Whether to sell a vineyard or winery is one of the most significant decisions an owner will make. There are financial, career, lifestyle, and other factors that go into the choice, and the calculation is different for each person and each situation. Advanced planning and presale activities can make the process smoother and maximize the ultimate sale proceeds.
SELECT THE RIGHT ADVISORS
Before bringing a property to market, it is important to have the right team. This typically includes a broker or deal advisor and an attorney, both of whom will help you through the entire sales process, but can also include an appraiser and other subject matter experts. All of your advisors should have recent experience working with similar properties in the area. Experienced deal advisors are especially helpful with price elements and identifying areas of hidden value.
For land sales, this is primarily knowledge of comparable sales and the value of particular American Viticultural Areas (AVAs), but can also include opportunities to add value, such as potential lot splits, creation of additional home sites, and increases in permit capacity. Where wine businesses are included, your advisors can help with major price components such as multiples of operating profits, brand values, and projected growth.
ANALYZE NET PROCEEDS
Do not overlook the impact of taxes and other closing costs on the sale proceeds. This is especially true if a corporation owns the property, since two layers of tax will substantially reduce the proceeds. Your attorney and CPA can assist you with strategies and deal structures to reduce this tax burden, such as doing a Section 1031 tax-deferred exchange, but these require advanced planning.
Where wine inventories are a component of value, those proceeds generally will be subject to a higher level of income tax because inventory is taxed at ordinary income rates, as opposed to capital gains. To minimize this tax, be sure to address the allocation of the purchase price across the various asset classes during negotiations with the buyer, and try to have any amount allocated to inventory be as close to actual cost as possible.
Try to correct deferred maintenance and permit compliance issues before bringing the property to market. If defects cannot be corrected, then disclose them at the outset of the sales process. Buyers are more likely to look past defects during the bidding and marketing process and accept the property in its as-is condition.
If a buyer discovers a problem after the purchase agreement has been signed, then they will likely ask for a price reduction or other concession. Disclosing a matter up front avoids this and helps you hold firm at the agreed-upon price.
BE AWARE OF THIRD-PARTY CONSENT
Early in the sales process, you should determine whether any consents are required to sell the property and try to obtain those consents. Contracts that require third-party consent can include vineyard leases, grape purchase agreements, water sharing agreements, alternating proprietorship agreements, and custom crush agreements. In some cases, such as with rights of first refusal, you must obtain the consent or the sale cannot close.
More often, a contract will prohibit assignment without the other party’s consent. If a contract contains such a restriction and you sell the property without the required consent, then the third party might have a claim against you or the right to terminate the contract. Consents can impact the pool of potential buyers, since a third party might not consent to a competitor buying the property.
PROTECT POST-CLOSING RIGHTS
Do you want any rights to the property after closing? Post-closing rights come in a number of forms, including the right to buy grapes, the right to make wine, a job with the buyer, a lease of a vineyard or a residence, or water sharing or access rights. Preemptive action can be taken to secure some of these rights, such as granting an access easement that allows a neighboring parcel to use a driveway or recording a water sharing agreement.
However, most of the time, you will need the buyer’s agreement. Disclosing any special post-closing requirements beforehand will ensure that the buyer is willing and able to comply. It also stops the buyer from asking for a reduction in the purchase price after the buyer has an exclusive right to the property.
Considering each of the strategies discussed here and implementing those that are needed can help make your transaction a smooth and easy one.
Quinn Arntsen (email@example.com) is a senior associate in the Real Estate & Land Use and Wine Industry groups at Farella Braun + Martel, a law firm with offices in San Francisco and St. Helena.