The Longer View

On the morning of the 9th of June, the election result came as a stark reminder that the only thing that we can predict, particularly in the current political climate, is unpredictability. With Brexit negotiations having begun on June 19th, the pressing matter at hand is navigating the UK through negotiations effectively. Whether a minority government is able to do this comes down to how politicised the key negotiation points become. 

We would urge the parties to put aside partisan issues and focus on getting the best deal for the UK. Normal service can resume once that has been achieved. The real estate industry must look for the opportunities that Brexit gives us and with one voice set out how issues affecting real estate, land and infrastructure provision impact UK growth and productivity. 

Alongside this I would like to add that it is our view that whilst the result isn’t going to make the market any more certain or bring any clarity to the government’s position on Brexit negotiations, the climate in which we do business hasn’t materially changed – not in a negative way at least. 

The drop in Sterling against major currencies will continue to attract further overseas investment, as the fundamentals of UK property investment and performance against other asset classes remains strong.

Stamp Duty Land Tax (SDLT) is proving to be increasingly relevant when it comes to purchasing property – particularly when priced over the £937,000 threshold. In some instances, the SDLT levies that were introduced in December 2014 have been described as ‘transactional friction’ – essentially a roadblock that is slowing property sales over the £1million mark. 

However, it is also becoming apparent that many buyers, who are purchasing residential property with agricultural land attached, are unaware of the Stamp Duty concessions to which they may be entitled if their property qualifies for non-residential tariffs – and there are substantial savings to be made. 
To illustrate, we are currently marketing Maundown Farm near Wiveliscombe in Somerset. It comprises a six-bedroom farmhouse, two-bedroom cottage, and farm buildings, together with up to 50 acres of land. With a guide price of £1,200,000, the SDLT would amount to £63,750; however, because the property is being offered with 50 acres of land, it qualifies for mixed SDLT rates, resulting in an overall saving of £14,250 or 22%. 

While Stamp Duty is the purchaser’s responsibility, and in theory not connected to the marketing of a property, we do encourage potential purchasers to consider and assess the classification of a property to avoid paying over the odds. 

Top tips for assessing whether there is an SDLT saving to be made: 
1.) Question – is the property a farmhouse with land, or is it a country house with a relatively small curtilage? Significant acreage is a good indicator that there is an agricultural or commercial application to the property, which in turn could make it eligible for the SDLT mixed use concessions. 

2.) Question – ask your agent if the property is mixed use. While this is sometimes obvious, for example with 50 acres of land or commercial premises on site, it is worth double checking given the savings that could be made. 

3.) Question – ask your solicitor if they think the property constitutes mixed use, and ensure they populate the SDLT forms to correctly represent the nature of the purchase.

When the government first introduced permitted development rights in 2013 many people were amazed. The new rules allowed for the change of use through conversion of an existing agricultural building to a dwelling, subject to a range of conditions and limitations. 

Prior to the changes, gaining consent for such barn conversions often proved time consuming and costly. In contrast the new legislation dramatically simplified the whole process. 

Over the last four years, more guidance on the policy has been issued and many barns have been converted, some of which were little more than a steel frame and roof. This has led to yet more clarification of the rules with particular reference as to what “conversion” means. A recent High Court decision confirmed that a “conversion” of an agricultural building can constitute permitted development, but a “rebuild” cannot. The question is the degree to which a building can be “converted” rather than “rebuilt” in order to change its use from an agricultural building in to a dwelling and this is obviously open to interpretation. 

Legal technicalities aside, what is apparent is that taking advantage of these rules is something farmers should consider. It may be possible to turn a relatively modest building, which could have had little value in the past in to a barn with a right to convert it in to a dwelling which may be worth £150-£200,000 or perhaps more. 

As is often the case, there are a range of conditions and limitations to these rights. However, my advice in the first instance is to investigate the opportunity, otherwise you will never know if it could be of benefit.

Over the past few months, we have seen a significant increase in the number of enquiries from investors looking to purchase operational renewable assets.

This trend is being driven by a lack of new development sites due to a tightening of planning rules and reductions in subsidy rates making new developments less attractive.

With interest rates at an all-time low and with new North American and Asian investors entering the UK market, we are witnessing prices paid for operational sites reaching an all-time high.

Landowners may be surprised by the uplift in value that has been achieved in their site as a result of successfully commissioning the development and obtaining a couple of years of operational data, which both significantly de-risk the investment for a potential purchaser.

Site values are primarily a function of the prevailing and projected income from the development vs the number of operational years left in the planning consent and subsidy accreditation, meaning sites values reach a peak after 1-3 years of operation with values decreasing from then onwards.

Valuations account for the varying risk of an investment by applying a yield factor to the projected income stream with higher yields being applied to higher risk opportunities. Whilst yields can vary significantly between technology types and projects, investors increased knowledge and understanding of renewable technologies has led to the perceived risk of such investments falling and so yields are now at an all-time low.

Those landowners wishing to sell an interest in an operational site will often look to maintain their underlying freehold of the land by transferring the development into a Special Purpose Vehicle (SPV) and then establishing a lease from the landowner to this SPV to coincide with the remaining length of a planning consent or operational life of the installed technology. This SPV can then be sold to preserve the landowner’s freehold title of the site. It may also be possible to establish a ground rent from the SPV and so will maintain a longer term income for the landowner, however this will obviously decrease any sale value.

Any direct power supply arrangements from the development to onsite energy users can also be preserved and maintained as part of the sale process.

Sale processes can often move quickly depending on the scale and underlying nature of the site, with competitive bidding between interested parties the best way to achieve best value.

Carter Jonas has a significant amount of experience in marketing and brokering sites, administering this process on behalf of landowners and in achieving best value for clients.

Please contact the team for a free market appraisal or to discuss your options.