Checklist: What to consider when selling your farmland

After a tough 2015 for farmgate prices, some farmers may be considering selling all or part of their holding, writes Charlie Evans, partner at Strutt & Parker.

With spring and the most busy time for the farmland market around the corner, now is the time to focus your thoughts.

Potentially this is a huge decision, with far reaching consequences for you and your family, so it is important to be properly prepared to get the best possible price.

See also: Legal considerations when a farm partnership ends

After all, you can only sell your farm once.

1. Pick your team

Any land or farm sale will require a team effort between you, your agent, the solicitor and the accountant. When interviewing agents consider;

• Do I want an agent with local, national or international reach to ensure I get the best price?
• How experienced is the agent – do they have a proven track record of sales?
• Compare costs and commission rates – these will range depending on the value of the property to be sold, but typically 1.5-2% of the property value plus VAT is normal. The costs of a brochure, advertising etc is normally charged in addition.
• Can I work with them? The sale process will have ups and downs, so you need to have confidence you can develop good working relationship.

Equally your solicitor needs to have experience in land transactions.

It is a different game to a straightforward house conveyance.

2. Tax considerations

Taking tax advice at an early stage is crucial.

Typically a farm sale will mean Capital Gains Tax is payable, but there are reliefs to defer payment or minimise the tax bill.

Your accountant will provide in-depth advice on tax planning, but options include;

• Business Asset Roll Over Relief – you may be able to delay paying Capital Gains Tax if you sell some business assets (ie land farmed in-hand) and use all or part of the proceeds to buy new business assets. The payment of Capital Gains Tax is then deferred until the new asset is sold.
• Entrepreneurs Relief – it may be possible to claim Entrepreneurs Relief on sale. This will potentially reduce the tax rate to 10%.

Be aware of future tax planning. If you are selling all of your land, you may need to change your inheritance tax plans as the ability to pass the asset to the next generation, tax free, will disappear. 

It is important that a tax expert guides you in these specialist areas.

3. Preparation

The best sales allow time for preparation.

Solicitors should be instructed at the same time as the agent to ensure that the title is registered, boundaries are correct, pre-contract enquiries are answered and that a full legal pack of information is prepared alongside the brochure. 

Time spent preparing before the property is launched will ensure that any “warts” are identified prior to an offer being made, so avoiding the opportunity for buyers to renegotiate.

Common issues that crop up include; historic covenants (restrictions on how the land is used), chancel repair liabilities (a medieval liability obliging a landowner to pay for all or some of the repair costs for a church either on their land or nearby), public or private rights of way, and agricultural, business or residential protected tenancies.

Almost everything can be overcome, but it is so much easier to identify issues at an early stage.

4. Maximising value

Consider if there is any potential for development on land your want to sell. If there is, there are options, which allow you to benefit from it such as an “overage clause” (which allows the seller to “claw back” some of the uplift in value should the new owner sell the land for development), or a restrictive covenant (see “Preparation”).

If you think you have some potential for development, ask your agent for a site assessment.

Also look at opportunities for renewable energy, selling small areas of land for a premium and other ways to extract maximum value.

Your agent should advise you.

5. Sale of whole or part

Consider whether to sell the whole farm or a part of it.

Your agent will advise you but consideration needs to be given to viability of remaining business, possible loss of marriage value, tax planning and “sellability” of the property.

This depends on the type of property you have, where it is and who might be in the market as potential buyers.

6. Method of sale

Farm sales are most commonly carried out by private treaty.

This gives the seller the greatest degree of control and flexibility to choose the timing and the best way to conclude the sale.

Auction sales are also common.

Their main advantage is that as soon as the hammer falls, the sale is legally binding so it removes potential for the buyer to change their mind having made an offer.

The downside is that they rely on the strength of buyers in the room at the time and requires buyers to invest in legal fees before bidding.

Many are reluctant to make such an investment with no guarantee of success in the auction. 

Scotland has a different system to England and Wales, the main difference being around the procedures.

Once a buyer has identified your property, they can proceed by private negotiation with you, or if there are other interested parties, their solicitor will note their interest and tell them about any closing date for offers.

At the closing date, they must submit a “blind” sealed bid.

There is no second chance to bid. If you choose to accept, the legal due diligence begins.

Formal letters, forming part of the missives (contract), pass between the two sets of solicitors until everything is agreed.

7. Public or private marketing

Many farmers naturally do not like other people knowing details of their sale so lean towards a private offering.

The disadvantage is that without advertising, there is no guarantee that you are selling for the best possible price.

Weighing up the pros and cons of each are therefore important.

8. Lotting

Lotting may be appropriate and is a mechanism for highlighting the value of the component parts of a property.

It also increases competition by attracting buyers who may only be interested in individual lots.

Some properties are not suitable for lotting as they benefit from marriage value.

This is where the sum of the whole is greater than the sum of the component parts.

9. Timing

Timing is crucial. The majority of sales happen in the spring and summer when the land looks at it’s best, although the market is becoming less seasonal.

Some of the most successful sales happen in the early months of the year when there is little on the market.

10. Pricing strategy

Your agent will advise you as it will depend on the decisions made above. There are two main options:

• Set a reasonable guide price to encourage viewings and competing bids. The competition drives up the level of offers to the highest possible price.
• Set a high guide price as a starting point for a negotiation at a lower level.

The most successful sales have always had a guide price set at a reasonable level.

The eventual sale price can be 20-50% above the level of the guide.

11. Creating the best first impression

The key is value for money. It may be some painting, tidying of the yard, cutting hedges, strimming or filling in farm tracks is required to create the best impression of the land.

It is rare that anything more than cosmetic work will give good value for money.

12. Conditions of sale

Consideration needs to be given to other factors which affect the sale. It is vital that any “conditions” are stated upfront.

Consider:

• Do you wish to impose an overage agreement on areas which have potential for development?
• Are you selling a growing crop, machinery or livestock with the farm?
• Do you want to retain the right to hold a machinery sale or store grain for a period after completion?
• Would you like to continue to shoot over the land for the forthcoming season?
• Confidentiality – Would you want to insert a clause into the contract which requires no details of the sale are disclosed?

Finally….

Once you have made your decisions, your agent will prepare a brochure which accurately promotes the farm and highlights the conditions of sale.

How long a sale will take varies hugely.

Typically it will take four to six weeks of marketing, followed by four weeks to exchange contracts, although timescales can be much quicker.

The considerations above are a guide and a good agent will meet with you several times during the decision making process to ensure every detail is discussed and dealt with.