Tenant farmers being given chance to buy their farms

Posted by LindaStenner on May 14, 2018

Tenant farmers being given chance to buy their farms

May 14, 2018 at 5:11 PM

With uncertainty over agricultural land prices, concerns over threatened changes in tax reliefs such as Agricultural Property Relief and the general realisation that agricultural property does not always give the best return as investment, a number of landlords are seeking to sell their farms.

Land agents at Davis Meade Property Consultants have seen a significant increase in the number of instructions they are receiving from farm tenants being given the opportunity to either buy their farms or take a lump sum for surrendering their tenancy to allow the farm to be sold with vacant possession.

“There are a number of things to consider if you are a tenant farmer being put in this position,” said tenancy specialist Philip Meade who is based at the Oswestry office of Davis Meade Property Consultants.

“First and foremost in most people’s minds will be how much they should pay to buy the farm or ask for the surrender.

“Contrary to what some may believe, there is no statutory right for tenants to buy their farm. There are ‘rule of thumb’ formulas that give an indication of what the ‘usual’ sort of discount you can expect might be (20-40 per cent) or the sort of surrender payment you might ask for (20-30 per cent) of vacant possession value, but these are so general that they are often of little assistance,” Philip said.

“Ultimately the deal a tenant will arrive at with his or her landlord will depend on a number of factors such as the age of the tenant, the terms of the tenancy - lifetime or farm business tenancy etc.  -  and why the landlord is seeking to do the deal.

“Other deals can involve part of the farm in lieu of a surrender payment such as the farmhouse or some land.”

He recommends that tenants being given the chance to buy the farm should consider how any tenant’s improvements are accounted for as they shouldn’t have to pay for them twice as well as how the entitlements are treated, as they usually belong to the tenant.

If money is to be borrowed to buy the farm, from a bank for example, then the lender will usually want to ensure that the property has no issues such as asbestos or Radon, so these tests and reports will need to be done.

“Tax will also be an issue,” Philip said.  “Any surrender payment is likely to be subject to Capital Gains Tax but if a notice to quit has been served, some of the surrender payment may be end of tenancy compensation, which may not attract CGT.

“Similarly, consideration should be given to tax if purchasing subject to tenancy is going to be partly funded by then selling some of the land, as any gains realised in reselling the land -  which would then be at open market value - will probably be taxable.

“In summary, there are no hard and fast rules in such negotiations and no statutory formulas. It will usually end up as a ‘horse deal’ and in addition to using a professional familiar with such negotiations, it is sensible to take advice from a tax advisor on the tax issues that are likely to arise and use a solicitor used to doing similar conveyances,” Philip added.

For further advice contact Philip Meade at the Oswestry office of Davis Meade Property Consultants telephone 01691 659658 email philipmeade@dmpcuuk.com

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