Solicitor Karen Walsh says share farming agreements need to reflect what happens in practice.
“YOU can put lipstick on a pig, but it’s still a pig!”
It is important to be aware that calling an agreement a share farming agreement does not make it a share farming agreement.
Unless careful legal advice is taken, a partnership or lease/ letting arrangement can unintentionally arise, in law.
The form of the agreement is very important.
The agreement on paper may very often be the polar opposite to what is happening in reality.
The written agreement should not be an attempt to hide the fact that an arrangement is in fact a de facto conacre system or a retirement mechanism for landowners.
It is important that the agreement be implemented practically as agreed. Parties should not act outside the terms of the agreement.
Whatever arrangement is entered into, it is essential that it accurately records what will happen in practice — and that the parties stick to those arrangements.
For example, there should be no fixed payment for the land; otherwise, the structure may be construed as a letting. Costs and expenses have to be incurred individually by the share farmer and the landowner; otherwise you run the risk of entering into a partnership, unintentionally.
Essentially, share farming is where two parties, the landowner and share farmer, can carry on separate farming business on the same area of land, without forming a partnership or company.
It operates on the principle that the share farmer and owner, although farming the same land as individual businesses, have separate incomes and separate expenses to calculate their individual profits.
Share farming can be fully compliant with EU and government support schemes including Single Farm Payments and REPS.
For the landowner, the agreement offers the opportunity to participate in the farm and reap the rewards of the enterprise. The price to be paid for this is that the landowner must also participate in the risk of growing the crop or rearing the livestock. Both parties must contribute some costs to grow the crop or rear the livestock.
The proportion which each party takes depends on the agreement.
The output from the crop or the livestock will also be shared between both parties. It is very important that the Revenue Commissioners view each of the parties as individuals, or as two businesses working together, and that the landowner preserves his/her status as a ‘farmer’.
The details of the arrangement should be set out in a written contract. If a change is made to the existing agree-ment, then professional advice should be sought.
A written legal agreement is entered into to ensure that both parties are protected, should difficulties arise.
Trust is essential before entering into an agreement. The agreement should be in place before farming commences.
Discussion of all elements of an agreement is essential before starting.
Some of the issues to be covered in a share farming agreement are the duration of the agreement, an exact description of the lands to be provided by the landowner, how produce is to be stored, marketed and sold, procedures for resolving disputes, who is to provide livestock, who is to provide machinery, the basis for division of costs and produce, etc.
It is also important to en-sure that all parties named on the title to the lands are party to the agreement; for example, a spouse.
The most important part of the agreement are the schedules where the details of the agreement are filled out.
These schedules prompt some thought in relation to major aspects of the agree-ment. Previous cropping history and the fertility status of the land should be set out. Each party should have his or her own insurance.
The agreement should provide for procedures that apply in the event of dispute, death, dissolution etc. If livestock are involved, each party will warrant that their animals are free from infection and have been vaccinated.
Machinery should be in good order at the start. Fences etc should be inspected and put in repair/ good order beforehand for the purposes of the agreement. This would help to prevent disputes. If they are not in order, a schedule of dilapidations could be written out and agreed.
It is important to insert a period of notice into the agreement, as this will allow the parties to plan their respective farming businesses ahead.
In the event of an agree-ment breaking down because of major, persistent breaches by either party, clauses should be inserted into the agreement for dissolving the arrangement in a methodical way.
Don’t make a pig’s ear out of a share farming agreement. The practicalities of shared farming should mirror the agreement.
Consult your solicitor to make sure you aren’t inadvertently entering into another type of arrangement.
And finally, step away from the lipstick!