Three strategies to minimize litigation risk

Litigation can ruin a farm business, and, with incidents on the rise, agricultural lawyers say there are ways farmers can better protect themselves from legal action.

More rigorous business agreements

John Goudy, a farmer and lawyer based near London, Ont., says improper or non-existent leases and other business documents, such as rental agreements, are a source of legal conflict.

Swapping handshakes and oral contracts for detailed written leases can help prevent misunderstandings, while protecting the parties involved. This, says Goudy, extends to farmland sales as well.

He adds written leases are already required more regularly – particularly from large farmers and non-farming landowners – with disputes often arising when the opposing party resists this more formal approach.

Estate planning and protection

Colin Simmons, a lawyer based in Calgary, Alta., says the increasing land and farm business values are driving up estate-related litigation rates.

Part of this rise stems from issues between farming and non-farming children becoming exacerbated as parents struggle to be fair to all family members – while simultaneously trying to ensure the farm continues to operate.

Robert Scriven, a lawyer based in Waterloo, Ont., encourages farm families to make estate-planning a priority early. And, he says, the plan should be regularly updated. For particularly high-value or complex estates like farms, this might mean making changes every five years.

Family members who contribute to the farm, but are not on-title, should also see some returns. Scriven calls this “sweat equity.” He says reflecting the sweat equity helps prevent these family members from filing claims for compensation after they’ve provided money or labour but are then left-out of a business deal such as a farm sale.

“You cannot work people for a decade and expect them to go away for nothing,” Scriven says. “There is liability there.”

Mind neighbours and regulators

Greater scrutiny from non-farming populations and regulators requires farmers to be more mindful of how their practices – and changes to those practices – are perceived by neighbours, experts say. It’s also important to be aware of what laws and regulations apply to properties and know from what regulatory body, such as conservation authority or municipality, they come from.

Farmers must accept their operations are being scrutinized.

Scriven says the regulatory groups, in addition to neighbours, are watching farmers’ activities.

“Farmers have to accept their operations are being scrutinized , and have to build regulatory compliance into their business,” Scriven says.

Farm advisors can play a role as well.

“Advisors need to tell their farm clients they are going to have to put up with scrutiny, or ignore it at their peril,” Goudy says. “Avoid litigation to begin with. For farmers, the best way to do that is be aware of what their responsibilities are.”

Bottom line

The possibility of litigation on the farm is a growing reality. Agricultural lawyers say farmers can help avoid legal action by knowing and complying with regulations, acknowledging the work of family members when estate planning and making more rigorous business agreements.

Article by: Matt McIntosh

Legal agreements Will & estate planning Risk management