Q: My husband has passed away, and our kids are not interested in continuing our ranch operation. Eventually, I will have a large parcel of land to sell or lease. Do you have suggestions on buy-sell or lease agreements for widows? Your articles assume the reader is a farmer; I’m the landlord and need to make good decisions.
A: Assuming the ranch is still operating much like it did when your husband was alive, you might consider selling it as a going concern or leasing it to an experienced or younger rancher. Or, you can liquidate the operation and sell or rent the land. Regardless of the options, make your choice based on your goals.
Each of the options offer advantages and disadvantages. The path you choose should be based on your goals, financial needs and risk tolerance. I encourage people to make decisions based on clearly defined objectives. Focusing on your needs and expectations will help you make the best choice. Questions to help you address your needs might include:
- Are you financially secure? Do you prefer to sell the land and invest the money rather than maintain ownership and collect a lease payment? Both options have risk and rewards. You’ll lean toward one or the other based on your confidence in the real estate market, the outlook of the ag economy and the qualifications of the buyer or tenant.
- If you live on the ranch, do you prefer to maintain your current lifestyle, or will you appreciate the opportunity to move? As you know, ranching and farming are lifestyle occupations; each has qualities that are not available in a metropolitan environment. However, rural living can be inconvenient in some ways.
- Do you want to mentor an aspiring rancher or work with an existing rancher to expand their operation? As a landlord, you represent an opportunity for expansion. Your experience and knowledge of the ranch’s history might be an advantage to the next generation. Electing to stay involved, even as a mentor, has numerous obligations.
- Are your heirs interested in maintaining a tie to the land? Beyond being an investment, your land might embody your family’s heritage. It might provide career opportunities for future generations.
Put it to paper. If you decide to be the landlord, for your sake as well as your tenant, make sure the lease agreement is in writing.
Like any other contract, a lease should include the terms and conditions of your agreement. It might also include stipulations for renewal and detail the responsibilities of both the tenant and the landlord—especially related to maintenance, taxes and other related expenses.
Both parties might be well served if your lease has the provisions of a buy/sell agreement or you write those provisions in a separate document. For the landlord, a buy/sell agreement ensures there is a ready buyer in case of death, disability or one of many triggering contingencies. A buy/sell agreement can spell out the terms of a future sale and might even reference a funding mechanism, such as life insurance.
As you explore your options to sell or lease, make sure the decisions you make do not compromise your financial security. Land is a property of value that can be used, traded or bartered for lasting security. It should not be compromised in a deal that leaves you vulnerable.
For more information on drafting a buy-sell agreement or reviewing your current agreement, visit www.FarmJournalLegacyProject.com/buy_sell
- March 2014