Farm Machinery Purchase Agreements

Rincker Law Food & Ag Law Leave a Comment

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Buying farm machinery is a long term purchase and there are multiple ways to go about obtaining the equipment:

1. Outright Sale: An outright sale occurs when the ownership is transferred to the buyer and the seller is paid in full at one time.
2. Installment Sale: The buyer obtains immediate possession and use of machinery, but seller obtains payment on a set schedule.
3. Gradual Sale: This type of sale is when a line of machinery is being sold one or two items at a time.
4. Lease with Option to Buy: This option allows a party to lease the equipment for a set term and then purchase the equipment upon completion of the lease.
5. Lease with Gradual Sale: This option is for parties that are leasing multiple pieces of equipment and wish to purchase them during the terms of the lease.
6. Rollover Purchase: This type of agreement allows the purchaser to acquire new or nearly new equipment each year. The purchaser pays the difference between the price of the new model and the trade-in allowance for the old one. This allows the purchaser to have new machine that is generally still under warranty, thus eliminating cost of repairs. This type of purchase can also be used to purchase equipment that is one or two years older rather than brand new to save on costs.

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After determining which type of sale is the best option for you, you should look to determine whether the necessary terms are included in the agreement. Some terms that should be included are:

  1. Description of Machinery: The agreement should identify each piece of machinery including the make, model, and serial numbers.
  2. Delivery: The agreement should specify how delivery will be made, when, and where, including who will be responsible for any damage or loss during delivery. Buyer can require that acceptance not occur until he or she has had a chance to inspect the equipment.
  3. Title: Particularly for equipment that is being purchased in installments, the agreement should state when title transfers to buyer. For all equipment agreement should state that seller represents that he owns the equipment being defined in the agreement and is being sold to buyer free of any liens.
  4. Maintenance and Repair: The agreement should state which party will bear responsibility for maintenance and repair of the machinery. If the parties will share the responsibility, agreement should state which party will be responsible for which service.
  5. Insurance: If the seller is being paid on a schedule rather than all at once, he can require the buyer to maintain insurance on the equipment until buyer has fully paid the purchase price.
  6. Default by Buyer: If the buyer is to pay the purchase price in installments, a clause should be inserted to determine what happens if there is a default by the buyer.

Farm machinery is a long term investment for farmers and allows them to use the machinery as collateral to invest in other business ventures, but it is important they know the ramifications of any agreement that they enter into for the purchase. Rincker Law, PLLC can help draft purchase agreements that address these concerns.

Want more information on contracts for the food and agriculture industry?  Check out my first book that I co-authored with Pat Dillon, an Iowa agriculture lawyer titled “Field Manual: Legal Guide for New York Farmers and Food Entrepreneurs” available on CreateSpace, Amazon, Kindle and iBooks. You can find out more about this book here.  Furthermore, you can check out this extensive outline on common agriculture contracts on my JD Supra page prepared for this presentation

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