Legislative changes affecting socio-economics in the South West
1 May 2008
The past decade has seen the implementation of a number of legislative changes which have significantly altered socio-economics within the English countryside. Here Robin Beckley at south-west law firm Rickerbys, looks at the challenges faced by solicitors practicing in this field and highlights the importance of understanding the culture of the countryside and the changing business dynamics of this important sector.
One of the advantages (or disadvantages) of having been in practice for the same geographic and work type area for the last 24 years has been the opportunity to witness change.
Nowhere has this been more true than agricultural rural sector – the practitioner has had to deal with many regulatory changes dealing with the introduction of milk quota (still with us but of decreasing importance and value) the introduction and demise of the IACS subsidy system, its replacement by the single farm payment (SFP) system as well as various forms of agri-environmental subsidies. By contrast the Agricultural Tenancies Act 1995 has (apart from some fine tuning with the TRIG reforms in 2005) been the only major statutory change.
These legislative and regulatory changes then need to be viewed against a changing socio-economic backdrop which has seen smaller farms become steadily more unprofitable. It is now quite common for the next generation to decide not to follow its parents on the family farm because of lifestyle changes or if the farm itself is of a size which can no longer support a family in the manner it did twenty or thirty years ago.
I have quite frequently dealt with sale of farms with separate sales of farmhouse and buildings for development with productive land left to be acquired by an estate or larger commercial farm. What was once a busy farmyard all too often comprising barn conversions and a very neat farmhouse – occupied by incomers to the countryside, some of whom bring their urban attitudes and expectations with them (and quite often occupied on a weekend only or less frequent basis).
There is nothing intrinsically bad in this – change is inevitable and redundant farm buildings (often totally unsuitable for a house with modern machinery) would otherwise be abandoned or demolished, if not converted to residential or other non-agricultural purposes.
Money made in commerce or the city is often invested to good effect in the countryside. This sees the revitalisation of several estates - the farming operations are run on a more commercial basis, the housing stock is upgraded and sporting potential maximised. Recent increases in commodity prices (farmland is one of the few areas of property where prices have increased and are likely to remain so) has meant that arable land is becoming an attractive institutional investment again.
However, it should be borne in mind that the profit made from farming operations is all too often the amount received in the shape of entitlement to SFP, agri-environmental subsidies or stewardship schemes. It will be interesting to see if that remains the pattern if cereal prices continue to be competitive this year as next. It seems that livestock farmers will continue to find times difficult. Although DEFRA and the government’s attitudes to farming and the traditional rural way of life, particularly the handling of Foot and Mouth Disease and introduction of entitlement to SFP has attracted a lot of adverse comment, the financial benefits arising from FMD compensation and entitlement cannot be overlooked.
How does this volume of change affect the work of the practitioner dealing with rural clients?
For those who deal with work of this nature regularly, the biggest challenge is to keep up to date with the volume of change particularly regarding regulations concerning entitlement to SFP and agri-environmental schemes. A lot of uncertainty that dogged farmland transactions pending the introduction of the entitlement to SFP scheme has since dissipated. Sale and purchase of entitlements with or without farmland is by comparison now a relatively straightforward issue particularly against a backdrop of increased land prices where much of the value of the transaction is now focused on the underlying asset rather than the subsidy (which itself has a relatively short life until 2013).
Nevertheless, the value attached to entitlements and other subsidies means that more than ever dealing with sale and purchase of farmland is not one to be dabbled in – the danger of buying land subject to informal arrangements which may turn out to be tenancies enjoying security of tenure under the Agricultural Holdings Act 1986 remains (if perhaps less frequently encountered). All too often one comes across solicitors unfamiliar with the subsidy regime, often asking irrelevant questions about the now expired IACS system or (having been advised at the outset of the transaction entitlement to SFP are available) asking before exchange if there is “some form of subsidy attached to the land”.
These difficulties could be avoided if practitioners did not take on work with which they are not familiar or qualified to deal with or engaged the appropriate specialist assistance. It is common practice and cost effective to share work on acquisition of farmland and entitlements and their value with the client’s surveyor or land agent who will very often be more familiar with the issues and deal on a day to day basis with the complex Ministry forms.
The nature of the client base is also changing. As noted earlier, increased cereal prices (and the possibility of use of land for bio fuels), means that land is becoming more attractive to institutional purchasers. With the movement away from the family farm and farm sizes increasing, the client base has become more commercially minded and practitioners will need to respond to the demands of more sophisticated clients who will come to transactions with high expectations of a prompt turnaround and concise commercial advice. The bigger players (and niche firms) have already of course been there for some time but the more traditional firms may find it hard to adapt to a changed client market place, particularly if they themselves find it difficult to recruit quality staff.
This more commercial approach is reflected in a way that some of the larger estates are run – instead of the traditional structure of a resident agent reporting to trustees, some of the larger estates now have a chief executive, finance and property directors bringing expertise from other areas to make sure that the estate’s assets ‘work’ if not ‘sweat’.
It would seem to be exciting times for those involved in working these areas – there are relatively few firms who offer true expertise in depth and the prospect of increasing land prices and pressure on land near the urban fringe being sold for development against an ever changing regulatory background means there is plenty of demanding work for those who are prepared to keep pace of the market place and meet the challenges in poses.
Robin Beckley is a partner and head of agriculture and estates at Rickerbys