Business Clinic: Farm’s buyer wants a pre-exchange inspection

Whether it’s a legal, tax, financial or management issue, Farmers Weekly’s Business Clinic experts can help.

Here, Sam Johnson, associate partner with Carter Jonas, Harrogate, sets out how a request for a pre-exchange inspection may arise in a farm sale, and how it should be viewed and handled.

See also: Business Clinic: how do we identify disputed boundary

Q: We have agreed the sale of our farm, but for a number of reasons the transaction is taking months.

During negotiations, the buyer asked for several perceived issues to be resolved. Now there is a suggestion that they may want a pre-exchange inspection before contracts exchange.

What are our obligations, and what advice do you have on how we avoid the value being reduced, or the collapse of the sale? 

A: Pre-exchange inspections are becoming increasingly common when farms are bought and sold.

Often a buyer may view a property only once before making an offer, and several months can then pass while the conveyancing process progresses, due to the level of due diligence required and the time it can take for finance to be arranged.

You are not obliged to permit a pre-exchange inspection.

However, it is worth putting yourself in the buyer’s position – if a seller refused to allow you to look around a property you were about to buy, it would naturally raise suspicions.

In my experience, these inspections are usually a form of reassurance for the buyer.

They already have legal protection if something material has not been disclosed, but they simply want to confirm that the property is as expected.

Pragmatic approach pays off

Being open and pragmatic at this stage generally avoids unnecessary complications and helps maintain trust between the parties.

Always put yourself in their shoes – what they’re asking for is reasonable, and it will usually only create more issues to refuse them.

By the time a pre-exchange inspection takes place most major issues should already have been addressed through the survey and legal enquiries.

The buyer will also have received the fixtures and fittings form, completed as part of the conveyancing process, which sets out what is included in the sale.

It is sensible to ensure the property is reasonably presentable, although buyers will appreciate that it is a working farm.

In many cases, the main questions will already have been dealt with through pre-contract enquiries covering matters such as asbestos or other infrastructure issues.

The buyer and seller are usually present at a pre-exchange inspection, as is the agent. Occasionally the buyer may ask their solicitor to attend.

This is unusual, but I see it as a positive as they may see things from a legal perspective that haven’t been flagged up before. However, this isn’t typical, simply because buyers may not want to pay solicitors for that time.

Price implications

In my experience, buyers do not often try to renegotiate the price following a pre-exchange inspection.

It can happen, particularly where the buyer has little emotional attachment to the purchase and views it purely as a commercial investment.

However, each situation is different, and much will depend on the strength of your position and the attitude of both parties.

These inspections do not result in a new legally binding agreement – that role is fulfilled by the fixtures and fittings form and the earlier legal enquiries.

The inspection is largely about reassurance, allowing the buyer to confirm that what has been agreed is in place and that any items due to be removed have been cleared.

For instance, we’ve had experience of a buyer raising concerns about an underground fuel tank on the site earlier on in the process.

Our client took it upon themselves to remove it, rather than reduce the price.

A pre-exchange inspection then took place so the buyer could be reassured that the work had been carried out.

If it hadn’t been, that would have been a fair and legitimate reason for the buyer to request a reduction in price.

If a discussion about price does arise, both parties need to take a pragmatic approach.

As agents, we are often dealing with the largest asset a seller owns, so emotions can understandably run high.

A degree of careful management is usually needed to keep both sides aligned and the transaction progressing.

Ultimately, however, the strength of your negotiating position will determine how firmly you respond if issues are raised.

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