Buying or selling a kiwifruit orchard is a significant transaction and it is important that you obtain the right legal, accounting and industry advice, and carry out comprehensive due diligence before proceeding.
Finance and Structures
Before preparing an offer to purchase a kiwifruit orchard it is important that you talk with your bank early on in the process to confirm the level of funding available to you before you commit to the costs of undertaking due diligence and establishing ownership structures. It is critical that you obtain good legal and accounting advice in relation to the ownership structures for the new venture as the structure and entities that you use to purchase the orchard and/or operate the orchard business can come with different taxation and asset protection implications.
Review of the Agreement for Sale and Purchase
When you find a kiwifruit orchard which you are interested in purchasing then it is critical that you get legal advice in relation to the agreement for sale and purchase. If the property is being listed by a Real Estate Agent (Agent) then it is usual for the owner’s lawyer to have prepared the agreement for sale and purchase in conjunction with the Agent and for the Agent to make a copy of that agreement available to you. The terms of the agreement will usually have been prepared with the owner’s interests in mind, so it is important that you have the agreement reviewed by your advisors to ensure that your interests are protected. This review can be undertaken before you make your offer or after your offer has been accepted whilst the agreement is subject to a comprehensive due diligence condition.
LIM Reports and Council Records
It is best practice to obtain a LIM Report as a part of your due diligence enquiries to confirm that there are no natural hazards, contamination, or Building Act and Resource Management regulatory issues affecting the property. If the purchase involves a dwelling or other structures, building inspections should be undertaken to ensure that the buildings are free from damage or defects. If there are staff houses or rental properties then those dwellings should comply with healthy home standards for rental properties and bringing these dwellings up to the required standards can be negotiated with the owner.
Review of Land Titles, Resource Consents and Water Supply
The land titles for the kiwifruit orchard and registered instruments such as easements or land covenants should be reviewed either prior to making your offer or under a due diligence condition. In particular, you need to ensure that the property has the benefit of all easements that are required to access and provide services to the property. The supply of water for irrigation and frost protection is essential for the operation of a kiwifruit orchard and it is critical that the property has the legal right to take and use the water that is used in the operation. Any resource consents to take water, whether by bore or from surface water, need to be checked and warranties included in the agreement in respect of the owner’s compliance with resource consent conditions. Bore and other water supply infrastructure should be checked, and any required maintenance undertaken. If the water source is not situated on the property, or the water supply infrastructure crosses a neighbouring property, then the title must be checked to ensure that the property has the benefit of easements giving the legal right to take water across that neighbouring property. Water quality testing may also be a consideration as low-quality water or the presence of certain minerals may have a detrimental effect on orchard production. These matters should be checked and expert advice obtained before you confirm the conditions under the agreement.
GST and Purchase Price Allocation
On 1 July 2021 new purchase price allocation rules came into effect which allow the vendor of a property sold for $1M or more the first opportunity to decide the price allocation that will be used in the parties’ tax returns unless the allocation is agreed between the parties. You should ensure that a purchase price allocation is included in the agreement and that the ascribed values are approved by your accountant before completing your due diligence. Your accountant should also review the GST information in the agreement to ensure that the GST treatment is correct, including the values being ascribed to GST exempt supplies such as dwellings and curtilages.
Zespri Shares and Gold Licences
Zespri shares may be available to be purchased from the owner and consideration should be given to purchasing these shares in order to obtain voting rights in Zespri and the entitlement to dividends paid on the shares. If the orchard is a Zespri Gold variety orchard then the licence to grow the kiwifruit will represent a significant component of the purchase price and must be transferred to the purchaser by the owner on settlement of the sale and purchase. Some orchards may be used for new cultivar trials and it is important that the contracts recording the terms of these trials are reviewed as a part of your due diligence. The KPIN for the orchard will also need to be transferred to the purchaser on settlement.
Another critical detail is the status of the crop, whether just picked or still on the vines, and the ownership of that crop on settlement. The agreement for sale and purchase should clearly record who is entitled to the crop, and to receive the proceeds from the sale of the crop. The status of, and entitlement to the crop can have taxation and cash-flow implications for your orchard business and you should obtain accounting advice in respect of these issues before proceeding.
Other Matters to Consider
Other matters to consider include:
If you are interested in buying or selling a kiwifruit orchard, please contact Michael O’Hagan or someone from our team so that we can assist you with getting started on the process.
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