New farm enterprise: Know the legal issues

Diversification can bring a raft of unfamiliar legal issues to consider. Farmers Weekly asked Sian Edmunds, a partner at law firm Burges Salmon, for some advice.

Gather as much information as possible about the planned new enterprise, talk to others who have experience of it and plan carefully.

This will be time well spent and can help to avoid costly, time-consuming and very stressful problems later.

Landlords and tenants  

Tenants will almost certainly need the consent of the landlord for diversified activities. Proceeding without this could put them in breach of the terms of their lease and the landlord could require them to cease the diversified activities.

Landlords may ask tenants to pay for a formal variation to their lease, or for a licence to grant written consent. The landlord may also want a higher rent (or licence fee), perhaps based on the income the diversified activity brings in.

See also: Farm income from diversification on the up

Some landlords of “old style” Agricultural Holdings Act tenancies will be cautious about agreeing to diversification if there is a risk it could put a potential succession applicant in a more favourable position.

Equally, AHA tenants with a successor lined up will need to take advice on the potential impact of diversification (on both leasehold and freehold land farmed by an applicant) on the applicant’s ability to meet the relevant tests.  This is a complex and technical area of law and it is very easy to make mistakes which could ruin an applicant’s chances of succeeding to the tenancy.

Planning and other permissions

Look into what planning consents are needed for the diversified activity and the regulatory requirements. Particular areas which can raise problems, and which are highly regulated, are taking in waste materials, and food manufacturing and food service businesses such as farm shops and tea rooms.

We have seen a recent rise in problems with waste, where tenants start taking in waste materials, sometimes with the landlord’s consent and often even obtaining relevant licences and exemptions.

They can then find themselves in real difficulties with the Environment Agency because the amount or type of waste on the holding has exceeded the authorised levels. 

The cost of removing and cleaning up the site once this has happened can literally bankrupt a tenant or result in a prison sentence.

It can also cause huge problems for landlords who may ultimately also be on the hook for an offence if they were aware of the waste operation. 

It is vital for a tenant diversifying into this type of activity to obtain the right form of authorisation, carefully manage the type and amount of waste being dumped on the holding and keep careful records of everything.

Food and drink

This is a highly regulated area, so anyone intending to diversify into food processing, manufacturing or retail must ensure they are fully aware of what is required of them in terms of safety, risk management and labelling.

These are all monitored and regulated by local authorities, so engaging with your local trading standards and/or environmental health officer ahead of embarking on diversified activities should help.

The Food Standards Agency website offers guidance but it would be sensible to obtain some targeted advice which relates directly to your own proposed activities and products. Breaches of the labelling, hygiene and food safety regulations can result in significant fines or even prison sentences, so it is vital to get it right at the very start.

Breaches of the labelling, hygiene and food safety regulations can result in significant fines or even prison sentences, so it is vital to get it right at the very start.

Contracts

Ensuring robust contracts are in place for dealing with suppliers and contractors and other third parties is likely to be time well spent. 

A recent case for a client who had diversified into hosting weddings has shown how time-consuming and costly it can be to have to deal with problems where the contractual terms they entered into with the wedding organiser are poorly drafted.

The client failed to limit their liability under the terms of the contract, and following complaints from a disgruntled bridegroom, the wedding organiser is seeking to claim significant damages from them.