With over 3,500 registered farm partnerships in place across the country, the structure has proven very popular with new and younger farmers who are looking to start farming. The Land Mobility Service has played an integral part in providing the framework for collaborative farming arrangements between land owners and farmers. We in Bank of Ireland welcome this collaborative approach, which enables generational renewal and succession.Such collaborative agreements allow for the transfer of knowledge and skills among farmers, with each partnership arrangement unique to the individuals and farms involved.

Banks view of Farm Partnerships

We bank 40,000 farming customers. As such, we see a host of varying farm structures and farm partnerships. We support and work with farmers to find a solution that fits the structure they want, and if that is a farm partnership we are happy to work on that basis.

What are we seeing in this area

While farm partnerships still remain popular, we are seeing an increasing level of other arrangements developing too - such as long term leasing due to the tax benefits involved. We have not seen farm partnerships break down – in fact our experience with farm partnerships is and remains positive. We are very aware that circumstances can change with a partnership and we always try to ensure all parties are fully cognisant of their obligations when entering a farm partnership. Our advice is for farmers to seek solid independent advice.

Key Points of awareness around farm partnerships and finance

  • While it may be intended to be a long term agreement, in the case of non-family partnerships there may not always be that sustained commitment present.
  • There is a six month break clause on either party. That can pose a challenge when seeking finance – while it protects both parties and that is the aim – it can have the opposite effect if significant debt/borrowing is involved and the partnership dissolves and one party is left with debt.

  • If partners opt to borrow in their own right (for stock, land purchase and farm development) this will be assessed based on their take of the profit sharing ratio [percentage by which all partners share future gains and losses].
  • In the event that the partnership is the borrower then all partners are joint and several liable for all debt within a partnership i.e. each individual partner is liable for the full amount of any debt associated with the partnership.
  • Be aware that any investments that are made by the partnership on the farm (in milking, housing or grazing infrastructure ie additions to fixed assets) may not be removable or saleable in the event of the breakdown of the partnership.
  • Key management and technical expertise can be lost in the breakdown of a partnership, sometimes leaving a less experienced operator with responsibility for achieving the technical efficiencies required to fund associated bank debt.

    • Knowledge sharing

  • These farm businesses benefit from the experience of the more established farmers, they support knowledge transfer and can and do set the farm and farm business up for continued success following the cessation of the partnership.
  • Farm Partnership can provide for succession within farm businesses and provide the mechanism for older farmers to step back from the physical demands of full time farming while providing younger farmers without access to land in their own right the opportunity to farm.

    • Financial Incentives

  • There are benefits and supports for young farmers and female farmers 40 years or over in terms of grant aid and tax incentives in a partnership arrangement, but potential claw backs if the partnership does not remain in existence for a minimum of five years from the date the grant is drawn down.
  • Partners will need to provide for this claw back which can have a financial costs for one or all partners if a partnership breaks down within the five year period. CL

    • What do Bank’s look for

    1. A formal partnership agreement details the “rules of engagement” for the partnership and the exit clause in the event of disagreements that can’t be resolved.

    2. Consider what banking facilities will be required and by whom.

    3. A farm partnership requires a new account - adequate time should be provided for this to take place. A new account requires 1) a completed application form 2) a copy of partnership agreement, 3) a tax form and 4) confirmation of ID and proof of address for the partners. It is not as simple as changing the name on an account and with all the information can take up to two weeks to set up.

    4. If the partnership name is a “trading as” or has a formal partnership name this name must be registered with the CRO who issue a Business Name Certificate which is also required to open the partnership account with the bank.

    5. Be aware of the key risks within the partnership and how can they be mitigated for all – This is particularly relevant if the borrowings are being sought in the name of partnership or by individuals for the purpose of the partnership.

    Other considerations to be aware of if you are starting a farm partnership

  • Security can be a key challenge for some farmers - particularly young and new farmers.
  • Bank of Ireland can lend up to €120k unsecured. SBCI (Strategic Banking Corporation of Ireland) lending products available through various lender can facilitate loans of up to €500k unsecured at competitive rates to fund investment on farm.
  • This gives farmers plenty of options in terms of raising finance to support investment in a farm partnership.

    • Key takeaways

    Seek good advice:

    It is worth investing in independent legal and tax advice before committing to a farm partnership.

    Enter with eyes wide open:

    Think of the exit in case of a breakdown and be aware of each of the partners motivation and expectation for the partnership. This will help resolve minor issues and disagreements and may stop them escalating into major disputes.

    Remember that a farm partnership is not a once in a lifetime decision:

    Like everything can be reviewed and the structure adapted as you, your family and business circumstances change.

    Comment from AIB

    Comment from AIB on Farm In AIB, the farm partnerships that we bank have proven in the main to be very successful with many benefits for our customers. From our experience of banking farm partnerships, the most effective ones feature open communication between the partners, an agreed decision-making process and also an agreed business plan to ensure both partners are working to a common goal?

    In our experience where there has been a business plan agreed by both partners this will include a breakdown strategy and how the partnership will be dissolved. In any funding request for a farm partnership we would request a copy of the partnership agreement and review the details within, including the exit strategy for both partners. We would recommend to any customer that is in a partnership that they may want to exit, to seek independent advice and ensure they are aware of their responsibilities and obligations under the partnership.

    Read more

    Farm partnership breakdown part 1: Mediation

    Warning over legal fallout from unresolved partnership conflicts