With a contract for deed sale, the landowner sells the land on contract over the course of several years to a beginning farmer, who makes periodic payments with interest over that period of time. The terms of the contract can include specific language about conservation standards and/or allowable agricultural practices, similar to provisions that might be spelled out in a long-term lease.
A contract for deed sale may be of interest to beginning farmers who are unable to obtain financing from more traditional sources. In addition, a seller/landowner could consider assisting a beginning farmer by offering more favorable terms than a bank, such as a lower interest rate or lower down payment. A potential financial benefit to the landowner is the ability to spread any capital gains tax from the sale out over many years.
A contract for deed arrangement tends to work best between a seller and buyer that have a solid and trusting relationship, since there are many risks involved for both parties, particularly the buyer. Title to the land is held by the landowner until the final payment is made, and none of the payments up to that point count toward equity in the farm for the purchaser; defaulting on the loan means forfeiting all previous payments.
The USDA Farm Service Agency offers a Land Contract Guarantee Program. If the buyer misses payments, the seller is protected from loss. The program is intended to make landowners more willing to take the risk of selling their land to a beginning farmer.
- Contract Land Sales. 2012. National Sustainable Agriculture Coalition
- Frequently Asked Questions on Contracts for Deed in Minnesota. 2012. Farmers Legal Action Group (FLAG)
- Installment Sale Contracts for Beginning Farmers. 2011. Partnership for America’s New Farmers. Drake University and Drake University Law School. http://americasnewfarmers.org/installment-sale/
- Land Contract Guarantee Program. Farm Service Agency, USDA