FOR RETIRING FARMERS AND THEIR FAMILIES
What kills a lease to buy?
By Sam Marwood
A lease to buy fails when the tax on the sale turns up too late, when a vague option never becomes a decision, when improvements were never agreed, when the price meets a market nobody predicted, or when the term ends and the future of the farm is still open.
Tax on the seller's side, found out too late
You can be willing right up until you understand what completing the sale does to you. In one case, once the tax on the sale was clear, the lease to buy fell apart.
It isn't a reason to avoid the structure. It's a reason to take advice in the first month, because if this is going to be a problem, both of you want to know then.
The soft option that never hardens
A hesitant owner offers a short lease with a vague option. Everyone feels good, and years later the conversation hasn't moved. The lease was a way to avoid deciding.
The option should name which instrument it is. A right of first refusal only gives the chance to match someone else's offer, and it doesn't fix a price.
Improvements nobody agreed to pay for
The farmer spends 4 years fixing the place, the option isn't exercised, and there's nothing in writing about what they're owed. This one's entirely preventable.
The price formula meeting reality
Values move in ways neither of you predicted, and the party on the wrong side of it starts looking for a way out. A well drafted agreement survives this, and a handshake doesn't.
The same limit as every other arrangement
When the term ends, one of two things happens. The farmer buys, and the farm becomes an ordinary asset that can be sold to anyone next time.
Or they don't, and the next leaseholder or the next buyer decides its future. Managing a transition for a term isn't the same as securing what happens after it, so be clear with yourself about which one you're doing.
Nothing here has to be the final answer.
What to write down
The agreement should say what the incoming farmer is owed for improvements if the option isn't exercised. It should also give the price, or the formula that produces it. If the price is today's value plus growth, it should say how today's value was set, what the rate is, and how it compounds.
If you want to stay in the homestead, it can be written in from the start. Whether that should be a life estate, a lease or a right to occupy is a question for your solicitor, and so is whether the tax, duty and pension treatment differs in your case.
The worst cases belong in the document too: death, illness, separation, on either side. The question for your solicitor is whether the option survives if the owner dies, and who is bound by it.
Read more: What has to be in a lease to buy, and in the option? and Lease to buy a farm: what it means when you're the owner.
This is general information, not legal or tax advice.
The full guide, Ageing on Farm, is free at cultivatefarms.com/resources.
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