Is Brexit doom for farmers, or can it be made into an opportunity?

The passing of the European Union (Notification of Withdrawal) Bill on 14 March merely allows Teresa May to “notify” the EU of the UK’s intention to withdraw. It does not require her to do so. There will still be a long negotiation period and further draft Bills and battles in the Palace of Westminster for years to come.

Harry Truman said “a pessimist is one who makes difficulties of his opportunities; and an optimist is one who makes opportunities of his difficulties”.

And so it is with Brexit: whilst most business sectors will feel some impact, it is agriculture who will feel hardest hit, at first glance. Removal of a secure income stream through the current subsidy regime is casting uncertainty over the future of farming, and some doom mongers are now saying banks consider farming a “high risk” business.

In theory, this should adversely impact on farm values and cause farming families to reconsider their business strategies, and possibly cease trading altogether. The reality is different: we are now seeing a strengthening of the agricultural market, particularly where land is already let on secure tenancies. Also, farmers and landowners are using the general feeling of “change is necessary” to look at changing farming incomes from raw material production (traditional cropping) to non-crop income streams. As this trend increases, we are recommending to all our farming clients that they control the things they can control and update their affairs.

The majority of farms trade through partnerships. But very few have written agreements.

A series of relatively recent cases highlights the need to update partnership agreements, and also to make sure the agreement is in writing, and signed. The case of Ham v Ham and Another covered the dissolution of a written partnership, where the agreement terms for valuation of the farm land were inadequate. The court decided on the equitable solution to allow open market value, which is similar to there being no written agreement, as the partnership clauses were inadequate and therefore inoperable.

Drake v Harvey (Court of Appeal 2011) confirmed that for a written partnership the outdated partnership deed wording for book value (which is normally less than the market value) would be permitted. The difference between the two cases was that in Drake the partnership was continuing, and in Ham there was a dissolution. But in each case the court stressed that the results were decided specifically on each case’s own facts, which means in each case they consider the terms of the partnership deed, investigate what the parties had intended, how they traded, and “all other relevant facts”.

Farm land, farm cottages and houses are generally the most valuable assets in a farm partnership. There are significant inheritance tax advantages to be gained in getting those assets correctly recorded, too.

It therefore must make sense for farmers now to review and update partnership agreements.

It is also likely post Brexit that any claim for Pillar 2 / “public goods” subsidies from the UK will depend on written evidence of partnerships and also favour registered land (land that is registered with the Land Registry, not just with the Rural Land Register). Written deeds and registered titles will be necessary evidence for new claims.

The partnership agreement also needs to tie in with the farm accounts, and contain specific and adequate provisions for the land, and with separate documentation to confirm what land is in the partnership. We help a lot of our farming clients on these points, and also use partnership agreements to gently bring in the next generation, without necessarily moving the land ownership to new partners.

It can take months to agree the terms of a partnership agreement, and also to get land registered, so best start planning so you are ready for the changes that are now inevitable.

For further advice please contact Jeanette Dennis 01284 727063, jeanette.dennis@ashtonslegal.co.uk