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EXPERT VIEW It pays to consider the legal implications when diversifying, says Amy Cowdell. Farm businesses have broadened greatly over the past few years,... Keep abreast of law on diversification

EXPERT VIEW

It pays to consider the legal implications when diversifying, says Amy Cowdell.

Farm businesses have broadened greatly over the past few years, with entrepreneurial farmers setting up innovative enterprises to ensure they remain sustainable for generations to come.

Helping to boost farming income, diversification is nothing new. The latest government figures suggest 69% of farms have already adapted their businesses. More are considering following suit.

Traditional options include transforming old outbuildings into commercial units, creating wedding venues out of barns and building holiday cottages. More novel enterprises include carbon-offsetting or the provision of biodiversity net gain (BNG) on bahalf of developers.

One key aspect of diversifying a farm business is having a positive can-do attitude mixed with careful consideration of the project. Don’t be afraid to say yes to an opportunity. After all, you never know where it may lead, often in an unexpected way.

But there’s a need to consider the legal implications of any type of diversification scheme being contemplated. Whether health and safety, trading standards or finances, each industry comes with its own rules and regulations.

Eco-system services

All development schemes in England must deliver a mandatory minimum 10% BNG, which must be maintained for at least 30 years.

This has presented an opportunity for farmers to take advantage of developers offsetting their BNG requirements. By creating or enhancing biodiversity on a part of the farm that might be less profitable for food production, land managers are able to sell BNG units to developers.

But values should also be carefully considered; while an agreement may look good income-wise, initial establishment costs can be high and ongoing monitoring and maintenance costs need to be carefully considered at the outset.

Furthermore, land needs to be set aside for at least 30 years and the Secretary of State has powers to increase this further, which may sterilise the land for future uses. Nevertheless, it might be a good option for scrub land and help farms move towards more regenerative, sustainable practices.

Carbon offsetting

As it stands, carbon offsetting for onward purchase can be fraught with difficulty. It’s essential farming business calculate their own carbon footprint before entering any carbon offset sale agreements to ensure they can reach their own target.

We anticipate more obligations being set within supplier contracts while all organisations move toward a net carbon status.

Regardless of the type of business venture a farm chooses to embark on, it’s important to ensure all legal documentation is drafted correctly.

If you plan to let out premises under a business lease, you’ll need to be aware of the contracting out procedure to ensure tenants aren’t inadvertently provided with rights to remain.

This can be a nightmare if you want to take back an outbuilding for another use once the lease has expired, so getting legal advice is essential to ensure this doesn’t happen by mistake.

Those considering tourism or wedding venues might be contemplating letting someone else manage the day-to-day running of the business. It’ll therefore be important to consider how risk is managed between the two parties and ensure the correct form of commercial management agreement is in place to govern the relationship.

If you’re looking into selling off carbon, it’ll be essential for you to take professional advice on any contractual documentation before you enter into it as this is a new and unestablished area.

When diversifying, it’s likely you’ll need to apply for change of use planning. If you’ve diversified without planning permission, it might be possible to do this retrospectively. But this may be risky as you may not be successful in being granted planning for what might bave been a pricey diversification project.

Compared to other industries, the agricultural sector is currently, in certain respects, taxed generously (to the farmer). Steering away from a traditional farming operation could have a bearing on your inheritance tax liability.

Adapting businesses should seek tax and legal advice in relation to succession and estate planning to ensure correct land and business structures are put in place to minimise unwanted tax consequences.

Amy Cowdell is partner and head of agriculture at law firm Shakespeare Martineau.
For details, email amy.cowdell@shma.co.uk or visit www.shma.co.uk.