How to manage a Bordeaux vineyard – Part One

How to manage a Bordeaux vineyard – Part One

What are the most important things to know about How to Manage a Bordeaux Vineyard?

In this article we will look at one of the starting points relating to vineyard operational decisions and discuss what options are available to Bordeaux vineyard investors as they consider their vineyard management responsibilities. The subject matter is lengthy and, despite efforts to make this overview very brief, it will be split over two articles with Part Two being published next week. Therefore scope of these articles will be a very brief overview of vineyard management associated with:

  • Farming
  • Wine making
  • Administration

The importance of strategy

Post purchase vineyard management is a common concern for investors investigating Bordeaux vineyards. Christie’s International Real Estate affiliate, Vineyards-Bordeaux, are typically heavily implicated in the purchase process which often includes developing a long term business plan that must include a choice of how the vineyard will be managed. After the transaction is completed the vineyard investor starts to implement its strategy often built on the framework of their business plan.

Careful consideration of strategy is essential and, without a clear strategic path to defined objectives, valuable time can be lost as the vineyard launches under its new ownership. Knowing the options available often helps vineyard investors refine their thoughts to their preferred strategy selection. One element of the strategy that can be established early on is the vineyard’s (farm) operation strategy.

Broadly speaking these are the vineyard operation strategy options as it relates to vineyard management at the agricultural level.

  1. A full delegation strategy. This approach suits an owner that is looking to minimise vineyard management and wine distribution responsibilities. It is ideal for someone looking for a vineyard but without running a vineyard business.
  2. Temporary delegation. This might happen when an owner needs to delay the launch of a more hands on strategy for a year or two. It might be that, at the time of the purchase, the new owner cannot dedicate sufficient time to the operational responsibilities
  3. Farming only. Where an owner wants to take responsibility for farming but does not want to be involved in wine making, wine distribution and wine sales.
  4. Management contract. The owner takes full responsibility for all costs and sales however the actual work is all (or partially) outsourced to a specialist management company.
  5. In house. When the owner wants 100% control of all aspects of its operation and wine sales.
Bordeaux vineyards
Bordeaux vineyards

Management Options

A Vineyard farm lease

There are several forms of farm lease available to an owner which are summarised in the table below. They are typically referred to collectively in French as a “fermage.” However, there are several forms of “fermage” and we will discuss these briefly below – and in next week’s article.

Type of leaseTermsSignaturePaymentComments
BAIL RURAL9 years minimum renewableNOTARYBased on the Average Tonneau Price of the year (Arreté Préfectoral December)+ quantity Hl per Ha to be fixed. Usually 9Hl/Ha but can vary from 3Hl to 12 Hl. Fixed.Not flexible. A status of the Vineyard must be done prior to signature. Not interesting in valuable Appellations. Farmer farms, but the owner pays for the furniture.
BAIL CMD 61 year renewable every year but cannot exceed 6 yearsSAFERNegotiation but usually but needs to have a link with the Average Tonneau Price of the year. It is an annual fee.Quite flexible as it can be reviewed in terms and conditions every year. Farmer farms and all the other issues can be negotiated
BAIL CMD HARVESTJune-DecemberSAFERNegotiation but usually but strongly linked with the Average Tonneau Price of the year. It is the quantity yielded which will be billedVery flexible. In this case however the owner farms all the way

Bail Rural

Probably the least flexible of the lease structures but nevertheless used commonly within the same ownership whereby an investor has two companies with one being tenant to the other. This is an efficient ownership structure both for tax expenses but also for estate planning purposes and the inflexibility is inconsequential when the landlord and the tenant are functionally the same person. The Bail Rural can be for 9, 18 or 27 years however, after 18 years it is very difficult for an owner to get their land back from the tenant. The most common exception to this is when an owner is passing the farm to a member of his/her family. The lease terms are heavily regulated and there is not much flexibility between the parties: the rent is calculated based on the market spot price for the wine in that appellation and there is an adjustment mechanism that can be judged by the chamber of commerce (The Prefecture) providing a range of typically about 3hl per hectare up to a maximum of 12hl per hectare for the best parcels. So, if the vineyard is in excellent condition the value of the lease may go closer to 12 hl per hectare and if it is very weak it can go as low as 3 hectolitres per hectare while a new plantation may go below 3. The Prefecture provides for 3 categories of value

  1. Category 1 is 7 to 12 hectolitres (except for prestigious appellations which can exceed 12)
  2. Category 2 is 3 to 7 hectolitres
  3. Category 3 is 1.5 to 3 hectolitres

As an example, if a vineyard in the appellation of Cotes de Bordeaux Castillon was to have a lease negotiation for a bail rural and the vineyard was in very good condition, the published price per hectolitre is currently €127 so let’s assume that the Prefecture establish that it is a category 1 vineyard and the parties agree that it is a 10 hectolitre value then the annual lease rent will be €127 X 10 = 1270 Euros.

The lease structure in a Bail Rural provides that the owner must pay for the “furniture” – this would include, for example, the poles, the wires and the plants themselves. Furthermore, at the end of the lease term, if the tenant has made substantial improvements to the owner’s land, this capital cost is reimbursed to the tenant.

Summary of the Bail Rural

In effect then, this form of lease is a full delegation of all farming and responsibility to a farmer for various lengths of time. The owner hands over their land, vines and winemaking to someone else and they pay the vineyard owner a rent as outlined above. Once agreed within the Bail Rural framework, all terms are fixed and the rent is pegged to the published spot rate for a hectolitre of wine as traded on the Bordeaux wine exchange.

Grapes from a Bordeaux vineyard
Grapes from a Bordeaux vineyard

In many cases the farmer will have their own winery (“chai” pronounced “shay” in French) and do their vinification in their facilities augmenting their own existing production that is often nearby. However, there are occasions where the farmer also rents the winery facilities for an additional rental agreement.

Lease options for French vineyard operations.

Next week we will look at the other two lease structures known as a Bail CMD 6 as well as the Bail CMD Harvest. We will also discuss management contracts, outsourcing and full operational control – all options an owner might consider as part of their vineyard management strategy.

Although this article is considered accurate, Vineyards-Bordeaux are not lawyers and make no legal representations or warranties. Investors should seek advice from their legal counsel regarding their precise circumstances or to confirm any changes to the laws associated with farm leases and vineyard management.

Michael Baynes, Vineyards-Bordeaux
Michael Baynes, co-founder of Vineyards-Bordeaux

 

Written by Michael Baynes, co-founder of Vineyards-Bordeauxspecialists in M & A (Mergers and Acquisitions) work and vineyard / winery transactions and affiliates of Christie’s International Real Estate.

 

If you are interested in investing in a vineyard in Bordeaux  – or any other region of France – or you have a vineyard for sale, please contact [email protected]