This is a farmer-contributed post in our “From our farmers” series, written by Emily Cooper of Full Cellar Farm, who is enrolled in our Farm Incubator Program. In this piece, Emily explores three different ways farmland can be passed from one owner to the next.
As I finish up my third year at Headwaters, I have naturally started thinking about what comes next. Although my husband’s off-farm job makes it possible for us to get a conventional mortgage, the cost of land in the Willamette Valley is generally much higher than any loan (and resulting mortgage payments) we could afford. Leasing land, while attractive for financial reasons, frequently comes with strings attached, and presents the possibility of friction with a landowner-landlord who doesn’t fully understand what it means to share their property with a working farm.
For those reasons, I have felt a little bit stymied by the options open to me. Earlier this month, though, I had the chance to attend a session on non-traditional ways to secure land tenure at the Women in Sustainable Agriculture Conference. After the skillful presentation of Carrie Scrufari of Vermont Law School, I left with my head full of possibilities, questions, and a little more hope for the future of my farm.
Scrufari outlined three ways that farmland could be passed from one owner to the next in ways that might be easier for new farmers to handle. These ways are ground leases, LLCs, and easements. I’ll describe each one briefly below. I also want to mention, as Scrufari did, that land transfers can use more than one of these tools at a time, and that each situation calls for unique agreements. Also, I’m a farmer, not a lawyer. So, you know, do your homework.
The basic idea of a ground lease is that the person(s) I will call “the new farmer” buys the buildings (houses, greenhouses, barns, etc.) from the existing landowner, but not the land itself. The existing landowner retains ownership of the land, leasing it to the new farmer in a long-term (think 99-year) lease. This is a popular scenario when the land owner is a land trust1, but private landowners might also consider it. For example, a landowner that is considering retiring might want to do something like this so he or she can retain ownership of one house on the property and continue to live there.
Ground leases are usually assignable and inheritable. Assignable means the terms of the lease can be passed on to a third party; inheritable means they can be inherited by the landowners’ and/or new farmer’s heirs.
Many people are familiar with the LLC (limited liability company) as a business structure that provides some measure of protection for the assets of a small business owner who doesn’t want to incorporate. Most farmers I know have businesses that are either sole proprietorships or LLCs. This version of the LLC, though, uses that business model as a transition tool to pass ownership of a property on to our “new farmer.” In some ways, it’s similar to a lease-to-own situation, except that it allows the new farmer to gain equity in the farm as the years go by.
In the simple example that Scrufari illustrated, the landowner and the new farmer would create an LLC with 100 shares, and would write an operating agreement outlining the transition plan. According to that agreement, in year one, the landowner would hold 90 shares and the new farmer would hold 10. Over the course of that year, either through money, farm products, sweat equity, or whatever else the parties agree to, the new farmer would gain 20 shares, so that by year two, they would own 30 shares and the landowner would own 70. In year three, shares would shift to 50-50, in year four to 70-30, and by the end of the fifth year, the new farmer will have gained total control of the LLC, effectively buying the (now former) landowner out.
An easement is a permanent legal agreement between a landowner and a land trust or governmental entity that dictates what must be done to the land, and/or limits the activities that are allowed on the land. In making that agreement, the landowner keeps the property but sells the rights to do some things to it, such as subdivide or develop it. Easements are usually permanent (“forever”), but they can also be termed (time limited). They go with the land, even as it passes from owner to owner. In Oregon, easements are typically for conservation, so the landowner usually has some responsibilities, such as maintaining wildlife habitat or riparian areas. Some states, including Oregon, also allow for agricultural easements, which would require that the land be maintained for agricultural uses.
Easements can be a good tool for new farmers with limited resources (in other words, most new farmers) to afford a piece of land that would otherwise be out of their reach. Land that has no development rights has a lower value on the real estate market, so the price will be lower than if such easements were not in place. As a transition tool, the easement could be sold either before or after the transfer takes place. The former landowner could sell an easement to a land trust and then sell the land, at its lower value, to the new farmer. Alternately, a land trust could purchase the land at market value from the former landowner, create an easement on it, then sell the property with the easement to the new farmer. A third option for a lucky farmer might be that a wealthy benefactor could purchase the property outright, sell or donate the easement to a land trust, then sell the land to the new farmer for the lower price. In any of these cases, the result would be that the farmland would pass to the new farmer with restrictions for use, but at a below-market price.
Equity Trust is a non-profit organization based in Massachusetts that has been working on tools and resources for farmland transfer through non-traditional means, as well as sometimes providing loans to grease the wheels of the transfer. Their website, equitytrust.org, includes explanations and model legal documents, as well as several case studies of situations where they helped facilitate a land transfer from one owner to another. In her talk, Scrufari highlighted one of these case studies, a complicated agreement that used easements, ground leases, and community fundraising to ensure that Caretaker Farm in Massachusetts would pass from one farm couple to another while also remaining a CSA forever.
One downside to these non-traditional land transfer tools is that they will almost certainly require a patient and willing landowner who cares about their land and wants to work with a new farmer to ensure their property becomes or stays a farm. The organizational details are also daunting.
But there are many upsides as well. It’s encouraging to hear these stories and find out how much more is possible beyond simple mortgages or land leases. Tools like these can help bring permanent land tenure within reach of farmers who do not have a lot of resources to get on their own land. And they provide small, sustainable farms with a unique opportunity to solidify community support for their farm and help conserve our dwindling supply of farmland.
1 My rough definition of a land trust is an organization, usually a non-profit, that seeks to conserve land by either buying it or buying the development rights for it, generally to keep it in a wild or undeveloped state.