Posted On / 13.09.2016

Protect your Interests with a Family Farm Partnership Agreement

Protect your interests with a Family Farm Partnership Agreement

Spiralling land prices coupled with new planning rules make it more important than ever to have a properly written Family Farm Partnership Agreement in place.

Increasing Diversification Means Increasing Value to Protect

The need to protect your interests in land and rural property is only likely to increase as prices continue to rise and changes in planning and energy policy lead to new opportunities to diversify land and rural property.

Opportunities are being created by the relaxation of planning laws. For example, there is now a planning Class allowing for change of use of agricultural buildings to residential use, provided certain conditions are met.

With regard to renewable energy, we are increasingly being asked to advise on solar farms, wind turbines and other energy projects.

We have recently noticed an increase in the number of new sites for mobile phone masts, particularly in areas where mobile phone coverage is poor. Rent from telecommunication masts has provided landowners with a welcome source of extra income.

What a Partnership Agreement Covers

A properly written Partnership Agreement will set out the agreements and obligations between individuals carrying on a business together in partnership. Unlike other business agreements, the nature of a partnership is often a personal as well as a commercial relationship. It will cover issues such as capital contributions, income payments, profit/loss distribution, voting rights, dispute resolution procedures and what is to happen on the retirement or death of a partner.

Advantages of a Carefully Drafted Family Farm Partnership Agreement

  • Tax. A correctly drafted agreement will ensure that partnership property is dealt with in the most tax efficient manner. Identifying what land is partnership property as opposed to the personal property of individual partners is critical but often overlooked. Agricultural land owned and used by the partnership should be eligible for 100% Business Property Relief (BPR) while land merely made available for partnership use by one of the partners will only attract 50% BPR relief for Inheritance Tax purposes. All relief may be lost by a badly drafted agreement so existing ones should be checked
  • Disputes. Greater financial value in land increases the potential for disputes within families as individual family members find they have more to fight over. These potential disputes can be avoided with a well drafted agreement.
  • Protection. There has been a number of recent cases where a family member has received a share in a farm based on alleged promises or assurances. These would have been defeated if there had been a well drafted Family Farming Partnership Agreement in place.
  • Being Proactive. Thinking about the issues that may arise and how you are going to deal with them before they happen and it’s too late is a useful process for every business.
  • Succession. Aside from setting out how the famring business should operate while the partnership is ongoing, it also acts like the ‘will’ of a business in determining the process when it comes to an end or a partner leaves for whatever reason.

A Partnership Agreement gives you certainty, direction, peace of mind and helps avoid costly disputes and tax bills in the future.

For more information, please contact James Owen, Head of the Agricultural and Rural Land Department on 01935 811315 or james.owen@battens.co.uk 

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