Buying a Farm? What to include in the "Due Diligence"

Buying a Farm? What to include in the "Due Diligence"

Buying a commercial farm in South Africa is a big investment and a successful farmland deal depends on fully understanding the legal, environmental, financial, and social details of both the land and the business attached to it.

Whether you are buying the entire business or just the assets, you need to be absolutely sure about what you are getting into before you sign any paperwork. It is important to first identify and addressing potential risks before finalising a sales agreement, ensuring a seamless acquisition process.

Many buyers make the mistake of using generic "off-the-shelf" property contracts. This is a bad idea—farms are complex businesses with unique risks that standard house-sale contracts simply do not cover. To protect yourself, you need an experienced estate agent and a property lawyer (conveyancer) to assist you with a legal due diligence and the drafting of the sales agreement.

What is a Due Diligence?

Think of this as a "health check" or an audit of the farm. Before you hand over your money, you investigate every corner of the business to spot potential risks, hidden debts, or legal problems.

If you find issues early, you have leverage. You can negotiate a lower price, demand that the seller rectifies the problem first, or insist that they provide financial protection (adequate security) in case the issue causes trouble later. If you find these problems after you have already bought the farm, they become your expensive headache. A due diligence process is paramount, irrespective an acquiring of a farming enterprise as a going concern or acquiring of shares.

1.    What should you look for and do yourself (The Checklist)

1.1    Engage a specialist agricultural Property Practitioner before viewing.

Due diligence begins long before you step onto the property, not after an offer is signed. Only agricultural specialist estate agents who are registered and hold a current FFC (Fidelity Fund Certificate) with the Property Practitioners Regulatory Authority (PPRA), can thoroughly vet the property and provide a comprehensive listing pack about the property, and identify and answer critical questions for the seller.

Estate agents who focus on homes or apartment sales are not properly equipped (knowledgeable enough) to handle such a sales transaction competently - as there are technical knowledge and variables such as "carrying capacity", water rights, infrastructure valuation and other statutory compliance which does not form part of house, apartment or even smallholding sales.

A specialist farm agent will also know about farms which are not openly marketed and will connect you with conveyancers, valuers and surveyors who understand agricultural property.When the property warrants it, the Property Practitioner can also arrange for a knowledgeable second set of eyes—such as an agronomist or irrigation specialist—to join the viewing. Ultimately, cutting corners upfront costs you dearly in the final purchase price, whereas investing in expert guidance early on is only a fraction of that expense.

1.2    Financial Pre-Qualification

Be aware of timeframes as some financial institutions can take longer to approve loans. Time is also needed to discuss security arrangements, discuss interest rates and repayment terms. You need to take your time to ensure you get the best deal for your situation.

Pre-qualifying for a farm loan through the Land Bank or a major commercial bank, helps you know your true budget, strengthens your negotiating position with sellers, and speeds up the final buying process. Familiarise yourself with and make sure that you make provision for all other transfer costs when buying the property.

Agricultural finance is structured differently from residential home loans. The Land Bank is the state-owned and primary specialist agricultural lender in South Africa, though commercial banks like Standard Bank, Nedbank, FNB, and Absa also offer agricultural finance. The Landbank offers product structures tailored to farming (extended bond terms, production loans, and seasonal facilities) that the commercial banks do not. 

While commercial banks often provide longer terms, they also enforce stricter security requirements. Applicants should expect to provide a detailed business plan with a production plan that will have to be extremely well researched and detailed. The banks will need information on the capabilities of the land and market research in order to understand whether this kind of farming will be profitable. Other requirements will include three years of farming or business financials, and deposit requirements typically range from 30% to 50% depending on lender, applicant profile and property type.

Pre-qualification prevents wasted time on properties you cannot afford and shows sellers you are a serious buyer. Sellers accept offers faster from buyers with proof of funds or pre-approval.

1.3    Request from Property Practitioner a Seller’s Information Pack and Sign a Confidentiality Letter

The Property Practitioners Act 22 of 2019 has introduced a mandatory “disclosure form” which should be used to form the framework of the due diligence process, however, when considering the magnitude of most transactions involving the sale of agricultural land, in both hectares and price tag, one should not merely rely on such disclosures.

A serious seller will have—or should be prepared to assemble and provide to the Property Practitioner a comprehensive information pack in addition to the "disclosure form", to provide to qualified potential buyers.

This should include:

• Title deeds
• Water-rights documentation
• Three to five years of production records
• An infrastructure register (with building plans)
• A list of every movable item being sold (livestock head counts, implements, irrigation infrastructure, water-pumping equipment)
• What is the value of the surrounding farms and what is the current municipal value of the land?
• Current municipal rates accounts
• An electrical Certificate of Compliance (CoC)
• Any active lease, grazing, or off-take agreements
• Information on whether the farm will be sold as a going concern, and would the transaction meet the requirements to qualify as one which is zero rated for purposes of value-added tax.
• If applicable, an inventory of the game or other wild animals which may form part of the subject matter of the sale.

For sensitive sales (such as a distressed sale or a discreet disposal), the purchaser will have to sign a NDA (non-disclosure agreement) before the information pack is shared. Note: A seller's reluctance to provide this information is a major red flag.

1.4    Prepare to be FICA Verified as a Buyer

Provide the Property Practitioner with all the necessary documentation for a FICA verification (identity, proof of residence, and proof of source of funds) - before committing yourself, and by implication the Seller, to a Due Diligence process. It will streamline the process - as the Seller and estate agent will be ensured about yourself ability to purchase the property.

According to law, the Purchaser is in any case required to complete a FICA Declaration under the Financial Intelligence Centre Act 38 of 2001, before an Offer to Purchase can be lodged on any property in South Africa.

1.5    "Walk / Drive & Inspect" - Do a Proper physical Inspection

A farm visit, armed with a copy of the existing title deed, farm diagrams and servitude diagrams, will lay the foundation for a proper inspection. Ensure that you know exactly how and where any servitudes are applicable.

Check the whole boundary fence. Confirm that there are no ongoing disagreements with neighbours about grazing, water, fencing or access. Check for any visible erosion or environmental degradation due to e.g. over-grazing.

Inspect all buildings (homes and outbuildings such as sheds) - get a home inspector if necessary to check the walls, foundation and roof structures if at all in doubt. Inspect the equipment and implements such as pumps, motors, filters, mainlines, drip, pivots, boreholes and water-pumping equipment. Check the condition of the main crops.

Check with the municipality, seller and the property practitioner whether there any planned developments in the immediate area which may impact on the use of the land or its value in the future.

1.6    Review Production Records

The realistic income earning capacity of the farm can only be ascertain from the farm's production records for a period of up to 5 years - to give a good average view of the farm's capacity. The seller needs to provide yields per hectare per crop, livestock head counts, grazing capacity (large stock units per hectare) and reproduction rates, gross income per enterprise, input costs (fertiliser, chemicals, fuel, labour), maintenance and repair spend on major infrastructure. Request and review the history of crop rotation.

Important to determine who will be entitled to the profits from the sale of the harvest of crops, post transfer, which may have been planted prior to acceptance of the offer, and in what proportion.

2.    What you should get specialist help for:

Every farm is different, but you should always investigate these core areas with the help of specialists:

• The Title Deed: Have a legal expert check the official records to ensure the seller actually has the right to sell the land and that there are no disputes regarding its ownership. You need to know if there are hidden claims, like pre-emptive rights, mortgage bonds, servitudes (rules) that give neighbouring properties or other persons or governmental authorities the right to e.g. cross your land, or legal restrictions on what you can do with the property - i.e. on the use of the land for commercial farming or other purposes. Very important to verify with the Department of Agriculture, Land Reform and Rural Development (DALRRD that there is no existing land claims registered against the property or restitution process under the Restitution of Land Rights Act 22 of 1994. Also consider if the envisaged sale property requires subdivision from an existing title deed in order to form the sale property.

It is also prudent for purchasers to appoint a land surveyor to carry out a cadastral survey of the property to identify any irregularities regarding, amongst other things, the true size of the property, the location of its boundaries, and the location of servitudes on the property.

Ensure that the seller is in possession of the title deeds. A lost title deed may slow down the sale process, and the seller will need to apply for a replacement at the relevant Deeds Office.

• Water Rights: No water, no farm. You must verify exactly how much water you are legally allowed to extract and/or use. Do not just take the seller’s word for it—get a water consultant to check your official water use rights and to confirm the category of entitlement (Schedule 1, Existing Lawful Use, General Authorisation, or Water Use Licence), the registered volume, the point of abstraction, the season of use, and that the entitlement transfers with the property. Water-use entitlements are governed by the National Water Act 36 of 1998 and administered by the Department of Water and Sanitation. Water rights on irrigation farms can be more valuable than the land.

Water is the most important aspect of any agricultural business. It is essential to ensure that the water source is dependable and sufficient for its agricultural needs. Enquire about water table behaviour. A borehole certificate is not legally required by national statute to finalize a farm sale, but it is frequently required contractually by buyers or financial institutions.

• Liquor Licenses: If the farm includes a winery, a tasting room, or a restaurant, you must ensure the existing licenses are valid and legally transferable to you.

• Compliance Certificates: As in the case of a residential property, a valid Electrical Certificate of Compliance (COC) and a Gas CoC where applicable is required, as well as fire-management compliance under the National Veld and Forest Fire Act 101 of 1998. A solar installation will also require an electrical certificate of compliance to ensure that the installation is safe, as well as, within the scope of relevant regulation. 

Farms located inside the Cape Town Municipality borders also need a Water COC.A Municipal rates clearance certificate is also required - so request a rates clearance projection. Confirm that bondholders consent to the sale is available - when there is a landbank or a commercial bank bond. 

• Zoning and Building Plans: Just because a building is on the farm does not mean it is legal. You need to consult a town planning consultant to ensure the farm is zoned correctly for what you want to use the land / building for (e.g. running a guest house from the house) and that all structures have approved municipal building plans.

Ensure that all buildings are used according to its zoning - e.g. registered "sheds" which acts as a wedding venue, requires an occupation certificate as its use has been changed from agricultural use to commercial use (events) for which there must be a "consent use" or a temporary departure from the municipality in place. In such a case sheds must be structurally safe for public gatherings and comply with local fire safety rules.

• Environmental Rules: Environmental compliance under the National Environmental Management Act 107 of 1998 is very important. Be aware of potential issues such as soil contamination and protected species on the sale property. 

Under the Department of Forestry, Fisheries and the Environment regulations tied to the National Environmental Management: Biodiversity Act (NEMBA), sellers of farms and rural properties must disclose the presence of any listed alien and invasive species in writing before a sale agreement is signed. If the seller holds an official permit for Category 2 invasive species (such as commercial pine or gum trees), the buyer must apply for a new permit to take over responsibility. Landowners must legally control, manage, or eradicate invasive species like Category 1a and 1b plants under CapeNature and national guidelines. It is however currently not a legal requirement to provide a clearance certificate (similar to gas and electrical compliance certificates) to enable transfer to proceed.

Farming e.g. near rivers or sensitive land is strictly regulated. Certain environmental authorisations are required for certain structures to be erected on a property i.e. where these are conducted within a certain distance of a watercourse.

If the previous owner built something illegally or ignored environmental laws, you could be fined or forced to demolish the structure which can impact on the purchaser’s intended use of the farm in the future. It may however be possible that the necessary authorisation for the structures and activities can be applied for and obtained afterwards.

• Plant Rights (Intellectual Property Rights): If you are buying an orchard or vineyard, the specific plant varieties might be protected by "plant breeders’ rights." You need to make sure you have the legal right to farm those specific plants, and the seller need to arrange for appropriate agreements to assign such rights to the purchaser with the consent of the holder of the plant breeders’ rights.

Also, check if the copyright of example labels (like for wine bottles) are legally owned by the seller, and whether they can sell it to you.

• Mining Rights: In South Africa, the state manages mineral rights. You need to check if anyone else has been granted a permit to prospect or mine on the farm.

• Soil and Climate (Terroir): Does the land actually produce the crops you want to grow? It is worth hiring an expert to analyse the soil and climate to make sure the farm is fit for your specific business goals (particular crops you intend to introduce). By taking soil samples across representative areas and submitting them to a commercial agricultural laboratory to test for soil structure, depth, fertility profile and (in long-irrigated regions) salinity, could save you a long and expensive remediation process. Soil and water testing provides a farm management tool with a potential benefit to the farmer of increased yields, reduced operating costs and risk management.  

• Occupants and Farmworkers: South African law provides strong protections for people living on rural land. You need to know exactly who (identity and number) lives on the farm and what their legal rights are, so you do not run into disputes later. Obtain advice on the legal protections that these occupants are afforded in regard to their right of residence on the farm. Land-claim status is verified with the Department of Agriculture, Land Reform and Rural Development (DALRRD) under the Restitution of Land Rights Act 22 of 1994. The buyer will also need to check whether there are any ongoing labour disputes with farmworkers.

• Existing Contracts: If the farm has ongoing deals (like supply contracts or equipment leases), make sure you know which ones you want to keep and that the other parties agree to move those contracts over to you.

• Farm Valuations: A qualified and specialist agricultural valuer is the only person allowed to provide a valuation certificate. The valuer will use land value (location, size and soil quality), the value of the improvements as well as the water rights (buildings, irrigation systems, fencing, registered water rights and electrical reticulation), the farms production capacity (last few years crop yields to determine carrying capacity and the livestock head counts). As with the Property Practitioner, who can provide a comparative market analysis based on previous and similar farm sales, the valuer will also use recent sales records in the area. 

A property valuation will be done by your financial institution if borrowing, however before price negotiations it is best to know what it is worth from an independent valuer. 

3.    Foreigners (Non-Residents) Buying A Farm

Foreign nationals face virtually no legal restrictions on purchasing or owning freehold property in South Africa, including agricultural land and working farms. However, non-resident buyers must navigate strict financial regulations set by the South African Reserve Bank (SARB). Local South African banks typically lend non-residents a maximum of 50% of the farm’s purchase price, meaning you must introduce the remaining balance as cash from foreign sources. Crucially, all foreign funds brought into the country must be transferred through designated financial institution channels to obtain a "Deal Receipt". This receipt serves as official proof of foreign inward remittance, ensuring you can seamlessly repatriate your capital and profits back overseas if you choose to sell the farm in the future.

From a legal and tax perspective, the land registration process uses a Deeds Office system that provides foreign owners with identical title deed protections as local citizens. Foreign / non-resident buyers need to be registered with SARS. They are responsible for transfer duty—a government acquisition tax calculated on a sliding scale up to 13% for high-value properties—as well as conveyancing (legal) fees. If the farm operates as a going concern, the transaction may instead trigger Value Added Tax (VAT), which can sometimes be zero-rated if both parties are registered VAT vendors. It is also important to note that purchasing real estate in South Africa does not grant automatic residency or work rights; staying long-term to manage agricultural operations requires applying through formal visa pathways administered by the Department of Home Affairs.

If a foreign corporate entity buys property, it must register as an "external company" under the South African Companies Act, though purchasing is still permitted.Foreign buyers are strongly advised to appoint an independent conveyancing attorney to oversee contract terms and FICA compliance verification.

The Bottom Line

The standard transfer timeline for agricultural property is three to six months from offer acceptance to Deeds Office registration. This process takes longer than residential transfers because of extra steps like bond registration, water-rights endorsements, and municipal rates clearances.

Buying a farm is not just buying dirt and buildings—it’s buying a complex, regulated business. Do not cut corners. Hire a conveyancer (qualified property lawyer) who specializes in agricultural transactions. They will know exactly which experts to bring in to ensure your dream farm does not turn into a legal nightmare.