Rural Partnership Agreement: Understand how it works
The rural partnership agreement formally establishes the rules agreed upon between the partners regarding the sharing of production and the risks of the business.
A Law No. 4,504/64, known as the Land Statute, and the Decree No. 59,566/66 They establish the rules for different agricultural contracts, such as rural partnerships and rural leases.
Rural partnership is one of the main types of agricultural contracts in Brazil. In this model, the landowner grants the use of the land to another producer so that they can cultivate it.
In this article, you will understand what a rural partnership agreement is, what information it should contain, the risks involved, and how to draft one. Happy reading!
What is a Rural Partnership?
According to Law No. 4,504/64, In Brazil, a rural partnership is an agricultural contract in which one person agrees to grant another the use of a rural property, or part thereof, for a specified period. In this model, the partner who grants the land assumes the risks of the agricultural activity, as well as the chances of success.
The contract may include improvements and other assets intended for agricultural, livestock, agro-industrial, plant extraction, or mixed exploitation.
It is also possible to deliver animals for breeding, raising, wintering, fattening, or extraction of raw materials of animal origin.
In rural partnerships, there are two main figures: the granting partner, who transfers the assets (and may or may not be the landowner), and the partner-grantor, who receives the property or assets to exploit. The partner-grantor It is usually the farmer who will work the land.
Types of Rural Partnerships
There are five main types of rural partnerships:
- Agricultural Partnership: Temporary use of rural property for crop exploration and production.
- Livestock Partnership: Exploitation of animals for breeding, raising, wintering or fattening, with proportional sharing of risks and profits.
- Agro-industrial Partnership: Agricultural, livestock, or forestry production for industrial purposes.
- Extractive Partnership: Exploitation of agricultural, animal, or forest resources in an extractive manner.
- Mixed Partnership: A combination of two or more of the above modalities.
How does a Rural Partnership Agreement work?
A rural partnership is an instrument by which the owner and partner-grantor They join forces for agricultural exploration.
Both parties share not only the profits, but also the risks and losses. The law allows the parties to define in advance the percentage of the owner's share, with possible adjustments at the end of the contract.
What is the minimum term of a partnership agreement?
The minimum term for the partnership agreement is three years, guaranteeing the partner the right to complete the ongoing harvest.
If the landowner does not wish to cultivate the land after the contract expires, the partner will have the right of first refusal to renew it. It is recommended that negotiations take place six months in advance.
In the event of the death of one of the parties, the contract remains valid until its expiration date, guaranteeing the heirs the right of first refusal for renewal.
Who has preference in the purchase of the property?
Although the Land Statute guarantees the lessor the right of first refusal, this does not apply to rural partnership agreements, unless explicitly stipulated in the contract.
How does taxation work for rural partnerships?
Both the owner and the partner are taxed on rural activity for income tax purposes.
- Individual: You can choose between actual or presumed profit. In the presumed profit method, a rate of 20% is applied to gross revenue, and a rate of up to 27.5% is applied to the resulting tax base.
Example: Gross revenue of R$100 thousand, tax base of R$20 thousand and tax of R$5,500 (5.5% of gross revenue).
- Actual Profit: Calculation based on the revenues and expenses of each partner, with an application rate of up to 27.5%.
How to Create a Rural Partnership Agreement?
Although the Land Statute allows verbal contracts, a written form is recommended for greater security and clarity, especially in situations of litigation.
Main Characteristics of the Rural Partnership Contract
- Written contract;
- Clarity regarding the risks of the business;
- Specification of the type of contract and the activity;
- Property details: registration number, INCRA registration, etc.;
- Contract term;
- Definition of quotas and allocation;
- Description of improvements;
- Contract supervisor (optional).
What are the risks of rural partnerships?
According to Art. 96 According to the Land Statute, the parties must share risks such as:
- Fortuitous event and force majeure;
- Variations in fruit prices;
- Physical losses or loss of revenue due to inclement weather or pests.
Conclusion
The rural partnership contract is a well-established practice in Brazil, governed by the Land Statute. It allows the landowner to cede part of their land for exploitation, with the risks and profits being shared between the parties.
Detailed contract formalization is essential to ensure the safety of everyone involved.
Do you need help drafting or reviewing your rural partnership agreement?
Count on us. Logic Business Consulting To ensure security and legal compliance in your business!
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