29 March 2002

Sales and leasebacks could boost returns

By Catherine Paice

and Andrew Shirley

NEW generation of sale and leaseback arrangements could enable farmers to take capital out of their holding, keep farming it and still retain a share of any future development value.

Despite having to pay rent, producers can significantly boost their returns by entering into a partnership with an investor in agricultural land, according to Douglas Mackellar of FPDSavills Oxford office.

As the supply of traditional let land dwindles, opportunities to sell and lease back are on the increase, he says. Traditional landowning institutions such as Oxbridge Colleges, the Church Commissioners and charitable trusts are being joined by a new breed of successful, high net worth individuals looking to invest for capital growth to benefit the next generation.

"These investors are prepared to accept a low initial yield in return for long-term capital growth, criteria which agricultural land can meet," believes Mr Mackellar. "Where there is hope value through development or minerals, a sale and leaseback arrangement can provide an appropriate investment vehicle of benefit to both investor and farmer," he adds.

Using a loss-making, 200-acre farm on the edge of a growing urban conurbation as an example, Mr Mackellars figures suggest the owner of the property could technically be better off to the tune of over £27,000 per annum (tax issues aside) even after paying rent on the land.

In a sale and leaseback arrangement that splits any future development uplift equally between the investor and the farmer, the vendor receives perhaps £400,000 to invest elsewhere in whichever way he chooses.

Thirty years later, 100 acres of the farm gains planning permission for residential and business uses. It is sold for, say, £52.5m, half of which is due to the farmer.

In practice, says Mr Mackellar, there would be tax issues and extra costs associated with gaining planning permission.

John Amos, of fledgling Salopian firm John Amos & Co, also agrees that sale and leaseback is an opportunity people who need some capital but dont want to give up farming should consider carefully.

Mr Amos, who started his own business last October after 25 years at rural consultant Brightwells, is privately marketing a 360-acre extensive stock farm in the county whose owner wants to stay on after the sale and pay rent for a maximum of 12 years before retiring.

He says he has received interest from a number of potential investors who, disappointed with recent returns form more conventional investments, see land as a good long-term bet. Because of the lack of immediate vacant possession he reckons the farm will sell at a 20-25% discount. &#42

Sale and leasebacks could be on the rise, reckons Douglas Mackellar of FPDSavills.