Unlocking equity in agricultural land

02/11/2009

By Sue Lister, Associate in Commercial Property & Development.

During the recession land values have remained stable and healthy, but farming businesses are still subject to volatile global markets affecting costs and profitability.

Entrepreneurial farmers seeking to spread the risk by diversifying into commercial projects such as conversion of farm buildings into holiday lets or business units, or turning some land over to leisure pursuits or environmental schemes, face barriers in the form of stricter funding criteria and a complex planning system. They should also have an eye on tax implications.

Address the issues

Unlocking valuable equity in the land to finance often serious levels of capital investment needs careful scrutiny and probably a cost-benefit analysis. Lenders are looking not only for the farmer's ability to service the debt but for good security in the legal title. The title should first be checked to ensure that there are no restrictions on development, or, for example, inadequate access or lack of rights to extend use of or connection to utility services. If only part of the land is to be charged for security, it should be able to stand alone with adequate rights. Such problems are not necessarily insurmountable but may take time to address.

Grants

Grants may be available from e.g. the Rural Development Programme for England for agri-environmental schemes, the Forestry Commission for woodland grants, or regional bodies such as the South East Development Agency (SEEDA), who operate through leader or local action groups and can lend up to £50,000. Details of grants can be obtained from www.defra.gov.uk/rural/rdpe/progdoc.htm and www.defra.gov.uk/rural/rdpe/leader.htm.

Planning

The planning system is still complex and time consuming despite attempts to reform it and local authorities are often unwilling to permit even minor development in rural areas. A good planning consultant will steer clients through the system.

Use your advisers

We also advise clients to discuss projects with their accountant and tax advisers - HM Revenue & Customs are taking a closer look at projects that claim agricultural or business property tax relief or VAT exemptions. Clearly nothing should be attempted without first seeking legal, tax and planning advice.