Definition
To farm out means to lease or transfer a right, duty, or revenue stream to another party for a defined term, typically in exchange for a fixed payment or rental. The phrase operates in two principal legal contexts:
1. Revenue farming. The practice by which a government or public authority transfers the right to collect taxes, tolls, duties, or other public revenues to a private party (the farmer) in exchange for a lump sum or fixed periodic payment. The private party then collects the revenue at its own risk and profit.
2. General contractual delegation. To subcontract or assign work, obligations, or a franchise to a third party for a stated term and consideration. In modern usage this appears in oil and gas law, where a working interest owner farms out drilling obligations to another operator, and in commercial contexts where a business delegates performance of a task or contract to an outside party.
Common Language
Modern common usage (Wiktionary): To subcontract a task or responsibility to another; to outsource.
Historical common usage (Webster's 1913): To let out on lease; to arrange for the maintenance of (paupers) by contract with a farmer; to assign the collection of (taxes) to a private collector for a fixed sum.
The gap here is directional emphasis. Ordinary modern usage focuses on delegation of work — outsourcing — with no connotation of revenue collection or leasehold. The legal and historical meanings centered on the assignment of a revenue-collecting right or a public function to a private party under formal contract, which carries distinct legal consequences around public accountability, tax liability, and the duties owed by the private collector.
Common Confusion
Farm out is sometimes used loosely as a synonym for assignment or sublease. The distinctions matter. An assignment transfers the entire interest; a sublease retains a reversion in the original party; farming out historically implies the transfer of a collection right or operational obligation for a term certain, with the farmer bearing the collection risk. In oil and gas law, a farmout agreement is a term of art with specific meanings around acreage, drilling obligations, and earning provisions that differ from a simple assignment of a working interest.
Why It Matters in Research
Researchers face a vocabulary problem: the same phrase carries very different legal weight depending on era and subject matter.
In pre-modern public law sources, farm out is nearly always about revenue farming — the government outsourcing tax collection. Bouvier gives a useful historical sketch: Roman publicani, the French system abolished in 1789, English excise farming abandoned before the Act of Union with Scotland. When reading colonial American, early republic, or English Chancery materials that use this phrase, assume the revenue-farming sense unless context dictates otherwise.
In modern American practice, farm out surfaces primarily in oil and gas law, where it describes a contractual arrangement under which a working interest owner (the farmor) agrees to assign some or all of its interest in a tract to another party (the farmee) in exchange for the farmee drilling one or more wells and meeting other specified obligations. This is a heavily negotiated, document-intensive transaction. The phrase as used in oil and gas bears almost no resemblance to the revenue-farming sense in historical sources.
Researchers using full-text corpus searches should account for this ambiguity. A search hitting farm out in an 18th-century English law treatise will return revenue collection materials; the same search in a 20th-century Texas practice guide will return drilling contract materials. Conflating these results produces serious interpretive error.
The Rapalje & Lawrence entry flags a North Carolina case (72 N.C. 634) that directly defined the term, which may be useful for anyone tracing the term's judicial construction in American courts.
Historical Dictionary Support
All three historical dictionaries agree on the core definition: to let for a term at a stated rental, with revenue collection as the primary illustrative context. Black's and Rapalje & Lawrence are nearly identical in their formulations, suggesting a common source. Bouvier adds the most historical texture, noting the Roman, French, and English uses, and making the normative observation that farming out the excise "greatly aggravated" its evils — an editorial note that reflects the reformist tone common in 19th-century legal dictionaries.
What the historical sources miss almost entirely is the modern oil and gas farmout, which had not developed as a distinct legal form when these dictionaries were compiled. They also do not address the modern commercial outsourcing sense. Researchers relying solely on these sources will find the revenue-farming sense well covered but will need to turn to 20th-century treatises and practice guides for the oil and gas and commercial subcontracting meanings.
Jurisdictional Note
In oil and gas producing states — Texas, Oklahoma, Colorado, North Dakota, Louisiana — farmout agreement is a recognized term of art with a developed body of case law and practice conventions. The legal obligations of farmor and farmee, the conditions under which an interest is "earned," and the consequences of non-performance are state-specific. Researchers working in this context should not rely on the general common-law meaning of the phrase.
Encyclopedia Cross-Reference
The Law Mind Business Organizations & Corporate Law Encyclopedia: Mergers and Acquisitions — Freeze-Out Mergers and Entire Fairness (for background on transaction structures involving partial interest transfers and minority protections)