FOR RETIRING FARMERS AND THEIR FAMILIES
Lease to buy a farm: what it means when you're the owner
By Sam Marwood
The farmer who leases your land today could be the one who owns it one day. That's the idea behind lease to buy.
They lease the farm from you for a set period. When it ends, they can choose to buy, at the price the two of you agreed up front.
Ageing on Farm, which looks at handing on the work, lists it third of its seven options.
How the price is set
The price is normally worked out from what the farm is valued at today, plus an assumed rise in land value across the lease.
The farmer leasing it can then build up equity through farming profits during the lease, to put toward buying it.
Why it fixes a lease's biggest weakness
With an ordinary lease, improving land they'll never own does little for the farmer. Lease to buy changes that.
Because they have the chance to own the land one day, they have every reason to spend on soil health, infrastructure and productivity. Those improvements benefit them directly if they buy.
For you, it means the farm is being built up while the rent is still coming in.
The risk in the price
Land values don't always follow the assumptions.
If the value rises faster than the agreed rate, you've sold below market. If it rises more slowly, the buyer may be unable to raise the price when the time comes.
Either way, good legal advice at the start is essential.
If the buyer isn't ready
The option is theirs to take up, not a promise. If the farmer isn't ready to buy when the period ends, you can negotiate a new lease, with a new option.
That takes the pressure off both of you. The buyer gets more time to build up their capacity. The lease income carries on in the meantime.
The benefits
- You agree a price and a date now. Whether they buy is still their choice.
- The incoming farmer has good cause to improve a farm they may come to own.
- You get lease income for the whole period, plus a sale at the price you agreed, if they go ahead and buy.
The drawbacks
- If land values climb faster than the agreed rate, that extra rise goes to the buyer, not you.
- The farmer leasing could spend on improvements and still fall short of the price at the end.
- It needs careful legal drafting to protect you both, especially if either of you wants out early.
- It can take years, so the farm's future may not be settled for some time.
Time on both sides
It gives you time to know the buyer well, and gives the buyer time to get ready. For a farmer who'd like to sell gradually, to someone they trust, that's the appeal.
The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.
You can build your own plan at cultivatefarms.com/plan.