FOR ASPIRING FARMERS
What does lease to buy cost the farmer and the owner?
By Sam Marwood
The cost on this page is what each side gives up. The price is fixed, so one of you will be unhappy with it. Your money is at risk until you exercise, and the owner is locked out of the upside.
The fixed price cuts both ways
That isn't a flaw in the arrangement, it's the whole point of it, and both of you should go in with your eyes open.
If land values rise faster than the agreed rate, the owner watches you buy below the market and feels it. If values fall or flatten, the price in the agreement can be one the market no longer supports. That's the price if you buy.
The owner is also locked in to a buyer who may not complete. Neither of you can know which way it goes. What you're buying is certainty, and certainty always costs someone.
For the farmer: your money is at risk
The money you put into the place is at risk until you exercise. Fencing, pasture, water infrastructure, all of it lifts the value of land you don't own yet.
If the lease ends and you haven't exercised, that money can simply be lost, along with any option payments, unless the agreement explicitly protects you. This is the one people miss.
For the farmer: you're a tenant
For the whole term you can't borrow against the land, and you can't make decisions that outlast the lease without the owner's agreement. The improvements you make are, for now, someone else's asset.
For the owner: locked out and locked in
The owner is locked out of the upside they agreed to give away, and locked in to a buyer who may not complete. The owner keeps the title, which is real protection, and also keeps the property off the market for the whole term.
What the owner gets in return
A standard lease has a problem this arrangement is designed to fix. A pure tenant has little reason to spend on soil health or infrastructure, because the benefit goes to the owner, and over a long enough lease the farm can quietly decline.
Lease to buy gives the tenant a reason to care. For the owner, that incentive is a substantial part of what they are getting.
What to do about it
The question to ask together, with the owner in the room, is what the price formula will produce on a few different assumptions. 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.
The lease should also say what you're owed for your improvements if you never buy. The question for your accountant is how those improvements are treated while you don't own the land.
Read more: What has to be in a lease to buy, and in the option? and What to ask your solicitor and accountant before you lease to buy.
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.