In a bid to release equity from their agricultural estates, many farmers begin to consider whether selling their land is the most profitable option available to them.
As UK agriculture becomes increasingly diversified, and sometimes challenging, there may be areas of land on the edge of settlements which have lost their value for farming, but are extremely attractive to prospective developers for residential development.
However, farmers looking to sell their land should not just rush ahead; there are several options available and careful consideration is needed in order to realise the land’s true value.
Ultimately, the uplift in land value from agricultural to residential value comes once outline planning consent for residential development of the land has been secured.
However, there are a number of ways of securing the consent that will individually affect the overall price paid to the landowners in the long run.
Whilst some agricultural landowners may wish to put together and finance a planning application by themselves, this can be an expensive, time-consuming and frustrating process.
In most instances, without external assistance, landowners will hit against local planning policy resistance that can discourage them from the outset.
This is because most edge-of-settlement greenfield sites are in the open countryside and the council’s Local Plans will dictate that they should remain so – officers and councillors often prefer to make decisions strictly in accordance with these documents.
However, teaming up with a planning consultant, developer or land promoter will ensure that landowners have access to experts who have a proper understanding of the planning system and an appreciation of when a council’s Local Plan should be given weight and when it should be put aside in favour of a more pressing housing need in that area.
Whilst involving third parties is a necessary step in maximising the chances of securing planning consent, there are further options available to the landowner.
Should they go down the route of an Option Agreement with a house-builder, a Promotion Agreement with a developer or land promoter, or should they self-fund and employ the expert team themselves directly?
An Option Agreement is a contract between the two parties which essentially allows the housebuilder first right of refusal to buy the land, if planning consent is secured.
This exclusivity has its pros and cons however, and, whilst the farmer will always get the lion‘s share of the land sale value, the developer will often push down the price once permission is granted as they know they effectively have no competition.
However, with this option, there is no need market the site and landowners will often get their money quickly.
A Promotion Agreement might represent a potentially more profitable option for the landowner, as in this instance, both the promoter and the landowner want to achieve the best price for the land from the bidding house-builders.
This will then be split on a percentage basis – again, with the landowner getting the lion’s share.
However, if self-funding is an option available to the landowner, then this will certainly represent the most profitable option, as the landowner will keep all of the land value (less planning application costs and agent/legal fees).
With this potential reward comes risk – if planning consent is refused, as well as any subsequent appeals, then the landowner will have lost a significant amount of money on the consultants’ fees and technical reports needed to support the planning application. In the instances of Option or Promotion Agreements, this risk is taken on by the developers.
The common theme of all of the above-mentioned options is that early consultation with a planning consultant as to the prospects of securing residential development on the site, is essential. In most instances, this can be achieved relatively quickly and at a minimal cost.
Once a landowner has decided that they wish to sell a portion of land, it is important to make sure that suitable preparations have been made to allow the process to run smoothly.
For example, if there is a long-term tenant farmer resident on a part of the land earmarked for sale, lease negotiations must be finalised early on in the process to ensure the developer can buy with vacant possession..
Likewise, it is often commonplace for farmers to have telecoms apparatus on their land. If the land they occupy is earmarked for sale, starting conversations with operators about relocating the equipment, either on a temporary or permanent basis, is a shrewd move and will help prevent against unexpected hold-ups.
It may also be the case that a potential housing site has visual impact issues that could be mitigated through some early tree planting during the correct season.
Equally, if there are particular ecological habitats on or near the site, it may be prudent to instruct species surveys during the correct seasonal survey window in order to ensure there are no further delays to the planning application process.
Making the decision to sell part of an agricultural estate that has been in the family for generations is sometimes difficult and can be made even worse if the true value of the land is not unlocked.
However, by carefully choosing the right option for sale and enlisting the help of external experts right from the outset, farmers can ensure that the process runs smoothly and the right price is achieved.