Do farmers need help from lawyers?
In the Baltics and especially in Estonia there are more and more entrepreneurs willing to gain a share in agriculture. Agriculture and arable land is one of the most popular and widely recommended investments.
Furthermore, there is a generational change going on in agriculture in the Baltic States. Farmers that have taken over the leftovers of Soviet era agricultural businesses or have built up their own farms are handing their holdings over to younger ones. With this background it is obvious that need for capable legal assistance in agriculture is growing.
Having a connection to agriculture on a daily basis I believe that legal assistance is necessary for everyday life of agricultural businesses and a thought-through investment to involvement of a professional counsellor is a good value for money. I have noticed that in too many cases the upcoming documents are drawn up oneself (or are not documented at all), without taking into account important nuances and in case of failure the damage is regarded as loss. But this could be avoided. Following are some of my ideas, when and why lawyers should be involved in rural business.
Sales agreements are not documented and important concerns are not included
Sales agreements concluded while selling raw products as well as buying input materials are often on long term basis and include big amounts of money. For example for concluding a raw milk sales agreement with value more than one million euros under current price a farmer has to have no more than 210 cows. According to widespread practice the sales agreements of raw milk are concluded on terms and contract forms drafted by the buyers with very general terms. This is happening even in situations when farmers have obviously a stronger position at the market. Such agreements concluded in the interests of buyers and possible oversights may cause damage tens of times exceeding possible spending to necessary legal assistance drafting an agreement. Such practise is widespread also in agreements of sale of meat and cattle (often with no documented agreements at all).
Precise standard terms while using market instruments
In cases of sale of grain and rapeseed and purchase of forage and fertilizers the situation is almost opposite – agriculture is heading to regulated markets, the agreements are drafted capably and precisely, but the terms are still in favour of the other party. Signing such a document without understanding important nuances is not reasonable. In case of almost every agreement there are clauses with possibility to negotiate and supplement. While fixing a price of a product or input material, buying a future or a stock option and insuring oneself against steep movement of prices it is important that agreement regulating such actions protects the interests of the farmer. Standard terms of extension of term of contract drafted by the partner, prematurely fixed amount of grain or unexpected payment deadline could cause a lot of damage. The situation is similar while buying expensive machinery, ordering building of a production building or agreeing on subsequent financing with a bank.
Employment law is still important
Despite fast development of agricultural machinery and technics and declining employment numbers in agriculture, people working in this sector still have an important role to play. Seasonality of work and roughening occupational safety regulation set requirements for form and content of employment documentation. Large percentage of manual labour as well as unpredictability of animals and machines could cause an occupational accident or disease. Wage systems and work administration must be clear and understandable. A qualified lawyer can help with these problems.
Prior legal assistance should be elementary in case of share transactions
It is essential to involve a lawyer with a wide experience in Mergers and Acquisitions transactions to process of selling a farm built up as your lifetime achievement, including drafting of agreements and negotiations with the buyer. Otherwise both insufficient planning of the transaction as well as imprudent representations and warranties given in the Share Purchase Agreement may reduce the profit significantly. In Estonia there are still many farms, with a huge amount of shareholders, that have their roots in Soviet era collective agricultural holdings. Many shareholders that got their shares during the agricultural reform have passed away and their successors have moved away from home with no interest in half-a-percentage share in a farm far-far away. While planning buying up of such shares or putting the shareholders list into order it is wise to use professional management a consultation of the transactions.
Confidence in cultivation of land
While the prices of purchase and rent of arable land are rallying, the amounts of money spent to acquisition and safekeeping of the land are considerable. Transactions of purchase of land may reach amounts similar to acquisition of companies. Availability of arable land is backing sustainable agriculture. Therefore it is important that a contract of rent would guarantee availability of the land till the planned termination of the contract as well as harvest of the crops. Missing or lacking documents certificating the right to use the land might also be a problem while applying for agricultural refunds.
Competition law in concentration and joint activities
Even at first sight remote and complicated competition law has reached agriculture. When acquiring an agricultural entity it might be necessary to go through the merger control process at the Competition Board. Even joint activities may reach a point where it is necessary to ask whether collectively beneficial is not distorting competition and therefore illegal, resulting in severe punishments.
Revocation of grants and state regulations are not always reasoned
In a situation where agricultural refunds are only way to be profitable and do the necessary investments and revocation and reduction of agricultural refunds is not rare, it might be hopeful to know that the administrative legislation may be not reasoned and therefore revocable. Continually tightening environmental and veterinary regulations bring us also to details of public law. Fines, warnings and administrative regulations may in addition to seeming unfair, also be unreasoned and in contradiction with law. In such cases it is useful to know the precise requirements and conditions and turn to challenge proceedings or administrative court.
Everyday company law
In addition to aforementioned, an agricultural company is no different in form to others. It is important to regulate relationships between shareholders, organize settlement of disputes and mergers, acquisitions, transformations, drafting of articles of association and other legal documents on everyday basis. While expanding it might be reasonable and useful to keep different production units in different legal bodies and engage a suitable corporate structure. It might even be useful while applying for agricultural refunds. A professional in company law can take the trouble away.
All this might not be a problem on everyday basis, but when the problems appear, some hundreds of euros saved from legal assistance may bring tens of thousands of euros in loss. Even with a long-term partner insolvency or disputes come unexpected and at that point a documented agreement is solid support.
With all this and other legal questions we at TRINITI are willing to be of help. With timely interference our experienced lawyers can prevent and avoid trouble. When problems appear, we can help minimize the loss. A quick answer to your first e-mail includes a clear and precise evaluation of your possibilities and project-based fixed fee can keep the expenses under control.