6 September 1996

Contract deals offer solution for flexibility

CURRENT farmland market conditions are encouraging the emergence of sale and contract-back deals for farmers looking to sell in specific circumstances.

Through the deal, the farmer sells his unit and continues farming it on a contract basis for a guaranteed term of at least five years.

Rupert Montefiore of Savills says: "This type of deal will be possible for around three years and then the opportunity will close."

The immediate benefits to the vendor include locking in to the currently high land prices and releasing capital while retaining the shape of the farming business.

At the end of the term, the contract could be renewed, the farming business restructured or another farm purchased when land values could have fallen or at least stabilised.

"These deals are suited to someone wanting to retire within the next 10 years or a young farmer looking to expand but lacking the capital to buy another unit," says Mr Montefiore.

And most suitable purchasers are tax and investment driven he says seeking reinvestment relief, avoiding CGT on rollover funds or using the 100% inheritance tax relief available after owning agricultural land for two years.

Recently having completed a deal for a client with a neighbouring farmer as the purchaser, he says the price paid for the land reflected the full open market value with the contractor paying a prior charge equivalent to a 5% yield.n