SEE IT HERE: Farmstead Cooperative LLC Agreement Template version 1.0 Build 150407
Linked above is a rendered version of the LLC Agreement that we will be using (minus our specific names, etc.) to organize our effort to create a Farmstead Cooperative. It is marked up with footnotes that I’ve added to help clarify some of the legalese, but also to emphasis some of the important concepts. Once downloaded you can “turn off” or remove these notes by manipulating the style sheet in the header. You can also work with the document in a word processor like Microsoft Word (see instructions below).
Yes it is LONG, and probably boring on a narrative level, but the idea behind it is that the language is based on legal precedent in an effort to create a structure that will perform exactly as we want it to perform in every possible challenging circumstance, especially if challenged in a court of Maine law.
In many ways, I’ve learned, that documents like this function within the legal system just like software functions when it is compiled and run by a digital processor. Software code is not easy for the lay reader to understand, but it is meant to perform a specific set of tasks for the user through the refractory of the digital processor. In that same way legal language is software programmed for the court system to perform a specific set of tasks. In that spirit, please enjoy.
[To simply save the document to your computer for off-line review click the link above and then use your browser’s “Save As” menu item to save the document as an .html file. Then you can open the off-line copy in a browser, or in a word processor (like Microsoft Word) — just make sure you set your word processor to open documents with a .html extension, usually called “Web Pages” naturally.]
Transferring access to farm land (partially or completely) using a Farmstead Cooperative is not easy. In fact when compared to a cash sale, mortgage sale, or lease agreement it’s probably the most difficult method for a seller to use. Significantly, while it allows for shared access to land, it also demands shared responsibility for that land as long as one remains an equity member of any fraction.
The Farmstead Cooperative idea became the only way I could achieve our goals of keeping our farm agriculturally viable into the future, and offering a new farmer fair equity when they worked to maintain and improve the land. As we began the formal process of creating an “entity” under which we could organize the idea of a working Farmstead Cooperative, I sent a letter to the lawyer that we had chosen to work with on the transfer paperwork. He immediately dubbed it “The Manifesto.”
The letter reworked the outline we had sent to a lawyer friend who helped us find a Maine lawyer who specialized in land use issues. I used the letter to organize and clarify the ideas I had been thinking about around this effort, and to help me communicate to the lawyer what we wanted to create.
The Annual Meeting was held in February this year, and it began with approval of the minutes of the previous member meeting, a review of the agenda, and then the LLC finanical reports. The group discussed the logistics of adding N&J on as signatories of the LLC’s bank account, and a date was scheduled to accomplish that task. Other financial housekeeping items were also discussed.
The 2017 list of proposed repair and maintenance projects, as well as new items that had been added mid-year were assessed, completed projects crossed off, and incomplete projects were re-prioritized. Then all members discussed adding new items onto the list for 2018 and prioritizing them.
Significantly the members agreed to amend the By-Laws to include a whereby “sunk costs” independently paid for by only one member would be reimbursed by the LLC if member chose to sell their shares. A motion was made regarding agreed upon language, and the members voted to amend the By-Laws.
A new lease agreement for the Farmhouse and the Barn was distributed, reviewed, discussed, and signed by all members.
Eric and Alison proposed initiating scheduled “Quarterly Check-in” meetings when members agreed to informally meet to discuss various on-going LLC business. If any business required an official LLC meeting to be held the members would arrange for that according to the By-Laws. Otherwise it was felt that the LLC business process would flow better and members might feel more informed and have a voice in that business outside of the required Annual Meeting. The group agreed to begin these check-ins.
With no additional business to discuss the meeting was adjourned.
Our Annual Meeting was held in January again this year.
The group began the meeting by reviewing the agenda and the financial reports.
This is an important year in the evolution of the Windswept Farmstead Cooperative: both parties have agreed to move forward to become ownership partners of the LLC that owns the land. The initial lease agreement terminates on March 1st, at which point N&J will receive their first ownership shares under the terms of the Purchase and Sale Agreement. After that they agree to continue to purchase shares from Eric and Alison until they own 100% of the shares.
The group worked on the logistics of making this transition work smoothly, and they also reviewed all the language of the Purchase and Sale Agreement together to discuss and resolve any questions that came up before the initial equity transfer.
After the group had a shared understanding of the work that would need to be done before March 1st and then on the appointed day for signing all the necessary paperwork, the group discussed progress on the list of repair and maintenance tasks that had been drawn up at the 2016 Annual Meeting. They crossed off items that had been accomplished, and re-prioritized those that had not. Then they each brought up the items they would like added onto the 2017 task list and prioritized those, assigning responsibility for each of them to the current and future LLC members.
N&J brought up two issues that possibly involved By-Laws changes and the group discussed these. It was clear that a shared understanding of these issues could not be accomplished during this Annual Meeting, so an additional meeting was scheduled for resolving them after some necessary research.
N&J outlined new projects for their business — Dickey Hill Farm — that they planned to proceed with beginning in 2017.
With no other business remaining on the agenda, the Annual Meeting was adjourned.
I hope that many people have an interest in the idea of a Farmstead Cooperative.
In this case I’d like to address the concept of “interest” when addressing a financial transaction of LLC shares over time, and how that transaction compares to a typical mortgage agreement.
Typically mortgage holders are paid interest over and above the payback of the mortgage amount/principal. Interest is the cost of borrowing a big chunk of money to purchase real estate, repaying it in bits over time a set time period — usually 15 or 30 years for most mortgages held by US banks. The mortgage is secured by a lien on the title of the land, which remains in the bank’s name for the duration of the mortgage agreement. Once the entire principal of a mortgage note is repaid on schedule (or ahead of schedule), and all interest due during the term of the mortgage is paid, the bank releases the real estate lien, and the title of that real estate is ‘free and clear’ of any claim by the bank.
Interest payments are the primary means of income for commercial banks all over the US. Borrowers are willing to pay to borrow money because they believe that they will benefit more by having the use of a big chunk of money for a set period of time than the cost of borrowing that money.
That’s the simple way to explain a financial instrument that is also tied up (in the US at least) in a tangle of financial regulations and insurance products. The fine-print documents that make-up a typical US mortgage can run from 30 to 60 or more pages requiring at least an hour of ‘signing on the dotted line’ — much more if you wait to read the mortgage agreements at the closing itself.
However, transferring shares of an LLC — especially if done over a set period of time like a mortgage — is very different. The title of any real estate owned by the LLC is held by the LLC of which all members own a share. An agreement to gradually sell the shares of an LLC is very different from the agreement to gradually pay back a large loan. Still, the word ‘interest’ remains an important factor in both agreements.
In the case of a gradual transfer of shares the seller of LLC shares retains an ‘interest’ in the property owned by the LLC as long as they continue to own shares. That ‘interest’ gives the seller all the benefits of being a member of the LLC as defined in the By-Laws. Literally this is a ‘common interest’ between the purchaser and the seller who both maintain some control of the present and future use of the property owned by the LLC. A bank cannot tell the mortgagee what color to paint the house, but an LLC member can.
I believe this is an important concept for both parties to digest when writing up any Purchase and Sale Agreement to transfer LLC ownership shares.
We held our WFC Annual Meeting in late January. Although N&J aren’t yet equity shareholders, we still benefit from their input on any decisions that will be made at this meeting of the owners. We are also interested in talking about their long-term plans and learning how they feel after nearly a year in residence at the farm.
First we review the financial reports from 2015 and discussed any questions that they generated. We looked at the task list of items we had discussed at our first WFC Annual Meeting the year before, to cross off those items that had been successfully completed, and to prioritize the items that had not been addressed. Then we all listed the items that we wanted to address in 2016.
In addition to WFC work that we wanted to get done (and budget payment for) in 2016, N&J also listed the capital investment they were interested in making in their own farm business, Dickey Hill Farm. The group discussed whether any of the projects on their list would improve WFC but not be able to be removed if N&J ever wanted to leave the LLC. Often this is called “sunk cost” when it involves a leased property. For example when a business leases a retail space for a store, they may move walls, strip and refinish the floor, and improve the electrical system to accommodate their equipment. When the lease runs out, none of that can be removed by the business, so the lessor and lessee should have already agreed on a way to deal with any “sunk cost” in the property before the lease is signed.
Other discussion items included:
- the future plans of the cow herd, ownership of which was slowing being transferred over to Dickey Hill Farm outside of the WFC arrangement;
- the future use of the Airstream trailer that was a part of the WFC;
- the best way to monitor and split the costs of energy use between the cheese studio, and the walk-in refrigerator that N&J had built in 2015.
The group also reviewed the timetable set up in the Purchase and Sale Agreement: when the initial lease ran out in early 2017 N&J could could be voted into WFC as members and become equity shareholders. The P&SA also specifies that if either party wished to back out of the P&S they would have to notify the other party of their intentions at least six months before the end of the lease. The P&SA was reviewed, and the specific deadline date in late summer was acknowledged.
Without any more agenda items, the meeting was adjourned until 2017.
Here is the latest update from the Bangor Daily News on the lives of the farmers we are working with.
In other news we have moved through a hot and dry summer together and everything seems to be proceeding in good order: we “filled in” for the farmers when they spent two nights away from the farm; we harvested our one long row (80′) of garlic beside the many long rows that the farmers had planted last fall; we helped them process 55 chickens (slaughter, pluck, gut, and freeze), most of which had been raised in the existing chicken tractors, in early August for our and their personal use; we have both admired the bumper crop of pears and apples that are developing in the orchard, and I am looking forward to making a good bit of hard cider this fall; they helped us move the Airstream, which had been sitting up buy our new house, down to it’s “final” resting spot between the raspberry patch and a few of the apple trees.
One of our biggest accomplishments was solving an issue with the 1948 Ford 8N tractor that had kept it from being in regular use (we still have a compact diesel Kubota doing the rest of the machine work). It would run well for the first ten or fifteen minutes, but then the engine would begin to choke and cut-off. If we waited a few minutes and then restarted the engine we could work for one or two minutes more before it would sputter and cut-off again. This was going to be a problem because I was counting on using the 8N for all the brush hogging around the shared fields, as well as my own fields, and losing the 8N would mean tight scheduling of the Kubota for mowing and all the other needs, especially as the farmers are interested in expanding their tilled working space. I had reserved a time for my ‘tractor guy’ to make a site visit and start tearing apart the governor to look for the issue, but he suggested, before he arrive, that we try putting a makeshift heat shield between the fuel filter and the engine block just to rule out vapor lock. And wouldn’t you know, one sheet of aluminum foil later, I was up and mowing with the 8N for hours at a time after that with no issues.
Our tenants’s story has attracted the attention of a local reporter, and the first in (what is hoped to be) a series of reports (including a video) on their progress of building their farm can now be found at the Bangor Daily News web site. It came out in the weekend paper today.
The reporter, Gabor Degre, is a photographer for the paper as well as a reporter and is focused on using video to tell the story. He had been intrigued by the growth of small farms started by young people in this area of Maine, and he found out about our tenants just as he was looking for someone to profile that might help describe this latest “back to the land” movement. As part of his reporting, Gabor has visited the farm multiple times and interview us as well.
Our first annual meeting of the Windswept Farmstead Cooperative, LLC took place in front of a roaring masonry heater in the Farmhouse on a blustery March evening ahead of sharing a dinner. Following are the items discussed and/or decided upon for the upcoming year. Attending were the current tenants and current members.
We reviewed several areas that were in need of repair, as well as improvements that the tenants would like to make (and pay for as allowed for in our LLC Agreement) and sought the Consent of Members for them. The tenants are planning a big event in the fall of 2015 and there was some discussion about the timeline and use of sub-assets for that event.
In addition there were some areas where the tenants wanted instruction, and we all discussed the best way for them to learn about these areas, either from one of the LLC members, or from a recommended outside source.