Sunday, November 19, 2017

‘Good time to buy’ for tenant farmers

May 31, 2017 by  
Filed under Property

A doubling in tenant farmers being given the opportunity to buy their farms across the Midlands could herald the start of a more general trend across the country, says AMC’s regional agricultural manager Andrew Connah. 

A perception among some landowners that land values have plateaued – combined with rental incomes lagging behind the historical rise in land values – leaves a number of landlords yielding a poor return on the capital now invested in tenanted holdings, he explains.

“The situation is perhaps more advanced in my region as county councils in North Wales and in the West Midlands have been selling off holdings and some significant estates are also being broken up in the East Midlands,” says Mr Connah.

Favourable discount

“Any landlords facing large capital expenditure or inheritance tax bills could therefore be tempted to cash in their land. This would give sitting tenants the opportunity to negotiate a favourable discount on the purchase price at a time when interest rates remain exceptionally low.”

Independent land agent Philip Meade, who is also an advisor for the Tenant Farmers Association, says the discount a tenant should be able to secure below vacant possession value depends on a number of factors – including age, tenancy type and likelihood of succession.

He says: “A large estate with no wish to sell is likely to offer less discount than an individual private landlord who has pressing needs for the capital. A farm subject to a lifetime tenancy can typically make 60-70% of the vacant possession value on the open market.

“Conversely, if the farm is particularly attractive or the tenant is elderly and unlikely to have a successor, then the sale price could be 80% or more of the vacant possession value.”

Range of options 

With continuing low interest rates, tenants looking to buy should have a range of finance options. Those borrowing large sums often want to settle the debt as quickly as they can, but some may wish to borrow over a longer period to minimise monthly commitments.

Mr Connah says: “The best of both worlds could be to take on a longer term loan while ensuring the flexibility is retained to repay early. For example, borrowing £750,000 at current interest rates and repaying over 30 years rather than 20 would reduce repayments by around £1,000 per month.”

Taking out a loan on an interest-only basis would reduce monthly charges by around £2,000, when compared with a 20-year repayment loan, adds Mr Connah.

But tenants considering purchasing their farm should be aware of potential pitfalls around taxation, clawbacks and mineral or sporting rights. “They should always seek guidance from a suitably qualified accountant and solicitor with agricultural expertise before going ahead.”

 

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