Buying or Selling a Farm in New Zealand

Farms are significant assets, so when it comes to buying or selling a farm, extra care should be taken to ensure that you’re getting the right advice. Whether you’re looking at a small or large-scale operation this article will provide a good framework to help you avoid common pitfalls when it’s time to buy or sell.

Buying a farm

As a purchaser it’s prudent that you undertake thorough due diligence before buying any asset. Due diligence is particularly important for farms, where there are strict environmental and compliance requirements imposed by legislation or local district/regional Councils.

A purchaser’s typical due diligence investigation will include liaising with your lawyer to review the title to the property, terms and conditions of the purchase agreement and the LIM report.

An initial discussion with your accountant to consider the financial feasibility of the purchase and any tax implications is recommended. Your accountant will also check that values are correctly allocated to the land, buildings, chattels and/or stock.

It’s also good practice to have a chat with your bank to ensure sufficient funding is available to complete the purchase.

In addition to a purchaser’s typical due diligence investigations, a purchaser should also consider:

• Resource consents/Permitted Activities – land use, water take and discharge and nutrient discharge
• Waterways and wetlands

Resource consents/permitted activities

A seller (vendor) should hold necessary resource consents and/or permitted activities for the farming operation undertaken on the property so that the land can be used for its intended purpose.
Such consents/activities can range from water permits and discharge consents. Sufficient irrigation is essential for any farming operation and close review of all water permits is paramount.

If no water consents are held by the vendor, the property may be authorised to take water under an irrigation scheme. If that’s the case, it’s important to check the volume take entitlement under the scheme and ensure it’s adequate for your intended purposes. Some irrigation schemes require board approval before the transfer of shares, so extra timeframes will be needed when carrying out due diligence or inserting a due diligence condition in the purchase agreement.

When investigating any resource consents, check they haven’t expired or are up for renewal. You’ll need to have discussions with your professional advisers if the farm isn’t compliant with the relevant resource consent or no resource consents are held for the farming operation.

Waterways and wetlands

Waterways and wetlands are increasingly protected by law and are often regulated by Regional Council land and water plans. If waterways or wetlands are located on the property it’s important to check how onerous the protections are on the vendor and whether the vendor is complying with the protections set out in the relevant District Plan or resource consents. Failure to follow these regulations can result in prosecution by the local Regional Council.

Selling a farm

To get the best value for your farm it’s important to ensure there are no breaches of your resource consents and that your farming assets are in good condition before placing the property on the market. It’s worthwhile working through these aspects well in advance of listing the property with an agent.

Vendors should consider the following aspects when preparing their farm for sale:

• Good farming provisions
• Resource consents
• Contamination
• Vendor warranties

Resource consent

As a vendor, if you have breached your resource consents it’s crucial to remedy those breaches as soon as possible and to discuss the extent of the breaches/remediation work with your agent and lawyer. Your agent and lawyer will be able to guide you on how best to address these when marketing the property.

All resource consents should be in the name of the selling entity and relate to the land being sold. Failure on these technical aspects could prevent resource consents being transferrable which may affect the sale value of the farm.

Contamination

If the property has been flagged as containing hazardous materials (as recorded on the Hazardous Activities and Industries List), or if there are any clean up obligations under resource consents that you hold, you’ll need to ensure that all contamination is remedied prior to settlement. The time involved in clean-up will depend on the extent and nature of the works, so we recommend this is dealt with early to avoid any delays or disgruntled purchasers.

Vendor warranties

In addition to the warranties given in the good farming provisions of a sale agreement, there are the standard vendor warranties contained within the sale and purchase agreement and potentially other additional warranties inserted when selling a farm. It’s important you are aware of these warranties to ensure you, as vendor, can uphold these. If there are any warranties you cannot provide i.e. you don’t hold the necessary consents, building work has not been obtained for certain works, or any breach under the Act, then we recommend you
disclose this to your lawyer as soon as possible before signing any sale agreement so that the agreement can be varied to mitigate any exposure to you.

Final thoughts

If you are buying a farm, we encourage you to undertake thorough due diligence on any transaction to alleviate any potential long-term issues and costs.

The penalties for breaching environmental requirements can be substantial, so it’s vital that environmental factors are considered when buying or selling a farm.

If you’re selling a farm, we encourage you to discuss the sale with your agent and lawyer prior to signing any sale. This will not only ensure the farm is compliant and presented in the best possible light when it goes to market, but you have not provided a warranty that you cannot uphold.

If you have any queries or wish us to elaborate further on any content of this article, please get in touch with the Corporate & Commercial Team at NWM who can assist you.