Purchasing rural property is not a simple process and involves many complex issues which must be properly addressed to protect the interests of both the buyer and the seller. It is crucial, for the transaction to be effected in a smooth and timely manner, that you obtain advice on the draft contract of sale before you sign.
Here are just some of the key issues you need to consider before putting pen to paper.
What are you purchasing?
Often, when purchasing rural property, you will be purchasing not only the land but also any related water entitlements, plant, equipment and machinery (Chattels), and potentially stock.
Each of these items need to be specifically addressed in the contract of sale. You cannot rely on a handshake deal to cover these additional items.
You need to ensure that you understand exactly what water entitlements are included in the sale and that your contract addresses what is required to give effect to the transfer of those entitlements.
The contract must specifically list the chattels that will be included in the sale of the property. The value of these items needs to be agreed with the seller because GST will be payable on them at settlement.
If you are purchasing stock with the property, the contract needs to specify either an agreed price for all stock or a price per head, with a muster to be undertaken at settlement. The arrangements for any muster must be agreed between the parties and documented in the contract to avoid any disputes following settlement.
The position of the parties with respect to the applicability of GST on the purchase must be documented within the agreement. The sale of the property may be exempt from GST if the transaction falls under the farmland exemption – that is if a farming business has been carried out on the land for the 5 years immediately prior to settlement and the buyer intends that a farming business will be undertaken on the land following settlement.
Third Party Agreements
Rural properties are often affected by third party agreements which frequently come in the form of verbal ‘handshake’ agreements. Examples might include the agistment of cattle, supply of bore water to a third party or agreements for the provision of gravel. There may also be agreements with resource companies for the construction of gas wells or leases for solar/wind farms. Details of these third party agreements need to be set out in the contract of sale and must be properly assigned following settlement.
Purchasing rural property is a complex process involving many moving parts. If you are thinking about buying or selling rural property, Creevey Russell Lawyers’ Agribusiness Team can assist with:
· Preparing and negotiating draft contracts of sale and special conditions
· Providing advice with respect to purchasing entities
· Determining whether any stamp duty concessions or exemptions are available to buyers
· Conducting full and thorough due diligence investigations
· Transferring water licences and allocations
· Documenting and assigning third party agreements as required
· Dealing with banks to obtain the release of any mortgage, security or encumbrance over the property