19th August 2019

The Joys of Developing Farmland.

Oakwood is an adviser to landowners and farmers seeking to secure planning consent for their land, often on quite a large scale.  This is allied to pressure from Government to build more houses and, of course, to add significant value to farmland.  When we are asked to review a site, there are several preliminary steps that we must take in order to give proper advice.

PLANNING STATUS

We need to know whether the Local Plan has identified the land for development.  In many cases we see land that is identified as Green Belt or Open Countryside.  However, this is not a barrier to further considering development; we need to also understand whether or not the local authority has a sufficient five-year housing land supply. In simple terms each council must ensure an adequate flow of land for development in order to meet local demand.  If they cannot do so then there may be opportunities for “windfall sites”.

OWNERSHIP

Many rural landowners hold their ownership in a variety of structures.  At the simplest it may be held by an individual, but may involve several family members, trusts or limited companies.  One of our early tasks will be to identify the different owners; hopefully all land will be registered at the Land Registry as this will make it much clearer.  We then need to ensure that all owners have the same aims and ambitions as regards development.  Where a farm or estate has different ownerships, we may need to consider agreements between the different parties – using collaboration or equalization agreements.

All owners will need to enter agreements with ourselves and any promoters or developers.

We will also try to find out if any if the land is subject to restrictions on development or clawback provisions.

BOUNDARIES AND ACCESS

Having established the nature of the ownership, we will then review boundaries of the land and make sure that there are no anomalies (such as third party trespass) and that there is good access onto the public highway.  On some sites there may be a need to join with neighbouring landowners so as to provide access suitable for residential development.

We also need to consider how services, such as water, electricity, and gas will reach the site; again, we may need to consider if any third party land is required.

It is always worth doing this research at an early stage so as to identify any “deal breakers”; if any third party land is needed it’s usually easier to negotiate before the planning process is set in motion.  Landowners are less likely to be held to ransom.

TAXATION

Bringing forward land for development gives rise to a variety of taxation issues and we always recommend the involvement of an accountant experienced in such matters as this is a very specialist area.  The main tax is Capital Gains Tax (CGT) which is payable on the increased value of the land, less certain costs.  Whilst CGT cannot be avoided, landowners may wish to review their ownership structure to make best use of allowances.

In most cases the land will need to be opted for VAT.  This is over and above and landowner’s regular VAT registration and relates to the land specifically.  This enables VAT to be recovered on the planning and promotion costs.

Landowners also need to consider the possibility of Inheritance Tax(IHT), which may be due should they die before the land is sold.  Depending on the stage of the planning process, the value of the land may be significantly increased.  There is not generally IHT on farmland, but there is IHT on development land.  This can catch landowners and their families out.

Allied to IHT, there is a need for a robust will to cover what happens to the land in the event of the landowner’s death.

OPTION OR PROMOTION

In many cases landowners are asset rich and cash poor.  The costs of promoting a site can be significant, often running to several hundreds of thousand of pounds.  Besides the cash issue, funding a promotion can be risky.  There is no guarantee of success.

Landowners therefore often enter agreements with either promoters or developers who will fund the planning process for a share of the profits.

Option agreements – these are agreements between landowners and developers.  The developer will secure planning consent within an agreed period and, assuming they are successful, will purchase the land on a pre-agreed basis.  If agreement cannot be reached, then the matter is usually referred to an Independent Expert to make a determination.

Promotion agreements – these are agreements between landowners and promoters.  As for a developer, the promoter will secure planning consent within an agreed period.  However, once consent is granted, they will sell the land on the open market and share the sales proceeds on a pre-agreed basis.

As well as funding the planning process, the developer or promoter will use their expertise to secure the consent, engaging a full complement of advisers, covering issues such as highways, ecology/environment and local politics. They will also ensure that any consent obtained is commercially viable.  Some land may be suitable for industrial development whilst other land is best for residential development. There is a balance as to what the market requires and what the planners will allow.

HOW CAN OAKWOOD ASSIST?

With over thirty years in giving sound property advice, we can represent landowners and farmers, taking care of the issues mentioned above.  We will package a site for a promoter or developer and seek offers from those who are able to deal with specific schemes.  Developers and promoters work to different risk profiles and have areas of specialism, so we aim to match the parties.  There are many points to be negotiated, and quirks that we are aware of to ensure a sound deal.  We are skilled in preparing detailed Heads of Terms that the parties’ solicitors will then use to prepare formal documentation.  There must be a watertight contract in place.

We are happy to review any site without obligation or charge and set out how we can help.

This work does fall under anti-money laundering rules so a part of our instructions we are legally required to identify all owners and do the usual money laundering checks.

Oakwood is an adviser to landowners and farmers seeking to secure planning consent for their land, often on quite a large scale.  This is allied to pressure from Government to build more houses and, of course, to add significant value to farmland.  When we are asked to review a site, there are several preliminary steps that we must take in order to give proper advice.

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