Why a Condition Report is Your Key to a Smooth Agricultural Property Lease: Don’t Sign Without One!

 Introduction

Every tenant should acquire a condition report prior to entering a lease, and this is no different for agricultural properties. The Agricultural Tenancies Act 1990 No 64 (ATA) regulates the rights of agricultural landowners, tenants and sharefarmers, and in particular, s 12 of the ATA states that tenants and landowners must jointly obtain a condition report prior to entering a lease, if either party require it.

Unfortunately, the ATA is silent on how comprehensive such a report needs to be, which can lead to some sticky situations for both parties.  

What is a Condition Report?

A condition report informs potential parties to a lease of the state and condition of a property and its fixtures at the commencement of a tenancy. This report should clearly and comprehensively set out the condition of the property and any potential issues with the property.

Agricultural landowners and tenants should record as many matters as possible in any report, including:

a) The land and condition of any crops or pasture cover;

b) Any buildings, sheds, fences, gates, and other infrastructure on the property;

c) Drains, irrigation and water infrastructure, and any water shares or licences for the use of the property.

Importance of a Condition Report

Obtaining a condition report prior to entering a lease of agricultural land will serve the following purposes:

a) Assist in identifying existing issues that may need to be rectified prior to beginning the lease term;

b) Helping to provide clarity to both parties on the condition of the property at the outset of the lease term, and therefore, avoid disputes when the lease terminates; and

c) In the event of a dispute, providing a baseline condition for the property that will assist in a swift and commercial resolution.

A NSW Civil and Administrative Tribunal decision, Refalo Pty Ltd v Scott [2014] NSWCATCD 174 demonstrates the importance of obtaining a comprehensive condition report

The importance of obtaining a comprehensive condition report is demonstrated in a NSW Civil and Administrative Tribunal decision, Refalo Pty Ltd v Scott. Refalo Pty Ltd (Refalo) owned a farm property that included two houses, a stable, various farm buildings, and a flat (the Property). Mr Scott (Scott) was in business providing quarantine facilities for thoroughbred horses. Scott entered into an agreement to licence the Property in 1998 (the Tenancy) and remained in possession of the Property for approximately fourteen (14) years.

When Scott surrendered possession of the Property, Refalo brought proceedings claiming (among other things) the cost to clean and repair certain fixtures and property that formed part of the Tenancy.

Refalo alleged that at the time Scott gave up possession, the farm buildings and various equipment were left in a damaged and untidy state, contrary to the terms of the Tenancy.

Prior to the commencement of the Tenancy, Refalo and Scott created an ‘incoming condition report’ which included the two houses but not the rest of the farm or equipment.

After the lease was terminated, Refalo alleged that Scott had failed to uphold several requirements of the tenancy, including; keeping residential property on the farm clean, maintaining the existing farm tracks, maintaining farm equipment, and maintaining and repairing pumps, water lines, broken fences and broken gates. Refalo also alleged that Scott had left large amounts of rubbish on the farm.

The condition report obtained at the beginning of the tenancy only covered the two residential homes and was instrumental in allowing the Tribunal to award damages to the Landlord for the clean up to those properties required. However, the report did not adequately cover the rest of the farm and equipment, and consequently, some of the damages sought by the Landlord in compensation for damaged farming fixtures and equipment were not allowed by the Tribunal (despite the fact that Scott did not appear).

Key Lesson from Refalo Pty Ltd v Scott

This decision highlights the importance of obtaining a comprehensive property condition report on all relevant aspects of a farming property prior to entering a lease, as the failure to do so can result in uncertainty and ultimately loss for both parties.