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Although general commentary suggests that residential property prices will fall over the coming months, the price of farmland, fuelled by high demand, looks set to remain resilient. Given the lack of supply, availability of attractive tax benefits, the push to achieve net zero objectives and significant changes in land management practice, we see that trend continuing.
Rural land/property sales of whole or part will usually involve considering some or all of the following:
- planning;
- agricultural user restrictions;
- reservation of rights for access/utilities;
- availability of water and other utility supplies; and
- protecting future development value.
Sellers wishing to benefit from higher land values will need to think ahead and consider the suggestions set out below. Thorough before the land goes to the wider market can ensure a smooth sales process for all parties.
Preparing the Contract Pack
The title of the land should be checked and considered prior to marketing. Farms often comprise various holdings acquired at different times over long periods. Parcels may be unregistered, and title deeds must be located to evidence ownership.
In addition to locating the physical deeds of the property, you should also consider the following when preparing the sales pack:
- remember to locate and declare details of wayleave agreements and telephone/electric/gas lines which affect the land.
- the early collation and preparation of a comprehensive sales pack containing title information, replies to standard agricultural farm land enquiries, draft contract/transfer, planning information, utilities information, and searches will help to identify issues which need to be addressed pre-marketing and speed up the sales process when a buyer is found.
- on a sale of part, accurate survey plans will be required, and issues covering the future operation of the sold and retained land will be considered, e.g. turnkey maintenance, utility supplies, access and drainage etc.
- disclose permissive and public rights of way in the sales pack from the start.
Accountancy, tax and structuring advice should be taken to identify tax liabilities and plan for them.
Agricultural Ties
Agricultural Occupancy Conditions, also known as “agricultural ties”, are planning conditions attaching to a property which usually limit the occupation of an agricultural dwelling to a person solely/mainly or last employed in the locality in agriculture. They were imposed to ensure rural workers could afford property and to allow the building of houses on agricultural land, which would not otherwise have been permitted.
They can be difficult to remove, so they can cause difficulties when selling a property solely for residential use. The owner will apply for a “certificate of lawfulness” of existing use if the property has been used in breach of the condition for more than ten years. Alternatively, an application could be made to the Local Authority to lift the condition if it can be shown that there is no need for the dwelling to be occupied by someone working in agriculture in the area, and there have, over an agreed period, been no prospective purchasers.
Alternatively, extending an agricultural tie to allow equestrian users may be possible. These issues would need to be dealt with well before any sale.
Rights & Protections For Retained Land
If you are only selling off part of a larger estate, you may want to impose certain obligations on the buyer to do or not to do certain things on the land sold, and you may want to reserve rights through that land for your retained land for access and utilities etc. If you have any services that run underneath the land sold, you will want to be sure you can still use these and gain access to them if necessary.
In addition, you may want to impose covenants to restrict what kind of developments or change of use can take place on the property. Specialist legal valuation and surveying advice should be obtained to ensure appropriate protections are put in place which do not materially affect marketability.
Future Uplift in Value
When selling land with future development potential at a price which does not reflect that value, it is important to consider whether it is appropriate to impose an overage or clawback, obliging future owners to share future increases in value with the seller in specified circumstances. By imposing an overage, a seller can receive further payments for their land when they have sold it to a buyer, if certain trigger events occur.
The trigger event could be, for example, a grant of planning consent for an alternative use. Where land is sold for agricultural use, and there is the potential for future development of that land (subject to obtaining planning consent), it will be important to consider how to protect the seller’s interest in that potential uplift in value, and the mechanisms needed to prevent a buyer avoiding their obligations.
It will be important to instruct a land agent or surveyor who can assist in negotiating the terms of overage, liaise with the parties’ solicitors and provide input into the drafting provisions.
Overage is a complex area, so specialist advice should be sought if you are considering including overage protection as part of a sale. Overage protection requires bespoke drafting to the particular circumstances of the transaction.
Taking the Next Steps
Selling farmland can be complicated and will always involve a range of issues to consider and address. Starting that process early, gathering all relevant information and obtaining the necessary professional advice and input on legal, tax and surveying/valuation issues is critical.
We are here to help you through the process. Our specialist solicitors will help the process run smoothly and will advise and guide you through.