Farm Diversification – the lay of the land
James Goddard is Partner in the Commercial Property and Agricultural Law team at North-West based law firm SAS Daniels. Below he talks about Farm Diversification and what farm owners must consider before diversifying their land;
Many farm owners are looking to alternative ways to use their land as traditional farming continues to evolve. Food supplies are currently in high demand but farm owners need to think ahead and plan for the long term, beyond the current crisis.
Diversifying is the perfect way for landowners to create another revenue stream and get the most out of their land. Farm diversification can include everything from moving into organic or free-range produce, through to something more drastic such as opening a brewery. All of these are forms of diversification that can prove to be transformative for farm owners but before farm owners look into new enterprises, they must consider why they want to diversify, and how they can go about it.
Reasons to diversify
Untapped resources – a large number of farms across the UK are sitting on unused resources. Old farmhouse buildings for example can often be transformed to support new business ventures.
Untapped market – There may be a local demand for something which is currently not being met and using farmland may be a way to satisfy this. Many farm owners have tapped into a demand for an emerging trend, for example “Glamping” has seen many transform their land into luxury camping destinations for holidaymakers looking for a break.
Untapped skills – Many farmers thinking about diversifying the use of their land are tapping into pre-existing skills and knowledge. Owning land allows the freedom to branch out into these areas and cover a larger number of bases as a business.
The first step is to take stock of the resources available, and then decide what potential farm diversification projects are possible.
Things to consider
One hurdle which may stop a rural enterprise before it begins are restrictive covenants. It’s important to assess the 
registered title to work out whether there are any restrictions on the use of the land. If this is the case, then it’s doubtful that the enterprise will be able to go ahead until the restrictive covenant is released or varied.
Another thing to seriously consider is tenancies, and whether there is a break clause and if the conditions in the break clause can be satisfied.
Tax is a key consideration for farm owners, and in some instances, it may be necessary to obtain advice before committing to a new rural enterprise. A change or diversification in land use may result in a loss of Agricultural Property Relief, so it is something to investigate at the planning stage.
The most obvious tax consequence is the likely loss of Inheritance Tax relief against the value of the assets used for diversification. The change in use of land will also require landowners to pay Business Rates, something which is often overlooked as agricultural land is usually exempt from these charges.
Insurance, and finding the right cover is a necessary evil to ensure everything is in line before setting up a new venture. The change in land use will more than likely require a change in insurance policy, and it’s crucial to have this in place before anything is launched.
One of the most frustrating, and often time-sapping steps in the process is gaining planning permission. It can be expensive and sometimes extremely complicated – however, not all diversification projects will need it. Getting this in place early in the process will help avoid any problems further down the line.
Take advice from a suitably qualified land agent or agricultural consultant or (for those with membership), the CLA, which is an organisation for owners of land, property and businesses in rural England and Wales. The key is getting the right guidance from the beginning.
The sky is the limit for what farmland can be used for and with expert advice to ensure the right procedures are in place, there’s no reason why it can’t be a smooth process.
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