The transfer of a farm can take the form of a total sale, or a partial or total lease of the buildings. A lease may also be required in a situation where the future farmer is unable to finance the purchase of the entire farm.
In this article, we explain the advantages and disadvantages of choosing between selling and leasing the land, farm buildings and dwelling house.
A lease of land is subject to the status of fermage (or rural lease). This is a very rigid legal contract that leaves little freedom to the owner (the lessor) and the lessee (the tenant or farmer).
Setting up a farm lease on the land reduces the amount to be financed for the future farmer and generates income from the land for the owner. This income will supplement a farm pension that is often considered too low.
By keeping the land on your property, in addition to the rental income, you will eventually benefit from an increase in the value of the land.
The risk of a bad tenant is generally low. While there is a risk of non-payment, the risk of deterioration leading to a loss in the value of your property is virtually non-existent. It is therefore a very protective investment.
Leasing is a transaction that is not subject to the SAFER's right of pre-emption. It is a risk that is avoided for the buyer of your farm. The subsequent sale to your farmer will also be exempt from the SAFER's right of pre-emption if the lease is at least 3 years old.
Leasing also means that you can eventually take over the leased property to run it yourself or for one of your descendants. This is a specific provision that we describe in our article on taking over leased land.
Leasing can help you speed up the transfer process. The higher the sale price of a farm, the more difficult and therefore often longer it will be to find a buyer. By reducing the asking price, leasing can save you time.
Finally, if you take out a long-term lease, you can benefit from a reduction in inheritance tax and wealth tax.
This allowance is as follows:
Leasing your property is therefore an option that can help you significantly reduce the tax payable on an inheritance or gift.
If your farmland is rented out, it can be much more difficult to sell. The farmer has a right of first refusal, which can scare off other would-be buyers. What's more, a third-party buyer would become the owner of the land under a lease, receiving rental income but with no certainty of ever being able to farm it himself.
This situation makes resale more difficult and usually results in a discount on the value of leased land compared with unleased land (around 20% on average).
In addition, farmland rents are generally quite low, as they are governed by minimum and maximum rates set at departmental level. Returns, generally between 1.5% and 3%, may be lower than for other investments such as conventional rental property.
Income from the rental will be taxed as property income and therefore subject to income tax and social security contributions. Investing the capital in a life insurance-type investment, for example, could generate tax-free or very low-tax financial income. Not to mention total exemption from property wealth tax.
Finally, while land can increase in value over time, it is generally an asset that tends to lose value in periods of high inflation. Between 2011 and 2023, land prices rose by just 16%, while inflation over the same period was 24%. Farmland owners have therefore actually lost 8% of their value in 12 years.
The advantages and disadvantages of renting land naturally apply to farm buildings, which are also subject to rural lease regulations.
When determining the rental amount for a farm building, it is important to comply with the arrêté départemental de fixation des fermages.
We are therefore only presenting the advantages and disadvantages that are specific and complementary to those of land.
Farm buildings can weigh heavily on a takeover. Taking out an agricultural lease can reduce the purchase price for the project owner, making it easier for them to set up in business.
Some buildings may be located in the immediate vicinity of your home, which is not included in the sale. By retaining ownership of these buildings, you protect yourself from investments made by the farmer that could affect you or the value of your property.
Renting out farm buildings presents very specific risks for the owner.
First of all, tenant farmers may not maintain buildings that do not belong to them properly. They will also have little incentive to invest in these buildings, making them progressively less suitable for their activity. These two factors will lead to a greater or lesser loss of value over time.
If your tenant invests in the buildings, you may have to pay him compensation for the improvements at the end of the lease. This is often a source of conflict between farmer and lessor.
Lastly, while the tenant is responsible for building maintenance costs, the owner is responsible for structural costs, which can be very high.
Except in special circumstances, it is generally advisable to sell the buildings to the new owner of the farm rather than opt for a lease that will not satisfy either party over the long term.
The positive and negative points of renting land and buildings also apply to the dwelling house or farmhouse. We will therefore only present the specific points.
As a tenant, the farmer will be entitled to housing benefit, which secures the payment of rent for the landlord and helps the tenant to balance his or her finances.
The trend in property prices is very different from that for agricultural land. This means that you can look forward to a gradual increase in the value of your property, from which you will benefit when you sell later.
Unless your tenancy is a rural lease, you can terminate the tenancy at the end of 3 years (with 6 months' notice) or when you wish to sell the property.
If the rental of the house is inseparable from the rental of the land and buildings, then it comes under the regulations governing rural leases (with capped rents) and not residential leases (with free rents). The loss of rent can be significant, depending on the département.
As a property owner, you may have to make investments in energy renovation, insulation or electrical standards, etc., which can be significant.
If your transferee is experiencing difficulties with his business, he will certainly also have difficulty meeting his rental payments. Renting out land, buildings and a dwelling at the same time will expose you to a major risk to your income and capital if your tenant runs into difficulties.
As with farm buildings, it is often preferable to sell the dwelling house rather than rent it out.
The choice of whether to sell or rent is often a very personal one, linked to your attachment to the land and the farm. However, it is important to consider all the advantages and disadvantages of each situation.
Although renting out farm buildings and a dwelling house can be a successful way of transferring ownership, it has far greater disadvantages for both the farmer and the lessor. Unless you are in a special situation, we advise you to opt for a sale rather than a lease of the buildings.
Here are some additional resources we have put at your disposal to provide you with all the information you need for your transfer project.
