More Than A Handshake

Farmers pride themselves on the farm code of honour. There have been a lot of business deals in agriculture that function on a handshake or a verbal promise. And while a verbal agreement can be considered binding, paper documents are better protection. If it isn’t on paper, you have nothing. I’m going to over three situations when you must have legally binding documentation:

  1. Leases
  2. Partnerships
  3. Sweat equity arrangements

We never want to think of the worst-case scenarios. Farms typically involve family but farms are also a business where there is a lot at stake. It is important for all parties involved that there are documents around to outline how a situation should be handled.

Leases

If you lease a tractor from a dealership, you sign a piece of paper that has a whole lot of fine print on it. The same should apply to ANY lease, whether that is equipment, land or buildings. Fortunately, Google is super helpful in this if hiring a notary makes you stress. At the very least, find a sample contract online to modify to your situation. Your lease contract should consider the following:

  • The payment amount and due dates
  • Insurance requirements
  • Length of lease
  • Description of the asset being leased
  • Renewal terms
  • Who is responsible for repair and maintenance costs
  • Any other restrictions

Having a lease document provides you with some form of protection, depending on the type of lease. It also means that there are no assumptions on your part or the person you are leasing from. OMAFRA has excellent land rent resources here.

Partnerships

Whenever you work with more than one person, the odds of an argument increase exponentially. If you run a business with someone else, the first thing you should consider drawing up is a partnership agreement. The legalities will vary by province so it is in your best interest to involve a notary. Having a partnership agreement can be handy in the event of a tax issue or if one partner wants to leave the business. Your agreement will likely include the following:

  • Asset division in the event of a split
  • How much income each partner is entitled to report on their tax return
  • Business registration numbers
  • Responsibilities of each partner

Sweat Equity Arrangements

Farms include a high rate of sweat equity at times especially when it comes to succession planning. Any time you are considering working in a farm business for the promise of a share of the farm in lieu of a paycheck, you should make sure there is a contract. If you are in discussions about joining the family farm, it is in every party’s interest that written documentation exists. There are countless stories out there of adult children that worked on the family farm for over a decade and got nothing in return. If you don’t have such a promise on paper, you have nothing but a waste of your hard work.

The same considerations as a partnership would apply. Usually, a sweat equity arrangement is part of a succession plan so the documents should include a timeline, payment plans (how much you will pay to buy out family) and what happens if the succession does not get completed. There are lots of professionals out there who can help with the documentation and planning but the important part here is that there is a written legally-binding plan.

In short, if you are working with other people, get the arrangement in writing.

More than a handshake

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About the author

I'm Ursina, a farmer's daughter who dreamed of one day owning her own farm and made it a reality. I love reading, big sweaters and trail riding across my farm with my horse. My mission? To help others turn their farm dreams into a reality and build their own farm business.

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