Partnership Farming/land ownership - some questions before entering in

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Sheffo's picture
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Partnership Farming/land ownership - some questions before entering in

G'Day all, I hope everyone is well.

A very close mate and I have both been looking for properties (approx 200-400 acres) in the Burnett / Darling Downs / East Maranoa regions of QLD.  

Both of our goals are to run a small cattle farm to supplement costs, and have a weekend getaway as a bonus.  

Since we have similar goals, we have decided to go in together and purchase a slightly larger property than each of us would have solo.  This will possibly allow for more cattle eventually, whilst sharing costs of transport/vet etc.

A relative already runs cattle on a nearby property and has given us advise already, and my mate's brother in-law owns a massive cattle property in NQ and has also offered valuable advise.  

My one concern is that nothing divides mates like finances.  And as such, i want to get all possible outcomes (within reason) on the table before we venture down this road.  

Issues like exit strategies in the event that one of us strikes financial hardship.  Dividing costs of upkeep - and solutions if one party is unable to contribute at the time.  

We will be getting legal advise of course, and an agreement will be written and signed by both, so in the event of a dispute we can refer back to it and try and avoid any conflict.

My question to the forum is --  What sort of situations should we be including in such an agreement??  Can anyone recommend some situation that should be addressed and outlined early on that relate specifically to rural property??

There are of course the obvious few situations.  But naturally, we cannot pre-agree upon situations that we could not foresee.  And with both of our limited experience, I'm sure there is quite alot the we can't foresee.

 

Thanks in advance.

Kaz
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Hello

In all honesty, I think you answered the question yourself, "Nothing divides mates like finances", I would put serious thought into an ironclad agreement before any purchase as attractive or thought out plan as it may seem.

What if one was to lose a job and become bankrupt? What if there is a disagreement over product usage or profits? What happens when you go up there for a working weekend but all your mate wants to do is drive around shooting foxes but the fences are down?

Exit strategies are normally to sell the property and break even or one buys the other out, there is also the possibility of your friend selling his share to someone you don't know or who doesn't share your interests? What if you find him in bed with your missus?

As for management of stock advice, I think you should invest the advice of one nominated person/relative only as this can also bring conflict to the partnership.

There are a lot of "what if's" but at the end of the day, it's an unbeatable lifestyle and I reckon you should go for it.

 

 

charlie's picture
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Joined: 31/05/2011 - 9:44am

Hi Sheffo,

I agree with you 100% to get something in writing before you commence and as a back up in case anything was to go wrong. A  memorandum of understanding (MOU) which is none binding would probably be sufficient (save on the cost of a solicitor), you can get a draft template off the internet. If everything is in writing there is no chance of confusion or ambiguity with any verbal discussions. Some of the situations that should be covered include:

- What business structure will you use, partnership or company?

- How will the cash flow for the farm work, will you both put in cash or will an overdraft be required?

- How will profits will be split and or if there is a short full in cashflow who will cover it?

- If one partner wants to sell out, will the other partner have 'first right of refusal', prior to it going on the open market?

I would encourage you involve your accountant in these discussions prior to putting anything in writing.

Regards,

Charlie

rosebooth's picture
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How will the cash flow for the farm work?

MalFarmStyle's picture
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Joined: 02/06/2016 - 11:49am

An option: buying properties that are next door or close to each other with an option of sharing some equipment and facilities and labour would allow for individualism as well as sharing the lifestyle with a mate.

 

Keeps it simple and considerably lessons the chances and consequences of the risks of a breakup.

 

Challenges:

1. Finding a suitable property or properties.

2. Writing up a “memorandum of understanding” that all parties (including partners) are happy with.

3. Draw up a business plan which should contain a risk management section.... this should include: conflict resolution and exit strategies for any agreements you have.

 

Another option is to buy a property with a couple of titles and split ownership: complicated to do and I really don’t recommend it unless an ideal property came up for doing this.

 

Remember your aims:

Enjoy the mateship.

Enjoy the farming.

Maximize the use of resources.

barra's picture
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Joined: 07/11/2012 - 4:02pm

Why not set up a trust?

With an administrator/trustee.

One set of a/c's, a trustee to oversea disputes, tax effective and future proof in case of

sickness/breakup or death.

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