Buying a farm or rural property is not as simple as buying a residential property in the city.

Buying farm land comes with pitfalls. Photo supplied.

There are many additional factors which buyers need to be aware of as well as some hidden traps that can catch both vendors and purchasers unaware.

Some things to watch out for include:

Do you know exactly what you are buying?

Signing an agreement to purchase the farm land does not necessarily mean you will get all the stock and equipment that are on the farm.  

The land, plant and equipment and stock are commonly owned by different entities.

For example the vendor may own the land and buildings in a family trust and have a separate company (or companies) which own the plant and livestock. 

Find out if you are purchasing just the land or the entire business and make sure this is correctly reflected in your sale and purchase agreement.

GST date – beware of this as it can have huge cash flow implications!

The date when you have to pay the GST portion of the sale or purchase of a farm across to IRD will depend on whether you are registered on a payments or invoice basis and also the GST date that is inserted in the S&P Agreement.

Talk to your accountant before signing an agreement as the date could have serious cash flow implications.

Is it a going concern?

For a farm transaction to be a going concern the purchase generally has to buy the entire business (ie: everything that is needed for conducting the business) being the land and buildings plus the livestock and plant as well as any contracts, share milking or lease agreements that the vendor has in place.

Buyers need to check the GST implications of the purchase with their accountant prior to signing the sale and purchase agreement

House and curtilage

The residential house and garden area – not subject to GST. On smaller farms and lifestyle blocks the curtilage can be more difficult to asses.  A property valuation report may be necessary.

Will the crops be harvested and sheep shorn before of after settlement?

These issues need to be addressed in the sale and purchase agreement.

The vendor may be planning to shear the sheep prior to settlement whereas the purchaser may be relying on the income from this himself.

OIA Consent

If you are an overseas person (non NZ resident) it is likely that you will require consent from the Overseas Investment Office to purchase farm land in New Zealand as this usually falls under the category of sensitive land.  

These are just a few of the many issues to be aware of. It is essential to always talk to your accountant and your lawyer before signing an agreement to buy or sell a farm or rural land!

– Sirpa Gunn is practice manager for Conveyancing Shop Lawyers.