Farmers cash in on future land values

Farmers and landowners are cashing in on an increasingly popular trend to safeguard the long-term investment potential of their back gardens, fields and agricultural land.

Over the last three months, one in every three land sales in the South West which was handled by Withy King Solicitors, was sold with overage – or 'claw-back' – provisions in place. These provisions ensure sellers will profit from any increase in the value of the land should planning permission for development or change of use be granted to the buyer at any time in the future.

"With the complete overhaul of the Common Agricultural Policy and the vastly simplified single farm payments, we are seeing more interest in agricultural land than ever before, particularly from developers and investors who recognise its future potential for a wide range of non-agricultural uses," explained Angus Williams, an agricultural specialist in the commercial property team at Withy King Solicitors. "This has led farmers and landowners to demand a share of any future increase in the land's value which results from a development or change of use.

"We only ever used to see overage provisions on the sale of land close to villages, towns and cities," said Angus. "Increasingly, they are being applied to all land – even those parcels of land which are miles from any development and are extremely unlikely to receive planning permission for anything other than agricultural use."

However, despite the increasingly popular trend towards overage provisions, Angus Williams urges land owners to think carefully about all the options available to them before they sell. While every option has its own complexities and implications, the main ones include:

· Retain the land in the hope that it will be developed in the future.

· If development is only a remote possibility i.e. more than 10 to 15 years away, consider imposing overage provisions. This means the land will be sold subject to an obligation on the purchaser (including those to whom they may sell) to pay a set percentage of any increase in value which can be attributed to planning permission being granted for a development or change of use

· If the land is likely to be developed in the next 10 years, it may be better to sell an Option on that land. The Option creates an obligation on the seller to sell the land, if requested to do so, at a set price which is usually the open market value at the point in time when the Option is exercised.

· If development is almost certain, then developers will be knocking on the landowner's door to try and secure a purchase. Without planning permission in the bag, development can never be a dead certainty and it may be wise to enter into a conditional contract where the price will be dependent on the developer obtaining an implementable planning permission