Diversification from Agriculture to Equestrian Business.
In recent years we have seen a trend of agricultural businesses diversifying into the equine sector. Whilst some land owners 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.
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 in this regard in order to elect 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 and it is best to have a plan in place to avoid stress and potentially a high tax burden.
Land and buildings
Do you own your own land?
It might seem like a silly question but some land may be leasehold or subject to trust. Remember, do your due-diligence!
Agricultural use does not 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 are 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 the type of use you can put 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 the purposes of 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, we regularly see covenants not to.
Often all is not lost, lease restrictions will have the caveat that the landlord can agree 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 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.
We acted for the Claimants in a High Court matter regarding a track which was owned by our client and led to the neighbouring land which was owned by the Defendant in the case. The Defendant had a right of way to use the track with or without vehicles and for the purpose only of agricultural use.
The Defendant initially used his land to graze horses however, he was later granted planning permission to use the barn which he had built on the land as stables and after that for an all-weather manege. The Defendant had also brought a mobile home on to his land for use by an employee during the foaling season although this was subsequently removed when planning permission was refused. The Judge in the case determined that these events marked the establishment of a stud business.
The Claimants objected to the use of their track for purposes connected with the business which included the passing and re-passing of horse lorries, JCB’s, dumper trucks, cars and 4×4 vehicles which the Claimants contended were an unlawful use of the track.
The Judge held that the use of the track for the purposes of animal husbandry were permitted use of the track. The Judge went on to find that the line was crossed by the operation of a stud farm. He considered that this fell outside the ordinary meaning of agriculture, outside the statutory definition of agriculture and outside the case law definitions. These findings have expanded the extent to which use of land for purposes connected with horses can constitute agricultural use. This is good news for horse owners that own/occupy land that is subject to agricultural restrictions. This case illustrates the issues that can arise in relation to rights of way.
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 if for everyone to get along, negotiate and compromise and not fall out, but if it does go wrong, a properly drafted document 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.
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.
Pre-plan for the worst – avoid agreements based on the strength of a handshake
We are 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 in order to reduce the scope for disputes and litigation. Some of the documents that you might require are listed below:
- Livery agreements
- Stud agreements
- Grazing licences
- Sale and purchase agreements
- Occupation agreements – beware of business tenancies!
- Employment contracts
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!!
Common causes of dispute –
In our experience, the following are common causes of disputes once you have set up a business:-
- Lack of understanding – plan before you act!
- Lack of documentation
- Failure to implement documentation
- “It will never happen to us”