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Need some legal advice please
Old 01-18-2008, 03:02 PM   #1
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Need some legal advice please

In 1992 my sister and I each inherited half of a small family farm in Iowa. We have a tenant farmer that lives on the place and have a signed legal farming agreement between the three of us which includes (the way I read it) a first right of refusal clause.

Just recently my sister has decided to convert her acres into Vodka and I just received a certified letter reading:

"In pursuant of adhering to the guidelines of a farm operating agreement entered into the year 1992, I hereby give official notice of my intention to sell my portion of the farm located in Harrison county Iowa. This person (my name) and this person (tenant farmers name) have first option to purchase. I request a response by certified mail within 30 days of this notice."

My question is.....doesn't first right of refusal mean that she has to have an offer to buy and then the tenant farmer and I each have the option to buy at the offered price?
Here is the exact wording on the agreement:

No Farm Owner or the Tenant shall dispose of or encumber any part of the Farm Land subject to this Agreement, except under the following conditions:
  1. The party desiring to dispose of or encumber his or her interest in the Farm Land must obtain the written consent of all the other Farm Owners and the Tenant.
  2. In the absence of such written consent, no Farm Owner or the Tenant shall encumber or dispose of any part of his or her interest in the Farm Land subject to this Agreement, now owned or hereafter acquired by them without first giving written notice to the remaining Farmer Owners and the Tenant of their intention to sell an interest in said Farm Land. The remaining Farm Owners have the first right of refusal to buy said Farm Land within thirty (30) days of the mailing of the Notice at a purchase price no higher than the fair market value of the land. If the remaining Farm Owners and/or the Tenant do not indicate in writing that they intend to exercise the option to purchase within the time described in the previous sentence, the Farm Owner may sell his/her interest on the open market. If sold on the open market the Buyer shall not be bound by this Farm Operating Agreement unless the Buyer elects to be bound by the terms of this agreement.
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Old 01-18-2008, 03:13 PM   #2
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Not an attorney here, but I think condition #2 requires her to give you written notice of her INTENTION to sell -- doesn't say anything about her having an offer at the time of notice. You then have 30 days to exercise the right to buy at a purchase price no higher than the fair market value of the land. If you choose not to exercise, she may sell her interest on the open market. If she sells her portion of the farm, the new buyer is not bound by the agreement, unless they want to be.

If I misinterpreted this, I'm sure Martha or another legal beagle will be along soon. (I suggest you talk to your own lawyer asap.)
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Old 01-18-2008, 04:48 PM   #3
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Thanks for the reply.....and let me apologize for the misspelling of the word "legal" in the topic title.....all thumbs here.

I was searching around and found this concerning "first right of refusal":

"In this situation, the owner is first obligated to offer their property for sale to the holder of the First Right of Refusal at the exact price and terms contained in the offer they've received. The holder of the First Right of Refusal can then either agree to purchase the property under the same terms and conditions, or decline and allow the other buyer to move forward and complete the purchase."

I'm thinking she may have it confused with a "right of first offer".

A "right of first offer" requires the owner of a property to let the rightholder make an offer to purchase the subject property; if the owner rejects that offer, the owner can sell the property to a third party only at a price above the one offered by the rightholder."

Not sure how to respond to her letter....if at all.
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Old 01-18-2008, 04:53 PM   #4
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Thats a funny pair of conditions. Unclear why the document would require the written consent of the other parties, then in the next breath make that requirement irrelevant.

My guess is that you and your sister would have to agree to a neutral 3rd party to determine "fair market value" for the property, then you could pay her that much and own it.

Does the document specify how such things (getting an appraiser) are to be managed...by binding arbitration for example? If not, you'll probably need a lawyer, get the ball rolling on some kind of arbitration to choose an appraiser, get the appraisal, deal with your sister disagreeing with the appraisal, and eventually agree to some sort of price in the ballpark.

Or if you do nothing for 30 days past receipt of the letter, she can sell it to anyone and your agreement wont bind them in any way. They could their portion into a sewage treatment plant, raise an apartment building, or anything else that the zoning and local laws allow.

And it looks like these conditions also only give you 30 days to execute the purchase once you've been notified.

All in all a very loose bunch of legalese. The lawyer who drew it up left way too much stuff open for interpretation.
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Old 01-18-2008, 04:53 PM   #5
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Not sure how to respond to her letter....if at all.
I'd highly recommend you consult with a local attorney rather than trying to go it alone. The few bucks you spend on atty. fees could save you big $ and real problems down the road.
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Old 01-18-2008, 05:10 PM   #6
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I agree with those who say get an attorney. The lawyer needs to look at the entire agreement, not just a couple of provisions.
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Old 01-18-2008, 08:39 PM   #7
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I thank you all kindly for the feedback. It's been very helpful. Looks like I'll be needing to visit a lawyer with this matter. There is nothing in the document concerning how an appraisal should be done.
Long story....but if she sells to someone unwilling to to join into the farming agreement as it is now I may be forced to sell my half also. It all has to do with the way the overall place is laid out.
This farm has been in the family since 1873. Alcohol is an amazing drug....

Thanks again
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Old 01-19-2008, 09:04 AM   #8
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You attorney may have you put the farming agreement of record so that it is binding on purchasers.
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Old 01-19-2008, 09:34 AM   #9
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You attorney may have you put the farming agreement of record so that it is binding on purchasers.
Not quite sure I understand Martha. Reading the last line of the agreement: "If sold on the open market the Buyer shall not be bound by this Farm Operating Agreement unless the Buyer elects to be bound by the terms of this agreement".
Maybe I'm missing something?
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Old 01-19-2008, 09:50 AM   #10
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Its tough to tell based on just seeing that one small part. Unless thats all it says about the matter of selling.

If I was your sister and wanted to be a weasel, I'd have a guy give me an offer of 328 brazillion dollars for my share. I'd notify you in writing. You might choose to engage in some legal wrangling to show that 328 brazillion dollars is not fair market value. Once we've gone around the horn on that and the 30 days expires, I'd then go ahead and sell to the highest available offer.

All she really has to do is get past that 30 day exclusionary period without a judge setting that requirement aside or resetting it for some reason.

Is this a valuable property? Reason why I'm asking is that its starting to sound like a solid 5 figure lawyer bill is on the horizon. Maybe trying to buy it from her or both of you selling your interest will be a more financially appealing solution. Of course, if its a million dollar+ property, and theres sentimental value...
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Old 01-19-2008, 10:32 AM   #11
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Thanks CFB....yes, that's all that's said as far as selling. The rest of the contract just has to do with our and the farmers responsibilities relating to the farm.
I've let her know (last night) that I consider her letter of intent as just that.. "intent".... and that once she has an offer I expect to see a copy of the offer (in writing) so that I then have the option to buy at that price or pass.
I'm really in no position to take on this kind of debt right now. A realtor has suggested she might get close to 700K. Our tenent farmer (who also knows his stuff) is thinking 450 to 500K tops. He also has a friend who is thinking of making an offer and staying with the farm agreement.
If she sells to someone agreeing to our existing contract then that would work for me and the tenant farmer. If she sells to an "outsider" I expect I would opt to sell with her.
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Old 01-19-2008, 10:40 AM   #12
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The figures are $200,000 to $250,000 apart -- that's a pretty wide spread. No offense to your tenent farmer, but he may be low-balling you to help facilitate the sale to his friend. I'd definitely get an experienced attorney to take a look at the agreement as soon as humanly possible...it's worth the cost given the size of the transaction here.

An experienced farmland appraiser would come in handy right about now too.

This is just sad, considering the farm has been in your family for 135 years.
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Old 01-19-2008, 11:42 AM   #13
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The figures are $200,000 to $250,000 apart -- that's a pretty wide spread. No offense to your tenent farmer, but he may be low-balling you to help facilitate the sale to his friend. I'd definitely get an experienced attorney to take a look at the agreement as soon as humanly possible...it's worth the cost given the size of the transaction here.

An experienced farmland appraiser would come in handy right about now too.

This is just sad, considering the farm has been in your family for 135 years.
I think what might have happened with the price difference is that she called (from Texas) a realtor in Iowa and said "I've got "X" acres of farmland I want to sell" ....he then probably gave her an estimate of what top cropland was selling for per acre. She was intoxicated with excitement over this....no pun intended.
What she (and maybe the realtor) doesn't understand is that about half of her acres (and mine) are in pasture and timber as we raise cattle as well as crops. Our farmer rightly pointed out to her that pasture land prices were far below top crop acres.
I've met the friend who is interested in buying. He hunts deer and is very familiar with the place. I personally would have no problem with him in on this partnership if he can swing it. Our farmer has lived on the place since he was old enough to drive a tractor and his dad farmed it before him. His fear (and mine) is that an outsider will buy her acreage and then go in and take down all the timber and pasture to turn it into cropable land. This would essentially destroy the farm because of the way the lots are laid out....again, long story and hard to explain.

I agree the whole thing is sad.....and really not neccessary. It pays it's own bills and always shows a nice net profit. Now that grain prices are up it should be better than ever.
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Old 01-19-2008, 12:21 PM   #14
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Not quite sure I understand Martha. Reading the last line of the agreement: "If sold on the open market the Buyer shall not be bound by this Farm Operating Agreement unless the Buyer elects to be bound by the terms of this agreement".
Maybe I'm missing something?

You'll have to talk it over with the lawyer. From this brief quote, it sounds like it would not be binding, which is somewhat unusual and leads to all sorts of other issues. (Like, what happens if the property is sold in the middle of the growing season. . . )
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