Selling Off Farmland: Factors To Consider Before Committing
Posted on 24th July 2020
As many people will know, there seems to have been an increased demand for buying rural land over the past years. The main reason for this seems to be to develop profitable estates of new homes or to expand a budding farming business. Our Chloe Cardwell, a solicitor in MG Legal’s team of Property Conveyancing Solicitors, discusses the things to consider before selling off part, or all of, your farmland.
If you are considering selling off part of your farmland – maybe you need the extra money and the land is just sitting there unused, or maybe you do not want the associated hard work and effort that comes with taking care of all of your farmland anymore – there are some things to consider before committing to any sale. Our Property Conveyancing Solicitors discuss these things and explain the process of selling farmland.
Before committing to the sale of even part of your farmland, the key is to ensure that you have thoroughly considered the proposal being made to you, as well as the logistics of any sale.
Like with any property or land purchase, the value of the land that you are selling will depend on where the land is located, the quality of the land, and what the intended use of the land is. If the land is intended to build houses, the prospective purchaser will probably need to know beforehand whether or not they would get the planning permission to build at least some houses. However, if the new buyer intends to use the land for farming, they may not even need to consider whether it could be used for anything else in the future.
Another aspect of any sale that our expert team of Property Conveyancing Solicitors would be able to advise you on is whether there is any benefit to adding restrictive covenants to the land transfer. For example, planning or development restrictions, which your buyer will need to adhere to. Chloe would point out that any buyer would need to approve these, too; they cannot be added into a contract without the buyer’s solicitor’s permission. You may be wondering why you would want to add any additional covenants in: well, if you are selling off part of your land, which is – for example – still attached to the rest of the land that you own, you may not want massive great blocks of flats being built on it, spoiling your view.
What financial considerations are there when selling a piece of land?
If you are looking for advice about financial and tax implications, which our Property Conveyancing Solicitors strongly suggest that you do, you should contact a specialist financial advisor.
However, to name a few financial implications that you need to consider:-
1. Any mortgage – if the land has a mortgage secured against it when you sell, your lender will either need to be repaid in full, or they will need to agree to any sale which reduces the land that they have lent you money against. They may require that you make a full or partial payment before they will agree to any sale.
2. Tax implications – there are a range of tax implications that selling a piece of land could have: income tax, capital gains tax, inheritance tax, VAT and stamp duty land tax. All of the taxes should be considered and planned for before any steps to sell your land are taken. It is also worth checking with your accountant whether or not an option for tax for VAT purposes has been placed upon the land. Option to tax allows a business to choose to charge VAT on the sale or rental of commercial/agricultural property i.e. to make a taxable supply out of what otherwise would be an exempt supply and the Buyer’s must be informed of this from the start of the transaction.
3. Changes to the value of your property – if you are selling off part of your land which is attached to your property, you will need to consider the changes this could have on the value of your land. For example, does the change in the sale price of the rest of the land that you are retaining outweigh the amount that you will actually receive after any sale costs and taxes have been taken into account?
As well as seeking financial advice, you should speak to our expert Property Conveyancing Solicitors prior to agreeing to any sale, to find out how some of the above could affect you.
When you are selling land, you will be required to answer some standard enquiries. These are generally in the form of the CPSE – Commercial Property Standard Enquiries. You can find out more about these, here.
What considerations do you need to have about the future?
One future consideration that you need to have are overage payments. These are essentially payments that will be made to you, as the previous landowner, normally for a set period of time after the land has been sold. They are also known as a ‘clawback’ payment.
The right to receive more money would be triggered by a certain event, such as planning permission being granted for a particular thing, for example, a property development. The reason for this is that the value of the land may increase if planning permission is granted, so you may not want to lose out on the potential revenue for this, especially if the price of your house will decrease after the new properties are built.
Such Overage agreements could include: how long the overage will last, what the event is that triggers the payments, known as the ‘trigger event’, what the parties’ responsibilities and obligations are, what percentage of the increase in value will the landowner receive, and how this payment is worked out and paid.
Sadly, there are many different points to consider about overage payments that our Property Conveyancing Solicitors simply cannot cover them in one article. Instead, to discuss overage payments, contact our expert property solicitors online, here, or email firstname.lastname@example.org, and a member of the team will give you a call back within one working hour to discuss your matter.
How to share rights over the land with the new owners
If you are selling off part of your farmland, you may want to make sure that you get on with the person you are selling to as you might still be required to share certain amenities and boundaries with the buyer. Things that you should consider are:
Do you or the new buyer need any rights over each other’s land? For example, if there is a septic tank on one side that covers both pieces of land, or your septic tank will now be on there land, you may need to access this. You may also want to include rights of access over the land for other reasons. For example, if your drive way currently goes over their land, you definitely still want to be able to use this. If your buyer needs to have a right of access over your land, you could consider including provisions about sharing the costs of maintenance of shared access.
What about boundaries? You could consider including provisions about share maintenance and ownership of any shared boundaries.
Again, there may be more rights and restrictions that you need to consider: contact our expert Property Conveyancing solicitors at your local office to discuss your land sale or purchase.
How to prevent future uses of the land
If you want to sell the land, but you do not fancy having a huge property development on your doorstep in the future, you might want to consider including covenants which restrict the buyer’s future use of the land.
For example, you may not want them to use the land for anything other than cattle grazing, or not to build more than one residential property on the land. Another consideration may be that you do not want your competitor setting up shop so close to you; you may want to restrict the buyer’s ability to keep animals or livestock at the property. Ultimately, it is up to you what terms you want to agree the sale of your land on. However, you should be aware that your buyer will need to agree any terms, too, so you cannot just ‘add them in’ and hope that they do not notice.
When should you consider these points?
It is probably a good idea to at least start considering these points before you decide to consult or instruct our team of Property Conveyancing Solicitors. Whilst you may need more guidance on any one of the above or other points before proceeding, at least if you have an idea of what you might want to do, our team can guide you from them. By considering the above before instructing, you can help to make sure that your instructions to our team are clear, and therefore a clear Head of Terms can be drawn up for your land sale, minimising any delays and helping your land sale to progress as quickly as possible.
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