How to Sell a Farm Property in Ontario: Legal Steps

Selling a farm is rarely just a bigger version of selling a house. You may have several parcels, old fences, a farm lane used by a neighbour, a creek or shoreline, a home on the land, and equipment or quota that a buyer will ask about. Each of these can change the price, the timeline or whether the deal closes.

This article walks through the main legal steps in the order most owners meet them: understanding what you actually own, planning the tax, clearing the issues that commonly derail a sale, and preparing for closing. It is general information for Ontario, not advice on your particular farm.

Step 1: Confirm exactly what you own

Before listing, get your title documents and survey (if you have one) together and check that they match what you think you are selling. Farms often have a long history of informal arrangements, and a buyer's lawyer will find them.

Ontario land is registered in either the older Registry system or the Land Titles system, and the difference matters for neighbour claims. In Registry land, a person who has been in possession of land can sometimes claim it, because an action to recover land must generally be brought within ten years after the right first accrued, and when that period ends the former owner's title is extinguished. In Land Titles land, the general rule is that title adverse to the registered owner cannot be acquired by length of possession, but there are exceptions, such as claims that were already complete before the land came under land titles. Which system your parcels are in, and whether an exception could apply, is something your lawyer can confirm.

Also check for rights that run with the land. Registered land is generally subject to overriding interests such as rights of way, watercourses and other easements unless the register says otherwise. A neighbour who has crossed your land for decades may have a claim, because prescriptive easements apply to Registry-system land, while the Land Titles Act bars prescription against registered land.

Step 2: Plan the tax before you sign

Tax is often the largest cost in a farm sale, and the planning has to happen before an agreement is signed. If the property qualifies, the lifetime capital gains exemption may shelter part of the gain. The deduction uses a $625,000 cap formula, reduced by earlier deductions. The property must meet ownership and use tests, which are covered in our separate article on the exemption.

On filing, report the sale on Schedule 3 and the exemption claim on Form T657. If you have had investment income or expenses since 1988, Form T936 is needed for the cumulative net investment loss calculation, which can reduce the deduction.

If your farmhouse sits on the land, the home and the farm are treated differently. The land generally counts toward the principal residence only up to one-half hectare (1.24 acres), unless more is needed to use and enjoy the home. Sales of a principal residence must still be reported on Schedule 3 even when the whole gain is exempt.

If the buyer is your child, there may be a different route. A farmer can transfer qualifying farm property to a Canadian-resident child at any price between adjusted cost base and fair market value to postpone tax, and 'child' includes grandchildren, great-grandchildren, stepchildren and a child's spouse.

Step 3: Clear the issues that commonly derail a sale

Fence issues are a good example of something small that can become a delay. Under the Line Fences Act, an owner can ask the municipal clerk for fence-viewers to settle how the cost of a boundary fence is divided. The Act cannot be used to force a neighbour to share the cost of a whole fence that one owner built on their own initiative. Boundary questions themselves need legal advice and a survey.

If your land touches a creek, wetland or lake, ask whether any docks, sheds or other structures were built with the right approvals. Some small structures are exempt from a conservation authority permit, such as seasonal or floating docks up to 10 m² and fences not in a wetland or watercourse. Whether your structure fits an exception depends on its size and location. Structures touching more than 15 m² of Crown shore land may also need a work permit.

Step 4: Tenants, equipment, quota and other business items

A farm sale often involves more than land. Decide early what is included: buildings, equipment, livestock, stored crops, and any quota. Put each item in the agreement of purchase and sale in plain terms, so there is no argument at closing about what was meant to stay or go.

If part of your land is rented to another farmer, the lease and its terms will drive what you can promise a buyer. We cover that in a separate article on selling with a tenant farmer. Rules on quota transfers and HST on farm sales depend on the type of quota and how you are registered, so confirm them with your accountant and lawyer before you set a price. For tax purposes, Class 14.1 property such as milk and egg quota is one of the types of property that can be qualified farm property.

What to do next

• Gather deeds, surveys, mortgages, leases, easement documents and any permits.
• Find out whether each parcel is in the Registry or Land Titles system.
• Talk to your accountant about the capital gains exemption and the forms involved.
• List every fence, lane, structure and waterfront feature, and ask whether each is properly documented.
• Write down what is included in the sale, including equipment and quota.
• Speak with a real estate lawyer before you list, not after you receive an offer.

Frequently asked questions