The case has been exposed in previous articles (The case to put it in writing and Farmland leases: get it in writing) for putting all agricultural contracts, including land leases, in writing, rather than relying on the traditional “handshake agreement.” This article looks at farmland contracts and some important things to consider when putting them in writing.
A land contract is an agreement for the sale of property (and not just vacant land). It is sometimes mistakenly thought of as a “rent-to-own” or “lease-to-own” arrangement because the payments are spread out over a period of time. However, to be clear, a land contract is a binding contract to purchase the property. The buyer or “seller” under a land contract agrees to make installment payments against the purchase price and complete the purchase at the end of the land contract period. The seller or “vendor” effectively acts as the buyer’s lender, agreeing to have the property paid in installments in exchange for also being paid interest on the purchase price, which is included in each installment payment.
Doubts about putting a land contract in writing should be put aside in light of Michigan’s “fraud statute.” This law requires certain real estate agreements, including land contracts, to be in writing in order to be considered valid. As such, one party to a southbound verbal land contract may find it difficult, if not impossible, to enforce the terms of the land contract against the other party.
Land contracts typically run for several years. As such, they must detail the various obligations of the parties with respect to the property during that period. For example, a land contract should define who is responsible for paying annual property taxes and assessments, maintaining property insurance, and handling any other property-related expenses that may arise. The land contract should also clearly state the parties’ respective rights to use the property, such as the right to farm the property or lease it to others to farm, while it remains under the land contract. In addition, the land contract must specify the responsibility of the buyer to maintain the property in the event that the sale is not completed, as well as the responsibility of the seller to title the property if the land contract is successfully concluded.
A land deal can be an attractive option for someone looking to purchase a farm property that is unable to obtain sufficient financing from a lending institution or is able to obtain a better interest rate directly from the seller. However, a buyer of a land contract should note that the seller may have the same foreclosure rights as a traditional lender if payments are not made or other terms and conditions of the land contract are not met. Typically, the seller of a land contract will have the proceeds of forfeiture, in which case the seller keeps all payments already made and retains the property, or foreclosure, in which the seller seeks full payment. of the land contract.
All agricultural contracts must be in writing. This is true for leases that allow temporary use of farm property, and it is certainly true for contracts for the purchase and sale of farm property.