Business Clinic: Diversification advice for tenants

Whether you have a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Michael Mack of Savills sets out some options tenant farmers can consider if they want to diversify without large capital investment.

Q I am a tenant farmer and I would like to create a diversified income on my farm. However, my landlord is reluctant to invest and I need to keep the capital risk to the business at a minimum. What options can you suggest?

A There are some amazing farm diversification projects across the country run on tenanted farms, so my first piece of advice is to think positively about the opportunities; a lot is possible.

Michael Mack
Farm and business management consultant, Savills

Many farmers’ first thought when diversifying is to spend money on converting buildings and capital investments, but by thinking outside the box there are many clever solutions which do not require major investment in bricks and mortar.

See also: Are pulses worth it without pesticides?

The best businesses are those run by people who have a real passion and knowledge for them. Start with the key asset you have already: yourself and your team.

Talk with the whole team and family to see what ideas and thoughts they have to add value to the site, create spin-off businesses or bring the public on to the farm. The ideas that come out of this process will need to be compatible with your farming system and your tenancy agreement.

If the business needs to be on the farm because it is processing a perishable product or is exploiting the farm’s location, explore options such as using container units or installing process rooms as internal fittings to a barn without touching the fabric of the building. It is amazing how good (and secure) a container unit can look when clad in timber.  

Off-farm diversification

If the project can be located off the farm, this option should be explored. Why not a farm shop in the local town? Could a processing plant be created in a local business unit or an enterprise started which focuses on online sales?

If the project does take place on the farm, then it’s vital for any tenant to get written permission from their landlord. Without the landlord’s agreement, the tenant could be considered to be in breach of the tenancy, which may result in a dispute.

When you start to diversify your business, think about the people who could influence the business’ potential.

Landlords, landlords’ agents, bank managers, planning officers and environmental health officers can all affect your ability to take the business forward. Make sure you have a strong positive relationship that allows open dialogue with everyone who could affect your business. 

Tax implications

There are several tax implications that might sway a landlord’s mind to either allow or refuse the diversification. For example, there may be an impact on the landlord’s capital tax position.

It could be possible for a landlord to grant permission within an Agricultural Holdings Act (AHA) tenancy, but the rent control conditions will limit him somewhat. As a result, in virtually all AHA cases the property to be used for the diversified business will need to be removed from the AHA tenancy and have a Landlord and Tenant Act 1954 Part II tenancy granted on it.

Finally, don’t forget grant funding. The growth funds and Leader funds all allow tenant farmers to apply, subject to the business having security of tenure for a period of five years after the final grant payment is made.

The key points for any tenant farmer heading down the diversification route are to focus on an area of the business which you are passionate about, think outside the box for solutions and bring your landlord along with you.

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