FARMLAND: LEASE OR BUY?
You may have the opportunity of making a choice between buying the farm next door or leasing it?
While we cannot advise you on the prudence of your particular financial decision, we can provide you with some facts which may help you and your financial advisers make the decision on which option suits your particular enterprise best.
Leasing
Leasing can be a good option in order to secure income producing land without incurring the high capital cost of buying land. It is also possible to incorporate an option to purchase or a first right of refusal should the landlord wish to sell at any time during the term of the lease. Your lender may be more willing to fund a larger crop or livestock program when it is not dependant on the capital outlay of a land purchase.
A lease gives the tenant exclusive possession of the land for a predetermined time in return for an agreed rent payable. Before signing a lease (or an agreement to lease) you should negotiate the length of the lease, rent payable and review dates and method and frequency of rent payments, the rights and obligations of the tenant/landlord such as who is responsible for the payment of rates and the cost of the lease documentation. You may also wish to secure options for further terms of the lease.
Leasing does not provide long term security unless you can secure a long term lease. Most farm leases are for three years with an option to renew. However some parties may only want to lock in to a single year while others may want ten year leases.
We recommend that all lease arrangements be recorded in writing and this should be done by a lawyer rather than a simple handwritten document or a proforma. There are many potential issues which are overlooked in such informal arrangements and potential disputes can be averted if both parties know in advance who is responsible for what.
WA Property Lawyers can draft a lease for your requirements.
Purchasing
Buying land is a sure way of securing land for the future. After determining a fair and acceptable price you need to consider the terms and conditions of your purchase before you sign the contract. If you need finance then it should be a clear condition of the contract as should any specific conditions you have agreed to verbally such as delayed settlement dates, early possession for summer spraying or removal of livestock.
Be sure you identify the land carefully to ensure you are buying the right piece of land. It is important for a contract to refer to the correct seller, is the property owned by an individual, a company or a trustee on behalf of a family trust? Even more important for you, the buyer, is to ensure before you enter into a contract that you have established who the buying entity is. Are you buying in your personal capacity, as a director of a company or as a trustee for a family trust or unit trust? You will need to confirm these details with your accountant as a change in buyer after the contract is signed will cost you double the duty.
Finally, don’t forget to appoint a reliable experienced Solicitor to ensure your transaction happens with a minimum of fuss. WA Property Lawyers have the skill and experience to help you with your next purchase, sale or lease agreement.