Selling part of a farm while retaining the farmhouse

Are you thinking about selling a portion of a farm while retaining a parcel, perhaps the farmhouse? With agricultural values holding strong versus other property markets you may be considering a sale off as a good option for you. This can be a complex process with numerous legal, financial and indeed personal implications. Before embarking on a sale,  Associate Member Kerry Dovey shares  some considerations.

 

Legal and Practical Issues

Shared Services

When part of the farm is sold, determining the use and maintenance of shared services such as water, electricity, and drainage becomes crucial. The retained farmhouse may rely on these services, which could be impacted by the sale. For example, in the case of a private water supply, you would need to consider who is responsible for the supply and billing together with the upkeep and maintenance of pipes.

Shared Access

If the land being sold requires access over the retained land, how will you feel about vehicles using the main farm track or driving past the farmhouse to gain access to the land or buildings that has been sold off? What was once all your farm and under your control is suddenly a shared property. Whilst you may have a perfectly affable relationship with the buyer, what happens when they subsequently sell to a third party?

 

Sentimental value and family Considerations

Often farms will have been in the same family for many years, with personal names given to individual fields. You should never underestimate the emotional attachment that you may have for the farm. Ask yourself “Can I really sell part of my land and share it ?” If the answer is no, then you may wish to reconsider your plans. This may mean you don’t progress with the sale or indeed, the sale of the whole farm so that you are not “sharing” an asset which was once all yours. Whilst it may be the financial situation means you do not have any choice, it is always worth considering all the options. Engage and involve all family members who will be affected so you can agree if the sale is indeed the right course of action.

 

Impact on farm value

Selling part of the farm may reduce the overall value of the retained property. Consider how the loss of a portion of the farm will affect its market value and the potential for future development.

 

Tax consequences

With any disposal of land, tax implications will arise. These may include Capital Gains Tax, Income Tax, Inheritance, Vat and SDLT;  all will need to be carefully considered. Always consult with a professional accountant to understand the capital gains tax implications. Selling part of the farm could result in a significant tax liability, so it is essential to plan accordingly.

 

Rights and restrictions

Restrictions on use

Consider imposing restrictions on the use of the land or buildings being sold to protect the retained farmhouse’s value and functionality. This could include prohibitions on certain types of development or use that might negatively impact the retained property. Do you only want the farm to be used as agricultural land? How would you feel if some of the buildings were developed into residential accommodation or workshops? Whilst you can have restrictive covenants written into the legal agreements, if you are that concerned over restricting the buyers use, consider whether you should be selling at all.

 

Overage agreements

To protect against future loss of value, consider negotiating an overage agreement. This allows you to receive a payment if the buyer later develops the land or achieves a significant increase in its value. Overage agreements can offer the security a seller seeks. However, they are complex legal agreements and need very careful negotiation to ensure that each party is clear on the terms of the overage.

 

Planning permission

Selling with planning permission can increase the value of the land. Evaluate whether obtaining planning permission before selling could provide a better financial outcome.

 

Final thought

Whilst selling part of a farm is more complex than selling off the whole farm, with measured professional advice from your solicitor, land agent and accountant, you will be able to achieve the sale that works for you. Kerry Dovey at Godwins Solicitors LLP would be happy to guide you through the legal aspects – do get in touch for further guidance.