NOTE 8. COMMITMENTS AND CONTINGENCIES

In connection with the execution of a new lease on Colding Loop in May 2013, we were required to install new wells and irrigation equipment on 121 of the 181 total farmable acres on the property. The installation of the new wells and irrigation equipment on these acres was completed in January 2014 at a total cost of $616,071. In addition, if the tenant notifies us of their intention to fully utilize the remaining 60 acres of the property, we will be required to install new irrigation equipment to cover the additional 60 acres, which is estimated to cost approximately $83,000.

Coinciding with the extension of the lease on West Beach, we entered into an agreement with the tenants on the farm to provide oversight on certain capital improvements that will serve to protect the property against future flooding. The cost of these improvements, which we expect to be approximately $550,000, will be borne by us and will take place over the next year. In addition, under the terms of the agreement with our tenants, we were required to pay them a one-time fee of $46,000 for their oversight role, which has been fully paid as of September 30, 2014. These capital improvements are currently underway, and, as of September 30, 2014, we have expended or accrued approximately $78,000 related to these improvements.

In connection with the follow-on lease we executed upon our acquisition of Sycamore Road, we are required to make certain irrigation improvements on the property to increase overall water availability by November 1, 2015. Work on these improvements has not yet begun; however, we expect the total cost to be $750,000 or less. In addition, we will earn additional rent on the total cost of these improvements, up to a total cost of $750,000, commensurate with the yield on the farmland.

As a result of the fire on West Gonzales, as of September 30, 2014, we have paid $231,709 for repairs, the full amount of which has been reimbursed through insurance proceeds. We have one additional payment of $124,766 remaining to complete the repairs, for which we have received assurance of full recovery from the insurance company. In addition, we have agreed to further upgrade the insulation inside the cooler for a total cost of approximately $176,000.