An article by Tim Ferrier, Consultant at Sparke Helmore Lawyers
Rural Australia is gradually retreating from a sustained period of transactional activity. With high activity comes issues and the most significant of these have meant an even greater necessity for parties to a transaction to be more prepared before entering agreements for sale or purchase.
Good preparation increases your chances of success, reduces your risks and ensures that you can make informed decisions about the sale or purchase. However, especially in a fast-moving market, a lack of preparation can lead to emotional decisions that put you and your capital in danger.
While the surge in activity is now softening, we have seen producers not necessarily contemplating selling out their assets. There has also been a substantial increase in first time non‑traditional buyers entering the market – e.g., corporates and super funds, which comes with both positive and negative risk factors for sellers and purchasers.
This degree of activity and changes in patterns has further thrown the spotlight on the level of preparedness of parties on both sides of the fence to enter transactions with all necessary information to ensure that not only their commercial but legal objectives and obligations are achieved.
We have prepared a quick guide to considerations that parties should be making, before selling or purchasing a property:
|Do you have a full picture of all the assets included in the sale?||Do you have a full picture of all assets you are seeking to purchase?|
|Are the land and other assets (e.g., livestock, plant, licences) recorded in the correct names?||Have you conducted a full due diligence check before entering into a contract or is there a right of due diligence in the terms of the contract?|
|Have taxation issues been considered – including what capital gains tax implications may arise and how, if possible, those implications can be minimised?||Have you considered the optimal structure for the purchase taking into consideration tax, personal liability and other implications?|
|Are you aware of the current agreements in place in relation to the land – e.g., shared water and agistment and the implications that arise from these?||Are you aware of the current agreements in place in relation to the land – e.g., shared water and agistment and the implications that arise from these?|
|Are there are any native title implications?||Are there are any native title implications?|
|Have carbon agreements been entered into? If yes, is there a plan for how they will be managed and what indemnities are required to ensure there is no comeback from the buyer in the future?||Have carbon agreements been entered into? If yes, is there a plan for how they will be managed and what indemnities are required?|
|Does the buyer require FIRB approval?||Do you require FIRB approval?|
|Is it advisable and/or prudent to include an apportionment of the sale price in the contract?||Does the transaction involve freehold land used for primary production? If yes, has an exemption from land tax been obtained (post settlement)?|
|Are water rights, if possible and applicable, excluded from the sale?||Are water rights, if possible and applicable, included in the sale?|
|Are there any Conduct and Compensation or like agreements which affect the land?||Are there any Conduct and Compensation or like agreements which affect the land?|
|Is there a clear plan for how livestock included in the sale be determined – e.g. by muster and how is that mustering process to be conducted, by whom and at whose cost?||Is there a clear plan for how livestock, included in the sale, are to be determine – e.g.by muster and how is that muster process to be conducted, by whom and at whose cost?|
|If the buyer is a company or a trust, will performance of the contract be personally guaranteed by directors/shareholders of the company or controllers/beneficiaries of the trust?||Is it advisable and/or prudent to include an apportionment of the sale price in the Contract?|
There are many legal issues in transacting rural assets, which means the process in buying or selling rural property can vary greatly from one sale to another. Due to the size of land and number of assets that go with a rural sale, it is important to ensure you’ve considered all risks and factors before entering into anything that is legally binding. The best way to do this is to engage experienced advisers early on to ensure a smooth, fast and fair transaction.