Without doubt, agricultural land is the most valuable asset farmers have. With ever growing commercial pressures on farmers including subsidy cuts and mounting overheads (due to high energy and fertiliser costs), farmers may look to sell their land to release capital.
With a national shortage of housing, there are increasing opportunities for agricultural landowners to sell their land for residential development. Selling land for continued agricultural use will release capital. However, selling agricultural land with planning permission or the potential for development is likely to realise a much greater return.
In this article, we set out the seven ‘Cs’ that should always be considered when selling agricultural land for development.
1. Convenient Access
Access to potential development sites is a key consideration for developers. Ideally, potential sites will directly abut an adopted highway so that there is an indefeasible access. In the absence of a direct connection to a highway, the potential site may benefit from existing access rights over third party land. Often those rights will be limited. For example, the use may be limited to agricultural vehicles or livestock only and the intensity of use may be limited to a specific number of vehicles per day.
If potential sites lack direct access due to intervening third party land or insufficient existing rights it may be possible, for new rights to be granted for the benefit of the site. Such rights would be granted by the landowners of the intervening land and documented in a deed of easement. Often some form of consideration will need to be paid to the third party landowner. Whilst the consideration may be high, land that has the benefit of adequate access is much more attractive to developers and may lead to a higher financial return.
2. Comprehensive Utilities
As with access, the availability of utilities such as mains water supplies, drainage, gas, electricity and telecoms is an important factor when considering the suitability of potential sites for development.
The land may have existing utilities available but these may not be sufficient to serve a development. Therefore, it is important to consider the proximity of the mains supplies and how easily new connections could be made to them. As with access, any new utilities needed may have to be installed across third party land and again a deed of easement would need to be entered into with the intervening landowner to grant the necessary rights to install, use and repair the utilities.
3. Current Rights
Agricultural land is often subject to rights in favour of third parties whether it be third party rights of access, wayleaves for utilities or public rights of way.
Whilst these have the potential to make the development of land more difficult there are often opportunities to enter into new agreements with the beneficiaries of such rights to divert routes of access or relocate utilities.
Also, agricultural land is not always farmed in-hand and may be subject to grazing agreements, farm business tenancies or other legal arrangements. A developer is likely to want vacant possession of the land and is unlikely to want to buy subject to these arrangements. Farmers should seek legal advice to determine whether vacant possession of the land can be obtained so that development can commence.
4. Covenants and Overage
Restrictive covenants preventing the use of the land for development may have been imposed on the land historically. Whilst the existence of restrictive covenants can be a conundrum there are a number of ways to deal with them. For example, it is possible for the covenants to be released with the consent of the owner of the benefitting land or for indemnity insurance to be put in place to provide financial protection against enforcement.
Overage agreements entitle former landowners to share in any uplift in the value of land resulting from the grant of planning permission for development. Farmers will need to consider whether any such agreement had been entered into when they acquired the land, and if so whether the agreement is still enforceable. If it is enforceable an overage payment may need to be made to the previous owner once planning permission is obtained for development. Farmers may also wish to sell their land subject to overage.
5. Conditional contracts and other types of sale agreement
There are a number of different ways of structuring sales of agricultural land for development and it is important for farmers to seek legal advice at an early stage as to the most appropriate type to enter into as there are pros and cons to each. Briefly, they include –
Conditional contracts – this is a contract for the sale of the land which makes completion conditional on a certain event occurring. In the case of land sold for development the conditionality is often the grant of planning permission for the development in question.
Option agreements – this is an agreement for a developer to purchase land during a set period if the developer obtains planning permission for development.
Promotion agreements – this type of agreement is usually entered into with a developer or land promoter who agrees to apply for planning permission for development of the landowner’s property and then market the land for sale once planning permission has been obtained.
6. Careful tax planning
There is the potential for the value of agricultural land with development potential to far exceed the value of land that has only an agricultural use.
Farmers who consider selling their land, whether for agricultural use or for development, are advised to seek specific tax advice from reputable advisors at an early stage to ensure that the potential tax implications are factored into their decision making and so that the availability of tax reliefs to limit the tax liabilities can be explored.
7. Correct advice
If you are considering selling or buying agricultural land for development (or otherwise) it is important to get the right advice from the outset. Thomson Snell & Passmore is fortunate to have deep agricultural property and development expertise to offer our clients. For further information, please contact a member of our expert team email@example.com.