In the world of Saskatchewan agriculture, land is more than just dirt—it is a livelihood. For many farmers, renting land is the only way to grow their business and reach the scale needed to stay profitable. But there is always a lingering fear for every renter: What happens if the landlord decides to sell the land I’ve been working for years?
This is where a legal clause called the Right of First Refusal (ROFR) comes into play. It is one of the most powerful tools in a farm lease agreement. Whether you are a landowner looking to retire or a tenant looking to secure your future, understanding how an ROFR works is essential for protecting your interests.
What is a Right of First Refusal (ROFR)?
A Right of First Refusal (ROFR) is a legal clause in a lease agreement that gives the tenant the first opportunity to purchase the property if the landlord decides to sell it to a third party. If the landlord receives a legitimate offer from another buyer, they must first offer the land to the tenant at the same price and terms before they can accept the outside offer.
How the ROFR Process Works Step-by-Step
The ROFR doesn't mean the tenant is forced to buy the land. It simply means they are "first in line." Here is how the process usually plays out on a Saskatchewan farm:
The Trigger: The landlord decides they want to sell. They might list the land publicly or receive an "unsolicited" offer from a neighbor or an investor.
The Third-Party Offer: A buyer makes a formal, written offer to the landlord. This is often called a "bonafide offer."
The Notice: Under the terms of the lease, the landlord must take that offer to the tenant. They provide a written notice stating the price, the terms, and the proposed closing date.
The Decision Window: The tenant has a set amount of time (often 15 to 30 days) to decide. They can either "match" the offer and buy the land themselves, or "waive" their right and let the landlord sell to the other buyer.
The Outcome: If the tenant matches the offer, the third-party buyer is out, and the tenant becomes the owner. If the tenant says no, the landlord proceeds with selling the land to the original bidder.
Understanding this process is vital when buying and selling farmland in our province.
Why Tenants Want a Right of First Refusal
For a tenant, an ROFR is like an insurance policy for their business. Farming requires long-term planning and significant investment. You might invest thousands of dollars into the soil through fertilizer, drainage, and rock picking.
If you are renting out farmland, having an ROFR ensures that your hard work isn't snatched away by a surprise sale to an outsider. It gives you the chance to keep the land you've been working without having to outbid the entire market in a stressful public auction. It also helps when planning for farm succession, as it keeps the land within the reach of the person currently operating it.
Why Landlords Include an ROFR
You might wonder why a landlord would want to limit their options. If they want to sell, wouldn't they want to just take the highest check from anyone? Actually, including an ROFR can be a great strategic move for a landlord for several reasons:
Tenant Loyalty: A tenant who feels secure is more likely to take better care of the land, maintain the fences, and stay on top of weeds.
Simplified Sale: Often, the tenant is the most logical buyer. They already know the land's history and its true valuation.
Estate Planning: It provides a clear exit strategy that respects the person who helped the landlord maintain their wealth for years.
If you are unsure how this affects your property's value, getting a home or land evaluation can help clarify your position.
ROFR vs. Option to Purchase: What's the Difference?
Many people confuse a "Right of First Refusal" with an "Option to Purchase." They sound similar, but the legal difference is huge:
Option to Purchase: The tenant has the right to force a sale at a specific price during the lease. The landlord has no choice in the matter.
Right of First Refusal: The tenant only gets to buy if and when the landlord decides to sell. The landlord remains in total control of the timing.
If you are looking at farmland investing for beginners, you must check which clause is in the lease before you buy a property with a tenant already on it.
Common Pitfalls and "Gotchas"
While the ROFR sounds simple, it can get complicated quickly. Here are three things both sides should watch out for:
1. The Timeline
If the notice period is too short (like 48 hours), the tenant might not have time to talk to their bank about a loan. If it is too long (like 90 days), the third-party buyer might get frustrated and walk away. Both parties should check current rental rates and pricing guides to ensure the lease remains fair during this period.
2. The "Entire Farm" Clause
What happens if a landlord wants to sell their entire 10-quarter operation as one package, but the tenant only has an ROFR on one of those quarters? This is a common legal battleground. The lease needs to specify if the ROFR applies to the specific parcel or if it can be bypassed by a bulk sale.
3. Taxes and GST
When a tenant exercises their right, they still need to navigate the financial details. Many ask, do you pay GST on farmland purchases? Generally, yes, but there are exemptions for family farm transfers that may or may not apply depending on how the ROFR is structured.
The Impact on the Open Market
It is important to know that having an ROFR on your land can sometimes make it harder to find outside buyers. Some investors don't want to spend time and money on inspections and lawyers, only to have the tenant jump in at the last second and take the deal.
When we help clients with buying farmland with high interest rates, we always look for these clauses. They can be a hurdle, but for a tenant, they are a massive advantage.
Conclusion: Get it in Writing
Whether you are the owner or the renter, a "handshake deal" regarding a Right of First Refusal is a huge risk. Because farmland prices in Saskatchewan have been climbing, the stakes are too high for verbal agreements.
A properly drafted ROFR should be part of your formal lease agreement and registered on the land title. This ensures that even if the landlord passes away or the land is sold through an estate, the tenant’s right is protected.
Are you looking to buy or sell land with a lease in place? Navigating the legal side of farm sales is what we do best. Whether you need to evaluate your land's worth or find the right buyer, we are here to help.
Contact Darren and Tyler Sander today to discuss your lease agreements and land sale goals. We have years of experience helping Saskatchewan families protect their legacy and their bottom line.
