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Diversification from agricultural to equestrian business – the pitfalls!

In recent years we have seen a trend of agricultural businesses diversifying into the equine sector.

Whilst some landowners would rather steer clear of horses, others appreciate the potential within the sector, which was given an economic value of £4.3 billion during the National Equestrian Survey in 2015.

When considering the issue of diversification into the equine sector from an existing agricultural business, there are numerous issues to consider. We have set out below some of the key areas that need to be addressed.

 

Business structure

In the early days, it might be that the new business operates as part of the current business, but ultimately, it will be a brand new business with new customers and different associated risks. Early consideration should be given to the vehicle by which a new business should be operated in. The most obvious options are:

  • Sole trader
  • Traditional partnership
  • Limited company
  • Limited liability partnerships

Each option has advantages and disadvantages relating to tax, risk and exposure to personal liability. Advice should be sought from a professional to select the right option for you.

 

Estate and succession planning

What is going to happen to both your main business and the new business if you, or one of the other partners or directors, dies? It is not a nice thought, but it is inevitable. It’s best to have a plan in place to avoid stress and potentially a high tax burden.

 

Land and buildings

Do you own your land?

It seems like a silly question but some land may be leasehold or subject to a trust. Remember, do your due diligence!

 

Planning

Agricultural use doesn’t generally include use for equestrian businesses. Be sure to seek planning consent for change of use to equestrian.

 

Freehold or leasehold covenants restricting use?

If you’re a tenant, you may find there are restrictions in your lease as to what you can or cannot do. The restrictions are often presented the other way around with a “user” covenant which sets out what you can do with the property, any other use is often prohibited. What you may not be aware of is that there are also often restrictions on freehold property i.e. even if you own the property. A restrictive covenant preventing a property being used for a livery yard would be unusual (we have never seen one before) but if the land had previously been owned by another local yard it is not beyond the realms of possibility that such a restriction may exist.

Often all is not lost, lease restrictions will often have the caveat that the landlord can agree to a variation and there are sometimes ways to challenge a freehold covenant. The key is to be aware of and deal with the issue before it becomes a very expensive mess.

 

Easements (rights of way, right to draw water, drainage rights)

If the land has access rights over other privately owned land, those rights may be limited to agricultural use. This may become problematic if you diversify into an equestrian business as you may not be able to access the land for the purposes associated with your equestrian business.

For example, we acted for the track owner in this case.

 

Consider assets

Equipment such as machinery, stock and animals should be considered before diversifying and any agreements regarding the use of the same should be drawn up at the outset. Similarly, if your new equestrian business will be sharing facilities with the current farm business you need to ensure that you have the relevant agreements in place.

It goes without saying that the way to avoid expensive litigation is for everyone to get along, negotiate and compromise and not fall out, but if it does go wrong, properly drafted documents should mean that it is a simple task to look at the paperwork to determine what happens next rather than finding yourself in an expensive court battle.

 

Employees

If you have staff working exclusively for the new arm of the business who will be their employer? You should speak to an employment law specialist to ensure that you have employment contracts in place to protect your business.

Did you know? It is a legal requirement to provide a written statement of particulars of employment.

 

Minimising risk

Pre-plan for the worst – avoid agreements based on the strength of a handshake

We’re regularly instructed on disputes which have arisen because no documents have been put into place. As a result, when things go wrong expensive litigation often arises. It is strongly recommended that documentation which sets out the agreement between the respective parties is put in place at the outset to reduce the scope for disputes and litigation. Some of the documents you might require are:

  • Livery agreements
  • Stud agreements
  • Grazing licences
  • Sale and purchase agreements
  • Occupation agreements – beware of business tenancies!
  • Employment contracts

 

Insurance 

Depending on your chosen venture, ensure you have adequate insurance in place.

Put your documentation into practice – make sure it is understood by both parties and get it signed!

 

For more information on this or any equine issue, please contact Caroline Bowler on 0115 9 100 200 or click here to send an email.

Posted on October 16, 2019

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