There is no single specific piece of legislation addressing agricultural property transactions in Australia. The acquisition and disposal of rural land holdings follow the same conveyancing procedures as the buying and selling of houses, commercial buildings, shopping centres and other real estate assets. Real property transactions are addressed by the relevant real property act in each state.
The general conveyancing procedures are followed for agricultural property transactions, which includes vendor’s disclosure and purchaser’s due diligence. What is specific to agricultural property transactions is the complexity or unusual nature of the subject matter of the transaction.
Whether the asset being offered for sale is a small rural holding or a large-scale agricultural enterprise, obligations placed on the seller regarding disclosure and prudent behaviour on the part of the buyer regarding due diligence, can result in a complex terms sheet for a commercial deal and a complicated set of transaction documents for lawyers to prepare and negotiate.
Converting a commercial terms sheet into a legally enforceable, robust and clearly drafted transaction document is not always easy, especially with the increasing number of matters that have an impact on the conveyance of rural land.
Matters to consider regarding agricultural property transactions include:
- due diligence and disclosure obligations;
- land tenure, access and easements;
- dividing fences;
- water rights, including water access licences, dam licences and bore licences;
- stock and crops;
- plant and machinery including depreciation;
- third-party rights, including agistment agreements and share-farming;
- forward supply contracts;
- management obligations during the transaction term;
- warranties regarding environmental issues, including disclosure of conservation agreements or notices regarding acid soils and contamination risks;
- work health and safety issues and employment law; and
- the certainty of commercial terms regarding the consideration to be paid by the purchaser to the vendor.
The real estate for a family-run rural enterprise is usually held either in the personal names of the farmers or graziers, or in a private ‘proprietary limited’ company or a private discretionary trust. Appropriate tax and accounting advice should be obtained to work out the best land ownership structure for the business undertaking. It is then common for the farmer or grazier to set up an operating entity (again, a private proprietary limited company or a private discretionary trust) that will carry on the agribusiness from the real estate. This structure results in a property entity and an operating entity. There are tax, accounting and risk mitigation reasons for separating the two entities. These entities will usually have an agreement between them regarding the use of the land and the allocation of risk, responsibilities and profits. Succession planning is also an influencing factor in these structures.
For larger corporate investments in rural enterprises, the corporate entity in which the farmland will be held is, again, usually driven by tax and accounting considerations.
The usual land tenure concepts in Australia are freehold and leasehold.
Land title creation and ownership is managed by each state and territory under the applicable laws for that state or territory.
Larger rural properties often have a mix of leasehold and freehold land tenures across their land holdings.
Leasehold land holdings are usually Crown or government leasehold grants, as opposed to private leasehold agreements with private landowners. In Australia, the tenant-farming model from private landowners is uncommon. Farmland is usually purchased in freehold by the farmer or grazier or, where freehold is not available, leased from the Crown or government.
The Torrens title system of land title creation and registration exists in all states and territories in Australia. Freehold and private leasehold land interests are created and managed under this system. Its main function is to create indefeasibility of title upon registration of the interest in land, under the relevant state or territory property laws.
Leasehold land interests in Crown or government-owned land are governed by the relevant state, territory or Crown land laws.
Freehold landownership of farming land or land for agribusinesses is common and well understood. It is the same as freehold landownership for houses and commercial buildings. The difference is the zoning laws applicable for that parcel of land. The zoning laws, either state or territory based, or based at the local council level, specify the permitted land use of that parcel of land and whether approvals are needed to change or modify that use or carry out development consistent with the permitted use.
Leasehold landownership of farming land or land for agribusinesses is also common and well understood. However, the types of leases are many and varied. For example, in some states there are:
- perpetual leases: These are granted in perpetuity of an annual rent with rights to convert to freehold at certain points in time;
- pastoral leases: These are a particular type of leasehold tenure that allow Crown land to be used for grazing stock;
- Crown roads and enclosure permits. These concern the right to exclusively use tracks of land that were previously stock routes or Crown roads; and
- Western lands leases or leases with environmental restrictions: The primary purpose of these leases is to ensure appropriate land administration and land management, as the land is usually in a very fragile and sparsely populated area.
Interestingly, by world standards, the land under the NSW Western Lands Leases is regulated by one of the oldest pieces of resource management legislation, having been created in 1901 and specifically requiring resource management of the land.
Native title in Australia must also be considered when reviewing agricultural property ownership and use.
Native title is the recognition of the rights and interests of indigenous Australians and Torres Strait Islander people in matters of land and water in Australia.
Prior to 1992, Australian common law did not recognise native title in Australia. However, the Mabo case (Mabo and Ors v Queensland (No. 2)) resulted in the recognition of land rights from the time of European settlement. It is interesting to note that the High Court of Australia did not define what native title was: it said that these rights could exist where the indigenous people have maintained their traditional connection with the land and where no act has extinguished their rights over the land.
Native title allows indigenous Australians to continue to practise their traditional laws and customs; however, it can only exist in areas where it has not been extinguished previously. It is not possible for native title to take away anyone else’s valid rights, so native title has been extinguished on privately owned land (including residential and commercial land), certain other landholdings and leases, and other government areas, such as schools and roads.
Native title can exist in areas such as vacant state land, forests, beaches, some types of pastoral leases, national parks and reserves.
In most cases where a successful native title application is made, the land that is the subject of the application will be shared by the holders of the native title and other occupiers. Native title will not necessarily have an impact on all primary producers and rural land holdings. The High Court’s decision in the Wik case (The Wik Peoples v State of Queensland and Ors) held that native title is not necessarily extinguished by pastoral leases and can coexist with the rights of some leaseholders. Certain leases may be ‘exclusive’ leases and would, therefore, extinguish native title. If a lease is not exclusive, then the land may be claimed in a native title application. However, native title claimants cannot claim exclusive possession of the lease area. If native title rights and leaseholders’ rights conflict, then the rights of the leaseholder prevail. In conveyancing, it is always prudent in due diligence to check the native title register of the National Native Title Tribunal to ascertain whether there are any claims in connection with the subject land.
For agricultural land uses, there are often share-farming agreements, agistment agreements, private or personal lease or occupancy arrangements, and licences to consider. Many share-farming or private lease agreements are oral and are deemed to be periodic tenancies. It is, therefore, preferable for these agreements to be in writing between the parties to give certainty as to the intended terms.
If a purchaser is made aware of a share-farming arrangement or agricultural tenancy that is not in writing, the purchaser should require the arrangement or tenancy to be put in writing, preferably before entering into the transaction document (with appropriate assignment clauses) or, in any case, before completion.
Agricultural tenancies can be used for:
- pig farming;
- poultry farming;
- growing of vegetables or other crops of any kind;
- forestry; or
- any combination of these activities.
Agricultural tenancies can involve:
- a written lease or licence;
- a tenancy at will (a verbal or ‘handshake’ agreement);
- a share-farming agreement; or
- any other arrangement by which a person who is not the owner of the farm has the right to occupy or use it.
The basis of a share-farming agreement is that the owner will supply the land and assets, but probably not the machinery. The share-farmer provides the labour, expertise, fertiliser if necessary, the machinery and the marketing for the sale of the produce if necessary. The appeal in this type of agreement is that the owner of the land benefits from receiving income for no physical work. If the season or prices are bad, the share-farmer as well as the owner will suffer a reduction in income.
Generally, the term of a share-farming agreement is at least 12 months and often longer, but it is possible to have a shorter term agreement (eg, lucerne hay baling season).
Access rights, easements and other interests in land
A search of the land title (whether freehold or leasehold) will show other registered interests in the land, including easements, rights of way and restrictions on use.
Another issue to address when acting for either a vendor or a purchaser is what access is available to the property and whether it is a legal access or access that is personal and can be terminated and to what point. Sometimes, what vendors who have owned property for a very long period of time, perhaps for generations, believe to be a legal access to a property is in fact access across a stock route or through a neighbour’s land parcel, and found not to be legal access at all.
The lack of legal access can cause problems, and it is not unusual to discover that the farming lands are physically landlocked once such access is removed. That is often because the legal access - usually from an inconveniently placed public road on the ‘other side’ of the property - has not been used for a long time so has been fenced closed or used for other purposes. It is extremely important that legal practitioners ascertain that the access to the property is a legal access by way of a formed or public road.
Checking the currency of any registered easements or rights of way or a carriageway is also important as many are often found to be redundant and can be removed from title.
The actual area of the property being purchased should also be clarified, and this may require a formal survey to be undertaken. This is important when the purchase price is being negotiated (or at least calculated in the first instance) on a dollars-per-acre or dollars-per-hectare basis for certain arable land or at different rates for different land uses across large holdings.
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