31 Aug Mycoplasma bovis (M. bovis)
The farming industry and its advisors are concerned about the impact of M. bovis on their farming operation, livestock and livelihood, irrespective of the amount of compensation that may be available from the Ministry of Primary Industries (MPI).
While the industry is endeavouring to work towards the complete eradication of M. bovis from New Zealand, there are no guarantees that the goals set by MPI and the industry can be achieved. A significant amount of information has been released to help farmers manage the risk, especially on a day-to-day operational basis.
All farmers need to use their best endeavours to follow the MPI guidelines. From BlackmanSpargo’s perspective, it is not just business as usual for land and livestock transactions. Vendors and purchasers need to carefully consider the implications and make relevant amendments to the terms and conditions when purchasing farmland. At-risk properties include dairy land, dry stock land and even lifestyle properties.
It is essential for the protection of any prospective purchaser that due diligence investigations into the suitability of the property, extend to specific questions around M. bovis. If a vendor misrepresents the position during the contractual negotiations, the purchaser may be entitled to cancel the agreement.
BlackmanSpargo’s policy is that all Agreements for Sale and Purchase for farmland should contain additional clauses that address the potential for livestock to test positive for M. bovis between the date of any signed Agreement for Sale and Purchase and settlement. Warranties from a vendor about the status of the livestock and farmland should be considered for inclusion. We would hope such clauses would not be relied on and the transaction would proceed without any issues, but they do need to be included to manage the risk.
An example of the problem is the position of the vendor and the purchaser of dairy farmland with a settlement date of 31 May 2019, if livestock test positive for M. bovis, and MPI require the herd to be culled and the farm disinfected.
- Is settlement still to take place on 31 May 2019?
- If settlement takes place, where does the purchaser graze their livestock in the 60-day period when no livestock can be depastured on the farmland after being disinfected by MPI?;
- Who pays for the grazing costs of the purchaser’s livestock?
- If the vendor’s livestock test positive before 1 April 2019, is the vendor required to cull all livestock and MPI disinfect the property before this date so the land is free of livestock 60 days before the 31 May 2019 settlement date?
- What testing procedures are deemed to be sufficient for these purposes?
Each Agreement for Sale and Purchase will need to contain specific provisions to reflect the circumstances. It would be a significant risk to both parties to ignore the impact of M. bovis when negotiating farm transactions.
Specific clauses will also be required when buying and selling livestock or negotiating grazing agreements. All livestock transactions should be recorded in writing so the parties’ obligations are clear. One significant issue to address will be whether payment of the deposit for livestock should be held in a trust account until settlement, and should the agreement allow the purchaser to terminate the agreement if livestock are found to be M. bovis positive. This option would protect and facilitate the return of the deposit to the purchaser on termination. Should a vendor have to prove that the livestock are free of M. bovis before the settlement date, or the date of signing? A vendor needs to consider its obligations to the stock agent for payment of commission, where livestock test positive for M. bovis. If the agreement is cancelled, should the commission be forfeited?
It is not possible to set out all of the legal issues that arise in farming transactions because of M. bovis. It will take some time to achieve reasonable legal outcomes between vendors and purchasers.
While the hope is that this disease will, over time, be eradicated, ignoring the potential risks and consequences in land and livestock transactions may have severe financial consequences.
If you are considering the sale or purchase of farmland or livestock, you should consult with one of our expert team.