FOR ASPIRING FARMERS
What to ask your solicitor and accountant before you lease to buy
By Sam Marwood
These are the questions to put to your solicitor and your accountant before you sign a lease to buy.
For your solicitor
- Is this a purchase option or a right of first refusal, and what is the practical difference for me here?
- Is the option registered or otherwise protected, and what stops the owner selling to someone else during the term?
- What happens to my improvements if I do not exercise, and is that written or assumed?
- If the owner dies during the lease, does the option survive, and who is bound by it?
- What duty does the grant of the option itself attract in my state?
- Can the owner mortgage or further encumber the land during the term, and where does that leave me?
- What are my obligations if I want to exit early, and what does it cost me?
For your accountant
- How is the eventual purchase treated, and does the way we structure the price change that?
- Are any of my payments during the lease treated as part of the purchase, and what turns on that distinction?
- How are the improvements I make treated while I do not own the land?
- What is the position for the owner on the day the option is exercised, and does the timing of that matter to them?
One to ask together, with the owner in the room
What is the price formula actually going to produce, on a few different assumptions, and are we both still comfortable?
Run it high, run it low, run it flat. If either of you flinches at one of those numbers, better to find out now than in year 8.
Why these questions
These questions go at the option, at the money you put into land you don't own, and at the owner's position on the day the option is exercised. They also cover an early exit, and the owner mortgaging the land.
Read more: What has to be in a lease to buy, and in the option? and What does lease to buy cost the farmer and the owner?.
This is general information, not legal or tax advice.
The full guide, You Can Own a Farm, is free at cultivatefarms.com/resources.
You can build your own plan at cultivatefarms.com/plan.