FOR ASPIRING FARMERS

What has to be in a lease to buy, and in the option?

A lease to buy is really two documents doing two jobs, and both need to be right. The lease governs the years you're farming. The option governs the day you buy. People put effort into the first and assume the second.

The option is also one of two instruments, an option to purchase or a right of first refusal, and they are not the same thing.

Most arrangements cover the land and the infrastructure. Livestock and plant are usually handled separately, so don't assume the herd comes with it.

The lease itself must cover

• The land and the parties. Precisely which land, and who exactly is bound. Not the farm name.
• Term, and any renewal. How long, and what happens at the end if nobody does anything.
• Rent, and how it's reviewed. The mechanism, not just the figure. If rent is reviewable, the agreement should say how and when and by reference to what.
• Who does what. Maintenance, repairs, fencing, weeds, rates, insurance. Obligations on both sides, written down, so that the argument in year 4 has an answer.
• Improvements, and what happens to them. What you may do without asking, what needs consent, and critically, what you're owed for it if you never buy.
• A condition report at the start. Photographs and a written record of what the place looked like on day 1. Keep them, because they're what you'll want if you later argue about what was already broken.
• Annual review meetings. A scheduled conversation, in the document, so that problems surface at a table rather than at the end.
• Dispute resolution. How disagreements get handled before they become legal.

The option must cover

• Which instrument it is. An option to purchase or a right of first refusal. Name it.
• The price, or the formula that produces it. If it's today's value plus growth, then say how today's value was established, what the rate is, and how it compounds.
• The window. When you may exercise, how much notice you give, and what form that notice takes.
• What happens to what you've paid. Whether option payments or any part of the rent count toward the purchase price. This is negotiable and it's often not raised.
• What happens if you don't exercise. For both of you, including the improvements question.
• The worst cases. Death, illness, separation, on either side. An option that dies with the owner isn't much of an option.

Which instrument you've been offered

An option to purchase gives you the right to buy at an agreed price within an agreed window. Between the two of you, the seller can't sell to anyone else during that window and can't refuse if you exercise. Against anyone else, it depends on how the option is protected on the title. The question for your solicitor is whether the option is registered or otherwise protected, and what stops the owner selling to someone else during the term.

A right of first refusal only gives you the chance to match someone else's offer. People routinely think they have the first when they have the second.

Either instrument can sit inside a lease, or stand alone.

Read more: What kills a lease to buy? 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.