Why Handshake Deals Are No Longer Enough: The Case for Formal Rural Leases

In New Zealand’s rural industry, handshake agreements have long been a tradition. These informal arrangements, often between neighbours, friends, or family, can work seamlessly for years—until they don’t.

While no one likes to think about worst-case scenarios, circumstances can change. Divorces, deaths, financial troubles, or disputes can quickly unravel the goodwill of a handshake deal, leaving parties without the legal framework needed to resolve issues.

Why Formal Leases Matter

When leasing farmland, the best time to formalise the agreement is at the outset—when both parties are on good terms. The “she’ll be right” attitude may seem appealing, but it’s precisely during these amicable moments that key terms should be documented in a formal lease.

A written lease provides clarity and protection. Even if it gathers dust for years, it becomes invaluable if disputes arise. Whether it’s unpaid rent, damaged fences, or overstocked pasture, a formal lease ensures there’s a clear reference point to resolve disagreements.

Homemade Leases versus Professional Agreements

Some parties opt for homemade leases to avoid legal expenses. While this is a step up from handshake agreements, these DIY documents often lack the detail needed to address complex issues. The minimum requirements for a lease—such as the area to be leased and the rent amount—are just the starting point.

A professionally drafted lease goes further, addressing critical areas like:

• Permitted Use: Specifying what farming activities can take place on the land to protect soil quality and future use. For example, the booming honey market has increased the value of bushland, and landlords may want to include provisions for hive income.

• Responsibilities: Clearly outlining who pays for maintenance, rates, insurance, and other costs.

• Rent Reviews: Establishing how and when rent adjustments will be made to avoid disputes.

• Subletting: Defining whether tenants can sublet the property and under what conditions.

• Cropping and Land Condition: Setting expectations for the state of the land at the end of the lease.

Benefits of Formal Leases

Formal leases benefit both landlords and tenants. For landlords, they provide a guaranteed income stream while protecting the property’s value. For tenants, leases offer an affordable way to build farming operations without the upfront cost of land ownership.

However, the lengthy nature of rural leases can lead to unforeseen issues. A well-drafted lease includes procedures to address disputes, recover unpaid rent, or cancel the agreement if necessary.

The Legal Landscape

Recent trends in New Zealand highlight the importance of formal leases. With increasing litigation around trusts and estates, handshake agreements are no longer sufficient to protect parties from legal disputes. The updated legal framework emphasises the need for clear documentation to safeguard assets and relationships.

While handshake agreements may seem simpler, they leave parties vulnerable to disputes and financial losses. Investing in a formal lease ensures both parties benefit from the arrangement while minimising risks.

If you’re considering a rural lease, consult with legal professionals to draft an agreement that reflects your needs and protects your interests. It’s a small step that can save significant time, money, and stress in the long run. We have that expertise to help you.

‍