear to all involved as it could impact on the workload and outcomes for the business/es.  

For the most up to date information on government schemes go to the Defra website.

Any external private schemes will need to be reviewed on a case-to-case basis. 

Finance

Many business models require some kind of finance, be it from banks, other (agricultural) financiers or even family. The amount of finance and the sourcing of funds should be explored and established after writing a full business plan which will set out the business model and its potential delivery. A well written business plan by those involved can create the anchor to any business, and can then be adapted to the requirements of different financiers. You will also feel more empowered to make critical decisions around your business.

Find out more about getting finance and speaking to your bank 

Legal briefing 

Having legal support and achieving final documentation for any agreement is essential. This lays out clearly the terms and conditions. Good agreements, once finalised, can normally sit in the background to the main day-to-day business as a reference point for discussion or review but will also be vitally important if any dispute arises.

• The terms and conditions are clear and agreed at the outset thereby reducing the time and cost of documenting the arrangements
• The potential for future dispute should be reduced

The landowner and farming operator should, however, sense-check the proposed arrangements with their professional advisers before finalising the agreement. Points to look out for include: 

• Agricultural Property Relief (and Business Property Relief) can provide significant Inheritance Tax savings to landowners. A landowner should check that the proposed arrangement will not prejudice his or her estate receiving such tax relief. If it will, can the agreement be structured so that it does not?
• It is important to have a clear understanding of whether the farming entrepreneur’s proposed use of the land/buildings qualifies as an agricultural use from a legal and planning perspective. The law’s definition of what constitutes agriculture is not the same in every context. Whether the proposed activity is deemed to be agricultural or not can make a big difference for taxation and Town and Country Planning purposes. It will also influence the most appropriate form of tenancy agreement to be used
• Even if there are no plans to make physical changes to the land or buildings, planning permission may still be required. The land operator’s new business could, in itself, constitute a change of use in the eyes of the planning authority
  Learn about change of use within planning 

• If the land is subject to any agri-environment scheme the landowner will need to make sure that the requirements are not breached by the intended use. Criteria necessary to maintain any ongoing payments will also need to be met. Penalties for non-compliance can include reduction or loss of future annual payments or possibly the repayment of money already received
• Be aware that statutory requirements often import rights and obligations into contractual arrangements. Any agreement reached by both landowner and entrepreneur may be subject to rights and obligations imposed by law. This is particularly true for tenancies.