Are you considering buying an avocado orchard, or selling the one you have? If so, 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 an avocado orchard it is important that you talk with your bank early on in the process to confirm the level of funding available to you and that you obtain legal and accounting advice in relation to the ownership structures for the new venture.
Orchard Due Diligence
You should undertake due diligence into the production history of an orchard before proceeding. This should include reviewing packout reports supplied from the packer for the immediately preceding seasons – at least three – to identify the yield per hectare, average size of fruit produced, the percentage of class 1 avocados (export pack-out). You should also obtain from the vendor information about the last three years’ returns and the costs incurred in relation to the orchard.
The site for the orchard is also critical. The aspect, chemical soil attributes, physical soil attributes, temperature, exposure to wind (and therefore the presence of wind protection) and availability of water should all be considered. You should identify whether the extent of wind-breaks and the established irrigation infrastructure, and its condition, are sufficient.
Review of the Agreement for Sale and Purchase
Whether you find an existing orchard which you are interested in purchasing, or you are purchasing land upon which to develop a new orchard, it is critical that you get legal advice in relation to the agreement for sale and purchase before you sign. 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.
The status of the crop and the ownership of that crop on settlement is important and 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.
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 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 (if in an area with low summer rainfall) and frost protection is essential for the operation of an avocado 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. 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.
Other Matters to Consider
Other matters to consider include:
If you are interested in buying or selling an avocado orchard, please contact Michael O’Hagan or someone from our team so that we can assist you with getting started on the process.
⇣ Drag elements to your Custom Footer Container ⇣