Give it some thought when buying or selling

Agreements for the sale and purchase of rural land generally contain a ‘good husbandry’ clause. This clause is often inserted into the agreement as a ‘boiler plate’ or standard clause by real estate agents when preparing contracts. We discuss why it’s better to tailor-make this clause to suit each transaction.

The standard clause is often worded along these lines:

From the date of this Agreement until settlement, the Vendor shall continue to farm the property in a good and husband-like manner and in accordance with approved good farming practice in the district and shall neither overstock nor under-stock the property, nor do anything to impoverish the soil nor remove or damage any improvement or fixtures on the property.

However, both a seller and a buyer should give careful thought to the wording of this clause and its implications; it should be tailored to suit the particulars of any given transaction. This is particularly so for transactions where settlement is some time out from when the agreement was signed. It also needs to relate to properties where specific types of farming are being carried out.

For sellers

If you are the seller, you will have presented your farm for sale, found a buyer and signed the agreement. Do you, however, want to be held to some external standard in relation to your farming practice (particularly where there are no published ‘good standards’)? Wouldn’t you be better off by simply promising to continue to farm the property in the same manner as you have been in the past? Details of your farming practice can be supplied prior to the agreement being signed.

If you’re buying

A buyer may want to be particular about certain things such as:

• Do you expect an application of fertiliser between the date the agreement is signed and settlement? If so, how much and what type?
• Are you expecting some paddocks to be ‘locked up’ so that there is plenty of grass when you take possession? If there are winter crops to be grown (if you would ordinarily expect that to be done), it should be specified.
• For horticultural properties growing crops such as kiwifruit and where there are spray programmes, it’s essential to have records of these for export certification. (There should be an obligation to comply with Zespri-published spray programmes, etc.)
• For orchard properties, spray programmes should be clearly recorded and should be available on settlement. If pruning usually takes place at the time that falls between the agreement being signed and the settlement date then this issue needs to be covered. It’s possible you may want to do the pruning yourself to ensure that it’s carried out the way you want it done.

Individual variations of good husbandry

The issue of further defining what is meant by ‘good husbandry’ is particularly important because farmers and orchardists often have their own specific ways of doing things which has suited them and the way they farm or grow crops or fruit. These practices vary not only from district-to-district, but also farm-to-farm.

What is ‘good practice’ to one farmer may not be regarded as good practice to another farmer. In some instances, the type of farming or horticultural activity that a buyer will carry out is different from what the seller carried out. What may be ‘usual’ for the seller may either not be necessary for the buyer, or may cause difficulties for the buyer if they are changing farming methods.

Buyers and sellers should decide together

As with all contractual provisions, the response to the good husbandry clause shouldn’t be taken as read. It’s a matter that both parties to the agreement need to consider, discuss and agree as specifically as possible as to how the farm or orchard should be run and managed between the date the agreement is signed and the settlement date.

Rural legal and accounting advisors may be very experienced in dealing with rural transactions but their experience tends to be in relation to that particular field of expertise such as tax matters, ensuring the agreement is binding and clear, etc. Their expertise, however, doesn’t usually run to knowing how their rural clients farm or crop on a day-to-day basis, so input is required from the actual farmers to agree on their particular expectations.